“Should I do this deal?” It’s one of the most common questions we ask each other in the real estate investing community. Real estate “entrepreneurs” will have a different answer to this question than real estate “investors.” In this episode, Jeff explains the difference between “mundane deals,” and “entrepreneurial deals,” and discusses why as Thoughtful Real Estate Entrepreneurs, we avoid the mundane deals. Jeff discusses the critical question we must ask ourselves as we evaluate each opportunity: “what do I love about this deal?”
Should I do this deal? That is a question that comes up all the time, right in real estate investing. It comes up a lot with my coaching clients. In the deals workshop, it comes up a lot in our Facebook groups where we gather as a community of real estate investors to try to help each other. It’s a common question, Should I do this deal? Well, I would say that I’m always answering that question with a particular question back. And that question is about whether this deal is a mundane deal, or an entrepreneurial deal. And in this episode, I want to talk with you about the difference of mundane deals versus entrepreneurial deals, how we think about those especially as thoughtful real estate entrepreneurs, and how to use that distinction as a guiding light to make investment decisions. So let’s queue up that theme song. jump right in. Welcome to racking up rentals, a show about how regular people, those of us without huge war chest of capital or insider connections, can build lasting wealth acquiring a portfolio of buy and hold real estate. But we don’t just go mainstream looking at what’s on the market and asking banks for loans. Nor are we posting WE BUY HOUSES signs are just looking for, quote, motivated sellers to make lowball offers to. You see, we are people oriented deal makers, we sit down directly with sellers to work out Win Win deals without agents or any other obstacles, and buy properties nobody else even knows are for sale. I’m Jeff from the thoughtful real estate entrepreneur. If you’re the kind of real estate investor who wants long term wealth, not get rich quick gimmicks or pictures of yourself holding fat checks on social media, this show is for you. Join me and quietly become the wealthiest person on your block. Now let’s go rack up a rental portfolio. Hey, thank you for joining me for another episode of racking up rentals. Show Notes for this episode can be found at thoughtful, our E comm slash e 139. Please do us a big favor by hitting that subscribe button or that follow button in your podcast app. It really helps fellow thoughtful real estate entrepreneurs to find this show. Because the platform is know that you are listening onward with today’s episode. And I’ve been really looking forward to this episode because I feel like in many ways, it really nicely weaves together. So many of the other topics that we discuss on this show, and we discuss in this community of thoughtful real estate entrepreneurs. So I’ll touch on several things that we have talked about before, here. And I feel like this idea of mundane deals versus entrepreneurial deals is kind of at the core of so many things that we talked about. So like I mentioned in the intro, you know, this is how a lot of conversations with coaching clients start. They say, Hey, Jeff, I want to tell you all about this deal. Do you think I should do it? Like what do you think of this deal? And I actually tend to answer immediately with one specific question. And that question is this. You told me what do you love about this deal? And when I asked them that question, I’m just asking them to cite, like the one thing that they think is the best thing about the whole deal, right? It could be that they could just say, this is the kind of property that I’ve always dreamed of owning. And it’s in the perfect location. It’s gorgeous. And that’s enough, another answer could be let me show you the cash flow on this property. It’s insane. That’s what I love. The other one says, Oh, my gosh, there’s a huge, unfinished basement, that with 20 grand, we can finish this basement with another bedroom and a big family room, it’s going to add so much value to the property. There’s a million different answers to this question. But when people answer my question back to them, guess what the answer to my question of what do you love about this? Sometimes this? I don’t? I don’t know. I’m not sure there is anything. And that is a problem. It doesn’t really matter what the answer is as long as there is an answer. And so in this episode, I want to sort of break this down a little bit. We’re going to talk about something that actually really connects well to the last episode, in which we talked about beautifully mismanaged properties, right? The answer might be, I see some beautiful mismanagement going on here. And I know how I can fix it and turn this ship around. So one of the very first topics we’ve ever talked about on this show, is the difference between real estate investors and real estate entrepreneurs. This is one of my favorite distinctions to make. And here’s how I see it. Real estate investors tend to gather up the resources they think they need, especially like money and credit. And then they go in search of an investment that they can place their resources into. Whereas by contrast, real estate entrepreneurs almost take the opposite approach. They say, I’m going to go out into the world, and I’m going to find opportunity. And then once I know that I have an opportunity that’s worth doing, then I will assess what resources are needed to take that opportunity down. And then I will go gather those resources, right. So an investor says I have my resources now figure out what to do with them. And entrepreneur says, I’ve come up with something that’s worth doing. Let me figure out how to go get the resources. And it’s no secret that I personally place a higher level of value in those of us who are real estate entrepreneurs who are out, identifying, creating, finding opportunity, and then assembling the resources needed to do them. But investors don’t necessarily have that mentality, they might just be looking to place some money into something that that they kind of feel like, that’s the name of the game. So real estate investors see things differently than real estate entrepreneurs. But here’s an important distinction. In addition to that. Real Estate entrepreneurs want to be able to transform the situation that they’re stepping into, when they buy a property, they don’t just want to buy something, that is what it is, and then have it continue to be what it is they want to have some way of adding value to the scenario, adding value to the property maybe in the literal sense, you know, used to be worth 500, when I bought it now it’s worth 650. It could be adding value in different ways by increasing the net operating income and maybe a commercial setting or multifamily type of setting. But they don’t just want something that’s turnkey, or something that could be made to be average, they want something where they can transform it from what it is when they buy it into what it could be after they perform their magic and their add their entrepreneurship, to things. And ultimately, I find that what we have are two types of deals. There’s mundane deals, and entrepreneurial deals. Now, I choose to call them mundane deals. And maybe that’s just my funny choice of words. But what is a mundane deal? A mundane deal isn’t a bad deal. It isn’t something where you say whoa, you might want to watch out that sounds like a bad idea, or it’s too risky or anything like that. It’s just kind of ho hum, it’s kind of something that somebody might buy, if what they really wanted to do is just park some money, right? And this is more of like the investor mentality like oh, great, I’ve gathered up my $80,000. Because I think that’s gonna be 25% downpayment on this $320,000 property I want to buy, I’ve got my credit in order, now I just have to go find a deal into which to place my 80 grand to get the loan I need. And I’m basically parking my money, or I’m enjoying the long term benefits of real estate ownership. And that’s great. But you know, it’s worth 321, I buy it, it’s going to be worth 320, a couple months from now, it’s at 1800 a month rent, now it’s going to be 1800 A month rent in a few months. It’s it’s sort of just like saying the asset is what it is, it’s good enough. And that’s great. An entrepreneurial deal, on the other hand, is almost never the same on day, say 186 months later, as it is on day one. When I buy something, being a more entrepreneurial buyer, it is what it is on the day I buy it. But you better believe that within 30 days, it’s starting to look a little different. Within 90 days, it’s definitely starting to look a little bit different. And within depending on the size of the project between six months and a year, oh, it’s gonna be really different because I wouldn’t have bought it if I didn’t think there was something I could do to it to make it better than it was when I bought it. And that’s what makes it an entrepreneurial deal because I’m bringing the vision and skills and talents and whatnot of my entrepreneurship to take something that was what it was when I bought it and make it better in the future. So when I asked that coaching client the question or ask you right now, my dear listener, what do you love about this deal that you are considering doing? I just hope that there is an answer, and I hope that there is an answer that reflects some sort of upside, something that you see that you could transform from what it is to what it could be because that means you’re sort of moving the chains to use a football expression, you’re moving the chains in terms of the value of the thing that you are buying. You’re just settling for what it is when you buy it, you’re making it better by foot focusing on that thing that you love and then harnessing that thing that you love. You may have heard me talking in the past about, find the awesome and we had an episode about solving for awesome and optimizing your deal for awesome, we’ll find the awesome is usually the entrepreneurial angle of the property right? Find the awesome is kind of the way that I would ask somebody that question, what do you love about this? What is the one, at least one single awesome angle on this deal? The thing that is the single reason why you consider this being worth doing? Well, once you find the awesome that is usually, or at least often it is the entrepreneurial angle. So if you’re having trouble finding the awesome if you’re having trouble answering my question, what’s the one thing that you love about this that makes this deal worth doing for you? If you’re having trouble answering that question, it might be that what you’re looking at is a mundane deal. And that leads us to another topic that we’ve discussed here on the show before. And that is the disease the investor disease that we call deal itis deal. Itis is that disease that you have when Boy, you really just want to get a deal done. Maybe you’ve been working for a while, you’ve been looking at stuff you’ve been making offers or proposals, hopefully, and you haven’t gotten it done yet. And you’re just feeling like, Ah, I’m frustrated I need to make this happened. And now what takes place, you start trying to find reasons to say yes, you start trying to find ways to take something that doesn’t really make sense and sort of rationalize that it does make sense, just so you can feel like you are making progress. And that’s understandable. I mean, we all want to feel like we’re making progress. Nobody likes feeling like they’re stagnant. But delight is sets in and all of a sudden, we’re making decisions that we might later regret. Well, if you are otherwise an entrepreneurial type of person, you’re an entrepreneurial type of real estate person, you’re listening to this show, I guess that means that you should be very aware of deal itis. And if you can’t find yourself figuring out what is the awesome part that makes it from going from a mundane deal to an entrepreneurial deal. You need to listen to that you need to pay attention to that and question whether it’s something that you should be doing or not, you know, mundane deals, the types of deals that maybe like an investor would do are the types where they would look at it and say, Well, what, what return does this investment produce? You might say, what’s the cap rate? What’s the cash on cash return, etc? I personally, I would never care about that. I mean, I would want to know, what I’m looking at on day one, what type of return that it produces. But that’s not what I’m making my decision on. I’m not asking what type of return does it produce? I’m asking what type of return will it produce? In this case, there’s a massive difference between the does it produce in the Willett to produce because I’m going to bring my entrepreneurship to the table to make this deal something that it’s not when I buy it, it’s going to be transformed from what it is into what it could be. So I would never personally ask myself, what return does it produce or say, I only buy properties that have six cap cap rate? Well, that’s great. But if you’re an entrepreneur, it may be it’s a six cap when you buy it, but it sure as heck better be more than a six cap, if I give you 180 day start to work your entrepreneurial magic and make this thing better than it is. I wanted to point out that the bur process, the one that we are often very, you know aware of and very familiar with bird deals actually require a certain level of entrepreneurial approach. In order to make them work, you can’t really pull off a bird deal with a mundane property. Because the bird deal kind of requires that you go in and you add value. So that when you refinance it, there is equity to be taken out that kind of recapitalize as you and gives you your initial downpayment back. So if you are a bird mentality kind of person, which I know a lot of folks are and I would say I am too I don’t always label it that because I was thinking that way and doing that before the term bird was created. But if you are a bird type investor, that’s good news, because you are already thinking about things in terms of like, how can I make this better because if I don’t make it better, I’m not going to be able to refinance it in a way that’s going to give me my initial capital back. So I just want to sum it up by saying this. I think we all need You very often have a gut check. Every time we’re looking at a potential deal. And the gut check, we need to ask ourselves, is this? Is this a mundane deal? Or is this an entrepreneurial deal? What’s the thing that I love about this? That makes it worth doing? How is it gonna be different on the six month anniversary of my purchase than it was on day one of my purchase? And as long as there’s an answer, as long as it’s going to be different and better in some way, then you know, you’re in the right category of doing entrepreneurial deals versus mundane deals. But sometimes when you get a feeling, maybe discouraged, you can’t get deals done. You might be tempted inadvertently, to start considering doing mundane deals, and I would encourage you to be very wary about letting that happen. I’ll give you one other type of example, to a real coaching conversation I had with a great coaching client, where we had almost kind of the opposite perspective, this person had gotten several entrepreneurial deals done. And they just had a momentum. And everything that was coming to them was picking up speed, and there was more stuff coming to them. And they were able to say yes to all these things. And all these good things were happening. And then they wanted to say yes to this other particular deal. But as they presented it to me, I couldn’t see what the entrepreneurial angle was. I was like, this looks like a mundane deal. And it was a very interesting insight. That that month, your tendency to want to do mundane deals can come from two points from two different places. The first one is the deal I displace where it’s like, gosh, I can’t seem to get anything done. I need to find something to say yes to and we force a yes. But the other place that can come from is when things are rolling and doing great. And we’re saying yes to everything. And now we might be saying yes to things we shouldn’t, just because we’ve got so much momentum, that we’re actually not being maybe discerning enough in what we say yes to just because we’re in a vibe of saying yes, so that is a good problem to have, but it’s definitely a problem to look out for. And with that, that concludes another episode of racking up rental. So again, show notes for this episode can be found at thoughtful our e.com/e 139 Please do us a big favor by hitting the subscribe button in that podcast app, whatever one you’re using, and rate and review the show I see all the ratings and reviews and I’m super grateful for all of those. Did you know we have a Facebook group for thoughtful real estate entrepreneurs too. It’s true. It’s called rental portfolio wealth builders. We’d love to have you join us over there just go to group dot thoughtful rv.com and we will magically redirect you right to that page. If you liked this episode, please take a screenshot of that episode. post it to Instagram and tag us. We are at thoughtful real estate on Instagram. Alright, I’ll see you in the next episode. Until then, this is Jeff from the thoughtful real estate entrepreneurs signing off. Thanks for listening to racking up rentals where we build long term wealth by being when when dealmakers remember solve the person to unlock the deal and solve the financing to unlock the profits.