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Real estate investing starts with actually being able to buy a property, right? But is that “Acquisition and Finance,” or is it more accurately, “Finance and Acquisition”? Many real estate investors make one big mistake: they think of their “deal-finding” and “deal-financing” strategies as being two separate and unrelated efforts. In this episode, Jeff explains that in order to build a scalable portfolio, you need a repeatable process for Acquisition and Finance: FIRST, choose your financing strategy, THEN design your acquisition strategy accordingly.
Episode Transcript
You know, it sure is hard to be a real estate investor if you don’t have anything to invest in. And that’s why on this show, I don’t really talk about real estate investing. I like to talk about acquisition, and finance. But I was thinking about this the other day. And the question I asked myself is, is it acquisition finance, whereas it finance and acquisition. And the more thought about that, the more I realized that this is one key area, that trips a lot of real estate investors up as they’re trying to create a process that will be repeatable and scalable to grow a portfolio. So in this episode, I’m going to talk to you about the two steps that most investors do in the wrong order, and how to reverse those and why it’s so important. So Let’s cue up the theme. So I want to jump right into this with you. Welcome to racking up rentals, a show about how regular people, those of us without huge war chests of capital 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, we’re just looking for quote, motivated sellers to make lowball offers to. You see, we are people oriented dealmakers, 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 rt e.com/e 149. Please do us a HUGE favor by hitting the subscribe button in your podcast app. Or maybe it’s now called the Follow button, or whatever it might be. It really helps other thoughtful real estate entrepreneurs who are looking for podcasts to listen to, to find this show because the platform’s then know that you are listening. So thank you so much for doing that. And of course, it makes sure that you don’t miss any episodes coming up. You know, I was thinking back to when I really first kind of got started in real estate investing, and my first investment acquisition besides my own primary residence, but my first actual investment acquisition was at I think, the end of 2005, maybe the very beginning of 2006. And I was trying to remember what it felt like to be in that exact spot in that mentality with with what I knew at that moment in that moment in time. And I realized that my mentality overall, was that I felt like I was out there trying to find a good deal, which is usually, you know, reference to price. So I was out finding a good deal that was well priced. And then after that I was deciding how to finance it. Now I understood that it wasn’t going to be smart to find a deal and then say, oh, I should probably learn about financing. I knew that I needed to know about financing in advance. But I felt like the job was to go out and find the deal. And then you know, at a great price, and then decide among the financing options that I knew what which one would be best, which one would I pair with this particular deal. But I felt like those financing options were secondary to the property itself and the price of that property. And I will say more or less operating under that mentality, I was able to get a couple deals done. But the thing was, it wasn’t repeatable. It felt kind of random, it felt sort of like, every time I found something, I was like, oh boy, now I’m starting over from scratch, again, trying to figure out how I’m going to finance it. And while that was okay to maybe get a couple of deals done, it didn’t feel like it was going to be the thing that was going to let me continuously build a repeatable portfolio. And so it’s kind of at that point that I started to realize something that I now see as a very, very common sort of mistake that I was absolutely doing at that time to absolutely making that mistake. And the mistake is this. Most people who start to get into real estate investing, think of acquisition and finance as two separate topics. And when you think of them as two separate topics, you know, I have to find the deal and I have to finance the deal. You see them as two kind of unrelated efforts, right? You need to go out and find a property, then you have to need to have to figure out how to finance that property. But you don’t see those two things really having any I don’t know synergistic effect. or anything on each other, you just think you know what the first domino that have to find something, the second dominoes, I’m gonna have to finance it, I’m not really going to worry about financing it too much until I’ve found something. But that creates a situation where there’s no kind of cohesion to your approach. There’s no integrated strategy for both acquisition and finance. And like I mentioned, you can do this a couple times, certainly, and kind of stumble through it. But if you want to grow a portfolio, and have that be a scalable effort, which, if you’re listening to this show, I hope is absolutely your goal. If you want to have a repeatable process, that’s going to build your portfolio, you need to take these two things in a certain order. And it might not be the order you’re expecting. The first step is you need to choose your finance strategy. The second step is once you’ve chosen your finance strategy, then you need to design your acquisition strategy accordingly to the finance strategy you’ve chosen, okay, let me say it one more time. First, you need to pick your finance strategy that you want to use. And then secondly, you design an acquisition strategy that’s going to facilitate you buying properties with that particular finance strategy. So it starts to beg the question, Why does acquisition strategy need to come first? Right? What difference does it make? That seems sort of like getting the cart before the horse? Maybe to some people? Why does acquisition strategy need to come first? Well, as I was thinking about how to answer that question, you know, I was reminded of what we call a Pineo ism, it is a, quote, an idea, a line that my coach, Greg Pineo uses a lot that just sticks with me. And what he says is that real estate, is just the clothing that finance wears. And I know that he learned that from his own mentors. So let’s stop and think about that for just a second, because I want you to fully digest what that means. Real estate is just the clothing that finance wears. Okay. So what that means is that real estate is a vessel. It’s a physical manifestation of a financing structure, right. In other words, the real thing that a real estate investment is, is a finance structure. But it takes the form of a piece of real estate with its sticks, and it’s bricks, and it’s dirt. So real estate, is the manifestation of finance. But it’s really finance, that is the underlying thing that is there. And that is taking the form of real estate. So what we want ultimately is we want to be clear on our strategy for continuously being able to finance our purchases, right? We want to be clear on how we’re going to be able to buy if you want to buy something five times a year, if you want to grow your portfolio at that pace, for instance, you need to be clear on your strategy for continuously being able to finance things. And then once you have that clarity, then you want to have a system that will deliver a stream of leads that actually fit into that type of financing. In other words, a system that will deliver a stream of leads that you will be able to finance in the way that you have chosen. So at the end of the day, ultimately, it’s like clarity on your financial structure. clarity on how you want to finance your deals, facilitates it leads to clarity on the lead generation and acquisition strategy that you should have. But when those two things, acquisition and finance, or I should say finance and acquisition, because that’s the order. When those two things are not part of a cohesive approach or strategy for you, there can be a major disconnect between your finance and your acquisition efforts. Because not all acquisition strategies lead to the type of financing strategies that you want to use, and vice versa. So let me just give you a couple examples. That will be nice and relatable, and I can point out to you how there could be a real disconnect for this. And then I’ll point out to you what I like to do and what I coach others on and how the finance and acquisition strategies relate to each other in a very intentional way.
So let’s just talk about a simple example number one, this is very, very common, okay. So let’s say you know, you’re doing your first couple deals, whatever and you say the final One strategy I want to use is I want to get conventional residential loans, right? So I’m gonna go to a mortgage broker go down to a bank or whatever. And I’m going to get probably like a 30 year fixed type of loan. Okay, so conventional residential loan, that’s your finance strategy. So now you say, Great, I’m going to start trying to I’m going to develop an acquisition strategy that will deliver me those leads, right. So maybe you’re like, I’ve heard about wholesalers, I wonder how wholesalers would work? That’s how you get deals that nobody else has access to. Right, that are way better priced? Right. Great. So if you were to get a deal from a wholesaler, does that fit with your conventional residential loan finance strategy? Well, maybe there’s an off chance that it could but categorically no, it’s not going to. Because the purchase agreement isn’t going to be structured in the way the bank is going to like the property probably is not in the condition that really meets with the sort of conventional financing, requirements and whatnot. The idea that you might be assigned, this purchase agreement from a wholesaler is probably not something that a conventional lender is really going to be very excited about. So there’s a disconnect there, right? If you’ve decided your finance strategy is conventional residential loans, and you’re out trying to find deals through wholesalers, you have got a disconnect between your acquisition strategy and your finance strategy. How about another example? What if that’s your finance strategy is conventional residential loans? You say, Okay, well, I guess wholesalers isn’t going to work. Maybe, maybe I should do my own motivated seller marketing. Could that work? Well, I mean, maybe again, in like an off chance, but not categorically not on a repeated basis. Because again, those people who are, quote, motivated sellers, their properties are probably not in the right condition, their situations might need to move faster than a conventional residential loan can work for, and etc. So then you move on, you say, Well, how about just looking on the MLS? How about hiring a realtor to find me a listed property? Does that work in a way that will deliver me conventional properties that are able to be financed in a conventional residential loan manner? The answer is yes. That is not a disconnect. That is a perfect alignment between your acquisition strategy that actually leads to the finance strategy that you want to use. But you had to start with knowing that finance strategy. So that’s a very common and conventional example. Let’s move on. And let’s talk about a couple more. Here’s another one, that’s not terribly uncommon, let’s say you’ve decided your finance strategy is you want to buy properties, with hard money loans. Okay, so you’ve got a hard money loan, or lender kind of teed up, you’ve got a relationship, you know, what the interest rate, what the points are going to be the terms, downpayment requirements, you know, if they’re going to cover any renovation costs, etc, and you know, how it all works with them. So you set out to find a deal. And the first thing you think is, well, you know, gosh, at my acquisition strategy, why don’t I just hire a realtor? And we’ll look at what’s on the MLS, and we’ll see if we can find deals that I can buy with hard money loans. Would that work? Well, again, maybe in kind of an exceptional sort of circumstances, it might, but generally speaking, no, that’s not really the right type of finding deals that are really going to work for your hard money loans. Why? Well, normally, if you’re buying properties with hard money, loans, you’re looking for, you know, deeply discounted properties, and things like that, where you can add a ton of value. And those aren’t really retail deals that lead to hard money loans, yet, you’re trying to use a retail deal type of acquisition strategy to lead to your Hard Money Loan strategy. It’s not a perfect fit again, could it work? Yeah, of course, anything could work a couple times. But that’s this is not the strategy you’d want to try to lean on all the time, because there’s a bit of a disconnect logically between the acquisition strategy and the finance strategy. How about if you did your own motivated seller marketing as a means of your acquisition strategy? Would that lead to deals that you could finance with your hard money loans? Yes, it probably wouldn’t. That’s probably a much better and more aligned acquisition strategy that will facilitate the type of finance strategy you want to use. So that’s a good example. That’s also relatable for many for many, many people. But let’s get to what I would say is the good stuff. This is what I do. This is what I coach others on. This is what the deals Workshop is all about. I’ve decided that I want my finance strategy because that’s my first choice. Right? My first decision is how do I want to buy my properties in a financial structure on an ongoing and repeatable basis? I’ve decided I Want to buy them with seller financing? So the next question is, what is the acquisition strategy for generating leads? That will lead me to seller financing deals? Is it wholesalers if I get on some wholesalers lists, and then expect it occasionally in a text or an email, I’m going to see something that oh, that’s a perfect fit for seller financing. No, that’s not going to be a perfect fit. For seller financing. seller financing is best facilitated when you are face to face with the seller, you can work through all the details. Not when you’re getting handed a deal from a wholesaler who is probably not as educated as you are in seller financing. Secondly, realtors, would you look for retail deals on the MLS through realtors, if your goal was to find seller financing deals, well, it might work once, you might get lucky with that, but it’s not a repeatable way that’s appropriate for finding seller financing deals. And even if you could find a seller financing deal, that way, it’s not an appropriate manner of negotiating the very best seller financing deal. So that’s not the perfect fit. What if you were to build an acquisition strategy that utilized thoughtful off market marketing that you do yourself? Would that facilitate a stream or pipeline of deals that could work with seller financing? The answer is yes, it absolutely could. Because what you’re doing is you’re reverse engineering, the marketing that would work for that type of financing. And I know because this is exactly how I’ve built my portfolio, it is exactly what I coach all of my coaching clients on is exactly the whole premise that the deals workshop is built upon, and based on. So you can see from these examples that it’s best if you first have clarity on your financing, strategy and the structure for financing that you want to use. And then as a result, you can have a lot of clarity on the right type of lead generation and acquisition strategy that will lead you to those types of deals that will utilize the financial structure that you want. So to wrap this up, I want to remind you of this statement, this Pineo ism that I learned from my coach Greg, real estate is the clothing that finance wears. And that means that finance is the most important thing, it’s the real substance of a deal. And that means we have to be deliberate about our financing first. And then secondly, create a strategy for acquisition that will lead us to the types of deals that we want to finance in the certain type of way we want to finance them. So first, choose your finance strategy, and then choose the acquisition strategy that will lead you to the deals that will be an appropriate fit for that financing strategy you want to use. That’s it for today’s episode of racking up rental. So again, shownotes for this one can be found at thoughtful our e.com/e 149 Please do us a big favor by hitting the subscribe or follow button in your podcast app and rating and reviewing the show. Did you know also that we have a Facebook group for thoughtful real estate entrepreneurs, it is called rental portfolio wealth builders. And you need to be there you need to be hanging out with us there. So just search rental portfolio wealth builders on Facebook or if you want the easy button, just type group dot thoughtful rt.com into your browser and you will go right to that page on Facebook and you can join us. If you liked this episode, please take a screenshot post that screenshot wherever you’d like to hang out online. If you’re on Instagram, tag us please we’re at thoughtful real estate. So I’ll see you in the next episode. Until then, this is Jeff from the thoughtful real estate entrepreneur signing off. Thanks for listening to racking up rentals where we build long term wealth by being a win win deal makers. Remember solve the person to unlock the deal and solve the financing to unlock the profits.
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