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For many real estate investors, seeing the market shift from being an extreme Seller’s market to being a more balanced market—if not in favor of Buyers—is a very welcome sight! They are getting excited about being able to buy more properties than they’ve been able to these past few years. But is buying MORE real estate always the best way to take advantage of this new market cycle? Perhaps not. In this episode, Jeff discusses the difference between buying MORE real estate, and buying BETTER real estate, and explains the importance of becoming more discerning as Buyers.
Episode Transcript
At this exact moment in time, buyers are starting to salivate a little bit after having kind of a dry spell for the last few years of it being very difficult to find deals that made sense and pencil that prices and things like that buyers are now starting to get really excited that because they see the market changing and it’s starting to feel like it’s going to be buying season. But we can really focus on buy more property, or we can focus on buying better Property and in this episode, I want to talk with you about the difference between going towards volume or being more discerning in our acquisition efforts. So let’s keep the things on let’s jump right in. Welcome to racking up rentals, a show about how regular people, those of us without huge war chests 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 dealmakers, we sit down directly with sellers to work out Win Win deals without agents or any other obstacles, and five properties nobody else even knows are for sale. I’m Jeff from a 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, thanks for joining me for another episode of racking up rentals show notes for this episode can be found at thoughtful rt e.com/e 167, please do us a big favor by hitting the follow or subscribe button and your podcast app really helps you make sure you don’t miss anything. But of course, it also tells the podcast platforms that you are listening, and that makes them want to pay attention and share the show with other people like you and me. Thank you for doing that and honored with today’s episode. And you know, I found myself recently thinking a lot about something. I’m seeing people in our real estate investing community both the one that I sort of lead and coach but then also just the greater community of real estate investors at large. And we’re getting excited and for good reason right after a few years of of millions and millions of Facebook posts of people saying like, Oh my gosh, I cannot find a deal. I couldn’t find opportunities, but nothing really makes sense. And nothing really pencils out that cold freeze that we have filled, it feels like it’s starting to thaw a little bit, we’re seeing inventory on the market rise, days on market is getting much, much longer, lots of price drops and things like that. Now, admittedly, this is tempered by the current interest rate environment. But who knows that might not last forever. But those two things together more inventory, and higher days on market, but also higher interest rates are creating a situation where sellers are becoming more flexible. There’s certainly more sellers with listings that say things like, you know, owner will carry or open to creative financing and things along those lines. So people are getting excited. And that is a good thing. But I’ve been thinking a lot about you know, when when the buying gets a little bit easier. We really have kind of two options, we can buy more stuff, because it’s easier to buy more stuff. Or we can become more discerning. And I’ve been thinking of course about the ladder. And you might not be surprised to hear me say that if you know anything about me and the thoughtful approach. But being more discerning is what I want to talk with you about in this episode. And being more discerning basically just means raising our standards of quality for what we choose to get ourselves involved in. So there’s lots of different ways that sort of discernment and being more discerning could could show up or different ways people could interpret what that means. And I want to go through a few of those, but I want to tell you then what my personal focus is what what type of discernment. I personally am excited to be continuing to practice a lot the particular ways I am raising my standards and what I think this means for me in my portfolio in with the hopes that it will inspire you to think similarly. So one obvious way that a person an investor can become more discerning is they could insist on doing deals that produce a greater profit, right? And profit could be measured in lots of different ways, I guess. But certainly one thing we think about is, what is the instant equity we’re getting in a property? And if maybe you wanted to buy it what you thought was 10% below market values before? Now perhaps you’re insisting on 25% below market value. That’s a simplistic example. And so exactly the way I think, but that is an obvious sort of way to go about things right, you can say, I insist on having a better discount. Right now I’m raising my standards, and maybe the risk overall is higher. So I insist on a higher discount. Another similar idea on the notion of profit margin is cashflow, right, maybe if you were okay, with $200 per door of cash flow before, maybe now you say I will only do deals where it’s $300 per month of cash flow per door. And I insist on raising my profit margins in that particular kind of way. A different kind of way might be to say, I will only do deals that do not require any cash out of my pocket, or perhaps you put a limit on it, you say, I will only do deals where I am $5,000 Out of my own pocket. And otherwise, I have to be able to structure the deal in a way that just does not require that kind of out of pocket contribution from me. Or similarly, you might say, I’m only going to do deals now, that involve going to, quote, create a financing, where there’s no banks involved, or no new banks involved, I should say, and I don’t have to put much of my own cash in, etc. So those would be ways that people might sort of raise their standards, so to speak, but become more discerning, more selective about the types of deals that they will do. On a quick sidenote, when I’m working with a coaching client, and they come to me, and they say, Hey, here’s this deal, you know, I’m looking at I’m working on, what do you think one of my most common first questions to them? Is, I always like to ask, what do you love about this deal? Right? And if I’m writing this out, that’s capital L. O V. What do you love about this deal, because even in the market cycle we’ve been in for the last few years, and it’s been more of a seller’s market, I have wanted to make sure that my coaching clients really knew that there was a great win in this deal for them, I wanted to know that they weren’t just going to be buying for the sake of buying or buying for the sake of scratching their itch, and their desire to buy. We talked about this, sometimes we call it deal itis that disease you have where you want to do a deal so bad, you’ll start kind of, you know, trying to jam around a square peg into a round hole, because you just want to get a deal under your belt. But I always stopped to ask them. What do you love about this deal? And I think that that question becomes even more important in this new market style. What do you love, love love about this deal? And the the significance of the answer is bigger now like, what do you really love you we better have a really good answer. Or else, it’s a sign that we’re not being quite as discerning and selective, maybe as we should be. So those are a few kind of common ways to look at being more discerning. But I want to tell you now, what my personal focus is for being discerning now, will I be more discerning in terms of being cautious around price and insisting cash flow and limiting my cash out of pocket? All the things I just mentioned? Absolutely, that will that will absolutely be part of my thought process. But here’s what my primary lens is on this new chapter and what discerning means to me. I want to increase my standards of quality. Now, I would say I already have fairly high standards of quality. But I want this next chapter of my acquisitions to be even more quality. What does quality mean, right? Quality is such a sort of subjective word. So let’s try to make it less subjective for a moment.
What’s that word that everybody always says three times when they talk about real estate? Location, location, location, location? Well, I agree that location is absolutely critical. For quality, and really what quality means is quality refers to demand, demand real estate. Now this is one of the most important. First things that I learned when I started studying under my coach Greg Pineo. That we need to be insisting on demand real estate, you can get a great deal buying a piece of property in Timbuktu that nobody wants to use, no one wants to buy. No one wants to rent. And that’s fine. But that’s not what we want to do. We want to have demand real estate and one of the most highly correlated aspects of demand is location. People want to be in a certain area as renters. People want to be in a certain area as a business, if they’re renting or buying a property. People want to be in certain areas when they own homes, etc. So I want to be focused more and more and more on only the top notch locations I want to buy in a location is a very micro topic right? I don’t mean like the location I want to be in as the West Coast, or the location I want to be in is Portland, Oregon. No, no, I want to be in this particular neighborhood in Portland, Oregon. I want to be in this little three block radius in that neighborhood. In Portland, Oregon. Another type of quality is property type. Right. Property Type, single family home duplex, triplex four Plex, eight Plex, whatever it might be. Industrial Building, neighborhood commercial type of building quality has a lot to do with property type, as well. And sort of the quality of that particular property type. For instance, when you’re being more discerning. Maybe two years ago, you would have bought a property that was sort of a boring 1965, three bedroom, two bath ranch house, in a neighborhood that also had Victorian homes, which people might in your neighborhood like they do in my market, people would consider a Victorian home more charming. And so you might have bought the ranch homes before. But now perhaps you’re raising your standard. And you’re saying I’m still buying single family homes in this area. But I’m only buying the most beautiful ones, I’m only buying the ones that makes the make people’s hearts go pitter patter. Which brings us to the next topic that really goes hand in hand with that word, demand that I learned from my coach. And this word is Romance. Romance is about the way people feel when they experience your property. Investors like to say that investing is all about the brain. It’s all about numbers. And it’s just about logic. But that’s not true. Because real estate involves humans and humans are emotional beings. If a potential renter walks up to two different homes that are otherwise maybe functionally exactly the same, same overall location, one is likely to tug at their heartstrings a little bit more than the other one. That’s Romance. Romance is the idea of a a newlywed couple who’s buying their first home who loves this neighborhood because they can see themselves waking up bleary eyed on a Sunday morning, and walking 1.5 blocks to this amazing French bakery coffee shop where they can pick up their perfect croissants and a hot cup of coffee and stumble back home. That is romance. And romance carries a lot of weights. Now in the past few years. Maybe you don’t feel like you’ve been able to be selective enough that you would be able to care about romance, you say, gosh, I have to buy whatever I can. Because it’s really hard to buy anything. But now as you can be more discerning romance is extremely, extremely important. Another thing that I’m focused on is the expandability potential. That’s where I’m raising my standards. So I’m expandability is your ability to transform something from what it is to what it could be. And for the what it could be to be a lot more and a lot different than what it currently is right? A simple version of expandability. That’s not a big version is a house that’s worth $300,000. But if you just simply gave it a $5,000 paint job and now it’s worth 325. That’s a basic level of expandability. A much more extreme version of expandability would be this is a single family home on a piece of dirt zoned for 30 units, and you could scrape that house and build 30 units. Well, I’m personally you increasing my standards for expandability. As I go to these precise locations that I would like to buy and own and look at these precise property types that are highly romantic, I’m looking for extreme expandability. Potential. And I’m saying to myself, I don’t need to buy things where there’s not a lot of room for me to expand because expandability sometimes we use the term value add in real estate. expandability is where we make our major progress financially as entrepreneurs. expandability is when you can buy that $300,000 product, put several $100,000 into it, and now it’s worth four or $5 million. That’s where we make a lot of financial headway. When I think about quality, location, romance demand, it reminds me of a conversation. In a mastermind meeting, I was hosting with some coaching clients a couple months ago. And one of the participants said, and I’m paraphrasing just a little bit, but what he said was, I’m starting to wake up to the idea that I could be the one who owns some of the best, most beautiful properties in my town. But if I go to that area where the best and most beautiful properties are, that is actually that’s the sandbox that I could actually own in as well. I don’t have to be relegated to the fringes, I could be that guy that other people drive by the property and say, Wow, who owns that thing. And I loved I really, really loved to hear that. And that’s my vision for what this next chapter looks like. And I hope it influences your vision for what this next chapter of acquisition looks like. So why is this an important topic? I mean, why would I want to make an episode about this? Well, I just sort of see a little bit of a risk, I see a little bit of a danger. I think we are emerging from this long period, where it was hard to be discerning, as a buyer, were being discerning didn’t even seem like an option. If if you were a new investor during this last period, being discerning and selective wasn’t even on your radar screen of things that you even necessarily knew to think about. And even if you did, you didn’t really probably feel like it was possible because it just felt like oh my goodness, it’s so hard to buy anything right now. I just have to buy anything that I can, that gets even close to sort of making sense. And what that means is that now, as the market shifts, we have this temptation to say, oh my gosh, I’m going to buy so much stuff, now that the market has loosened up. But instead of buying so much stuff, I encourage you to think about saying I’m going to buy so many better things than I could have possibly before. So when I look at this next chapter, this next cycle in the real estate market, and I think about how it’s going to impact my own endeavors in real estate, and my own portfolio. I’m hoping to go out and add my very best properties during this upcoming period. And I’m happy to say I have some very nice properties now. But I want to go add to that collection of properties. I am super, super proud to own you can call these trophy properties but we have the ability to be selective enough and focus on quality that you can go out and and pick up some properties you will own for the long haul and be super proud of the whole time. That is it for today’s episode of racking up rental. So again, shownotes can be found at thoughtful our EDA comm slash e 167. Please do us a big favor by hitting the subscribe or follow button in your podcast app. And take just a second to rate and review the show whatever platform you’re listening on right now. Just take a second to do that. I see every single one and I’m so grateful for those. Did you know that we have a Facebook group as well for us thoughtful real estate entrepreneurs. It’s called rental portfolio wealth builders and we’d love to have you join us just go to group dot thoughtful rte.com and join us there. The magic of the internet will take you right to that page within Facebook and you can hit the blue Join button. If you like this episode also just take a screenshot of it on your phone, post it to Instagram and tag us we’re at thoughtful real estate. Well, I’ll see you in the next episode. Thanks for joining me today. 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 when when dealmakers remember solve the person to unlock the deal and solve the financing to unlock the profits.
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