SFREI #6: The Triple-Threat Acquisition Strategy
In this episode, host Jeff discusses the Triple-Threat Acquisition Strategy–the methodology and mentality of being open to multiple different possibilities with each new acquisition opportunity that comes along. A Thoughtful Real Estate Entrepreneur is always open to three main possibilities: buying a property to keep for their own portfolio, buying a property to resell, or wholesaling a property to another buyer. The Triple-Threat Acquisition Strategy is the method of assessing and evaluating the intersection of 2 things: The maximum opportunity the deal presents, and what you need and want in your business.
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Full Episode Transcript
This is Jeff from the Thoughtful Real Estate Entrepreneur. Welcome to episode number 6 of Sleaze-Free Real Estate Investing, a show for those of us who’ve never felt at home in the We Buy Houses crowd. In this show we take a stand against what we call the lowbrow approach, the mainstream guru seminar distressed sellers of the ends up giving real estate investors a slimy reputation. Instead, we discussed the strategies, tactics and philosophies that we call the thoughtful way. And enlightened approach to real estate entrepreneurship that focuses on constantly sharpening the sophisticated real estate entrepreneurs, three most critical capabilities. Number one, seller relations skills, number two, deal architecture skills and number three, opportunity vision. When all three of these cases abilities are successfully in motion, you can make an excellent living today, and the long term wealth while creating value for everyone you touch along the way. Show Notes for today’s episode are at www.thoughtfulre.com/E6. forward slash e6. Please do yourself and us a big favor by hitting the subscribe button in your podcast app. Now in the last two episodes, we discussed the different forms and categories of marketing to sellers, and which are lowbrow, which are thoughtful. And so go back and listen to those if you haven’t already. As you may be able to tell from the podcast so far, we’re definitely presenting concepts to you in a certain order that build upon each other. So it’s very helpful for you to have listened to the previous episodes to make today’s episode as much sense as possible for you. In today’s main course, we are going to be discussing the Triple Threat acquisition strategy. But first a little food for thought. After all, as Thoughtful Real Estate Entrepreneurs, we do like to feed our minds with things to think about. Here’s what we’re thinking on today. Today’s Food for Thought is about hanging on. There is a visual that I have in my mind and a metaphor I think about often. And I actually share this with my team. And we discussed this visual metaphor literally.
On my first date with my wife, way back in the late 1990s that these were the days when you could rent VHS tapes to watch movies. And we went out to dinner. And then we went and rented a movie and we rent a movie called eight seconds. It was a movie featuring the the recently passed Luke Perry about bull rider. And the idea with bull riders, of course is that they get on the bowl. And their job is to try to stay on the ball as long as possible, but certainly longer than eight seconds. And that’s kind of the cut off mark. So when you watch a bull rider, almost certainly they start you know on top. And then they start to start to get shaken around quite a bit. And they start to kind of fall off, but they hang on. And they keep hanging on and they keep hanging on and they keep hanging their hat is on the ground 10 yards behind them. Their head is like an inch from the ground, but they’re still holding on sometimes by it’s just practically like one finger, keeping them on the bowl. And deals are just like that. I mean, there have been so many times that I have been certain The deal was dead, and that I should just let it go. And then somehow, it came together. Recently we had a deal that was just like this, and it was taking up a lot of my mental energy honestly, and was as I was just certain that it was not coming together, we’d been in escrow for three months. And I was just sort of feeling bad about this situation and, and didn’t want to let the seller down. But I just didn’t see the critical elements coming together in time for closing. And so of course, I had the option to terminate the agreement. And I really did not want to. And I was literally an hour away from doing that exact thing when my team member turned to me and said, Hey, I think I found the solution. And it turned out that he had and we got the deal closed. And it was it was fantastic. And I wouldn’t have bet I would have thought in a million years that morning, that that was going to that was going to happen. So the lesson here is pretty clear. You got to put yourself in a position to be the beneficiary of some luck. And to be the beneficiary of a miracle or even less miraculous just a last minute flash of clarity and problem solving creativity. If you take yourself out of position to have those things, then it definitely won’t happen. You know, there’s an expression in sports that you miss 100% of the shots that you don’t take, well, this is very similar. You miss 100% of the good things that could happen at the last minute. If you’re hanging on, if you don’t hang on. So they’ll have some guys Hang on. Even past the time, it seems like maybe we should. That’s today’s food for thought.
All right, moving on to the main course of today’s episode, today’s topic on Thoughtful Real Estate Entrepreneurship is what we call the Triple Threat acquisition strategy. And that we introduced this concept briefly last week, as we were talking about marketing. And you know, you might have had a same experience as I did. But I heard this expression Triple Threat position the first time when I was in about sixth grade and on the basketball team. And the coach said, Jeff, you know getting Triple Threat position. And I said well, what is that, he said, get your feet apart, a little bit broader than your shoulder with one foot just ever so slightly in front of the other, get a bending your knees and put your hands up. Because this way you can shoot from this position, you can pass, you can dribble, you’re basically just extremely agile, you can move laterally, left and right, you can move forward, you can move backward, you’re just about ready for anything that comes your way and ready to take action. Now, it’s no different in real estate, the Triple Threat acquisition strategy is the same concept, you are poised, you’re ready and you’re open to do any of three things with a property, those three things would be buy it and keep it for your own portfolio by to resell it, or wholesale it to somebody else. And every time a new deal comes along, you’re evaluating all three of those options. If you’re open to all three of those options, and you are going through your own process of looking at the different considerations and then picking the right one. The name of the game with the Triple Threat acquisition strategy is this. Your job is to assess and evaluate the intersection of two important things. Number one, the maximum opportunity that this deal presents to you. And number two, what you need and want in your own business. And where those two things intersect is the right choice of which path to take. So why is this a thoughtful process? Why would we be speaking about this in the context of thoughtful real estate entrepreneurship? Well, it’s because you have to be thoughtful about each property that comes your way. And you have to really reflect on all the issues, the nuances, and everything about the opportunity itself. So you have to be really thoughtful about the deal. But you also have to be really thoughtful about what you want in your own business and why you want that. And so you need to be very thoughtful about both of those things. And when you have the intersection of those two thoughtful processes, then you’ve got your answer. So why consider all three options every time with every deal? Well, a lot of people don’t to be honest with you, you know, there’s an expression that when you’re a hammer, everything looks like a nail, right? When you have a certain lens on the world, everything you see is in the context of that particular lens. And to me, this is the problem. And really the limitation with identifying yourself as a quote, like a flipper, or maybe a wholesaler, or a rental property investor or landlord. You see everything through that lens and only that lens. And that means that you may very well be leaving big opportunity on the table. Much bigger and better opportunity might be right underneath a new year knows but you don’t even see it because you’re only looking at it from the one lens or through the one lens that you’re used to looking at things through. I saw a post on the bigger pockets.com website the other day at a forum. And the person posted a question it was something like how do I wholesale this property that has seller financing? And I thought to myself, why would you ever want to do that. But to me what I can strike seller five financing conversation, that is definitely going to be leading me towards this being a keeper property for me. But it’s because I’m really well in tune with the power of seller financing, that other people might not be seller financing to me opens major doors for a deal, it increases the possibilities greatly I will be looking hard at how I could keep that deal for myself not pass it off to somebody else via a wholesale assignment. Now everybody has different goals for their businesses. But for this conversation, we’re going to assume that as a tree about for real estate entrepreneur, you are looking to make a living today and to build wealth for the long term.
Now, here’s why we did this episode, after having the last two episodes about marketing. Your marketing can set you up for the Triple Threat acquisition strategy very nicely if you’re doing it in the thoughtful way. Now the Net Fishing strategy is we talked about in highlighted quite a bit in the last two episodes, really sets you up perfectly for the Triple Threat acquisition strategy, you go to a promising area where there are fish, and you drag your net through the water, you pull your net up and then have five fish. So the question is, what do you do?
Go down to a certain extent, it doesn’t even really matter what you choose. It just matters that you choose something productive, because with this triple threat acquisition strategy mentality and approach, you know, they will be able to do something productive with each of those phases. When you choose to do it’s your choice. But as long as you do something productive with each one, that’s what matters. So let’s say you you look at these five fish and you save yourself your through these, I’d really like to take home and keep from my own.
There’s one of the other ones that I think I’m going to try to resell retail basis to one of the guys that you’re trying to get himself a fish for dinner tonight. And then the fourth or the fifth know the final one, we’re going to sell wholesale to the woman, the fishmonger up at the fish store, she’s going to put it in her case and make it available to her retail customers. Tomorrow, you go through the same process again, you pull up the that and you find three totally different fish. So you do the same exercise tomorrow, you make this the three decisions that make sense to you at that time, and you decide what to do.
So here’s the important point. And if you didn’t have a triple threat, acquisition strategy, mentality and approach, you’d look at your catch, you look at what’s in the net. And you end up throwing back many of the fish that didn’t perfectly match the single approach that you had had already in your mind, which is really wasteful. And it doesn’t give you any reward for having caught those fish. In our example, you know, if your single focus was just reselling fish on a retail basis to people on the shore, you would have thrown back the for fish and wasted the opportunity to take home fish for your family. And to sell one to the fish store. Woman. The Triple Threat acquisition strategy mentality helps you monetize anything you catch one way or the other, or at least give you the best possible chances of doing so. So how do you pick which of the three options that you should choose for a particular deal again, your three options or buy something to keep it for yourself by something to then resell or wholesale something to somebody else. And there’s a lot of considerations that you’re going to sift through as you are making that choice. This is where the art of this whole process comes in. Because you’re going to have to apply your judgment to a lot of different considerations. Some considerations are really enablers of certain options. And some considerations are things that actually limit some of the options you have. So we’re going to take a moment now and walk through several of these major considerations that you’re going to want to think through. The first consideration you’re going to want to think about is the demand for the property. So we can roughly defined demand as Who else would want to own or use this property? And how badly would they want to do so. So let’s just look at a few examples of a demand. There could be demand from other owners on an investment level, right. So if there’s other flippers or whatnot, you might want to take this property and make it their investment that could work out. There can be demand from other owners who want to use it for themselves. You know, people want to live in a property or that their business in it or whatever that might be, there could be own opportunities for demand from others strategic owners. Maybe the person who owns a property next door would have a strategic reason for wanting to buy the property that you have gotten contract.
There’s lots of different reasons why a strategic acquisition could be important to just a specific person. I recently miles life bought a building a commercial building that had an interesting ownership structure, it was one building, but in there was an invisible line drawn down the middle and one party on the side on the left and one party on the side on the right. And once I purchased the side on the left, certainly owning the set on the right was more important to me than it would have been to some other random person just walking down the street, I had a strategic reason for wanting the second half because I already on the first one. So it was more valuable to me than it would have been to somebody else. There can be demand from tenants, people who want to use the properties. And you know, whether it’s just people who want to rent that rent it to live there, they want to rent it for their own business. But the bottom line is the more demand that you have from the more different categories of people the more demand, the more that opportunity there is for you. And the more that enables your different paths.
The next category is what we call expandability, which expand ability means there’s what’s there now, but how, what else could it be? How could it be more than it is now how can we change the picture and make it more than it is now a real simple example of that would be taking a beat up house and simply repairing it, you know, change it too much. But you make it a better version of what it is now, that symbol expand the building. So you could improve it physically. But you could add to it, you know, you could finish the basement, that’s a very common thing in my marketplace with older homes, you could add on to the structure on the outside, you could raise rents, or you could decrease expenses to improve the financial performance, you could put something completely different on the dirt, that would be another type of expand ability. If you think about this, if you had a single family home in contract, it was located in a zone that was really meant for high density mixed use development, you’re probably going to not just keep that as a as a rental as it is, you’re probably going to find a way to capture the huge potential. So that is the redevelopment of that property. So the bottom line with expand ability is the more expand ability there is, the more opportunity you have and the more that enables and broadens the choices that you have with the property.
Now the next consideration is a big one. And in my opinion, this is probably the most important one. And that is the financing. Financing can be a major enabler of your options, but it can also be a real limiter of your options. Now, some deals come with financing, but most don’t, you know, sometimes you buy a property, if it has seller financing with it. Now you bought the property and the financing at the same time. But in most cases, you have to buy the property and then you have and by financing separately and put them together. And we don’t always think of it as quote by and financing. But that is effectively what you’re doing. So there’s so much real estate entrepreneurship that is about matching properties with the financing that best supports a particular game plan. And I would say that the more thoughtful that you are about that the better this is what makes it definitely a an element of the Thoughtful Real Estate Entrepreneur, again, is doing a good job of matching properties with the financing that supports that the game plan that you want to have for that property. Simply put a long term game plan like say keeping a property as a rental needs long term, friendly. financing, low cost financing and interest rate, the amortization period, the ultimate payment each month are very, very important and making that a sustainable concept. If you have a short term plan on like you’re going to buy something to resell. The cost of the financing, of course is still consideration. But it’s less important, because the financing just won’t be in place for long enough for it to have a massive impact. So what defines long term or short term of course varies from deal to deal with from person to person. But that’s the gist of the idea. Generally speaking, affordable flexible financing really enables your options, because you’ve got time to do whatever it is you might need to do. But without a large burn rate of holding costs. Expensive financing, on the other hand, limits your options to shorter term plans, because those costs of financing add up so quickly. So the bottom line with financing is that the more flexible and affordable the financing is, the more opportunity you have.
Another major consideration, something that I call deal mix. Now deal mix is very thoughtful. And it’s also very practical. Deal mix can be defined as the proportion of each of the three paths that you choose in your business. So for instance, let’s say last year, maybe you bought to long term holds, you flipped three properties and your wholesale for that would be your deal mix, two holes, three flips for wholesales. Maybe this year, you’re attracted by six holds flip one and assign five that’s a very different deal next, for this year than last year. So every Thoughtful Real Estate Entrepreneur’s business has a different recipe for success, a different deal mix that makes sense for their business and their particular goals. So how do you know the deal mix recipe that’s right for your business? Well, it depends on what you need. Because each of these three paths offer you generally different things. A wholesale deal is going to give you shorter term, smaller cash infusions, but they’re going to be immediate. That’s like getting a payday today. If you buy something to resell it, it’s going to be a more of a medium term proposition, you’re probably going to get a bigger cash infusion then you would have gotten from wholesaling it, usually. But you’re going to get your proceeds in a few months. So it’s like scheduling a payday for tomorrow.
The third category buying to hold, it is a much longer term proposition. It’s not going to generate a big cash infusion for you for a long time, you know, if ever, but there’s going to be some level of cash flow now and slowly growing equity and whatnot over time. So this is more of a wealth play. So the question becomes, what is the mix of paydays today, paydays tomorrow, and long term wealth that you need to make your vision for your business life? For me personally, my deal mix has been heavily weighted, and over the course of my business towards long term holds, that’s where my heart is in building wealth. And I’ve really just done flips and wholesale assignments when the opportunities have presented themselves. But now as my team grows, I’m feeling like I need to do more deals, that will generate frequent cash infusions. So we’re starting to be much more deliberate about trying to do more flips, and more wholesale deals, to continue to stabilize our own business model.
Another major consideration is the resources that you have available to and just how available they are at this exact moment. doing a project obviously takes money, it takes effort, it takes time takes team resources, like your contractors, your resources, sometimes they’re busy, and sometimes they’re available. And sometimes one resources available when the other one is busy. And that changes dynamically all the time, you know, your money might be free today, but your team might be up to their eyeballs in projects already. In my case, I have an amazing relationship with my construction resources. One that I wouldn’t trade for anything, but it’s also not infinitely scalable. So I have to be really thoughtful about when I take on big projects with huge construction needs, because my people can’t be everywhere at once. So that’s a big consideration for me. But ultimately, you look at all these considerations. And you say, given all these considerations, what is the best path for me to take right now, one of the best things about the Triple Threat acquisition strategy is that it allows you to leave your options open as long as possible, you should be able to leave your options open and not necessarily decide which of the three paths you’re going to take, even throughout most of your escrow and due diligence process. During that time, you’re going to be gathering the information you need and sorting through all the considerations to decide which path is going to be best for this particular deal. But what’s also really cool is that when you’ve teed up a great opportunity, one that does have a lot of flexibility, a lot of times you have the ability to even choose the path after you’ve closed on the property. If the options are, are there, you don’t have to necessarily decide before you buy it, you know that the options are there, which gives you the confidence to buy it. And then you can choose the path even after you’ve already closed on it.
So I want to take you through two examples. Two and a half examples, kind of different deals that I’ve done, really in my life and all last, you know, 12 or 15 months, and just walk you through my thought process for deciding what path I was going to take with each one. So the first one is a deal that I wholesale recently, when I originally found it, I wanted to buy it. And to keep it as a single family house and a great location. I like single family home. So like I really like great locations. But what I liked about this property so much is that it was almost a clone of another project I had already done just about a mile away, that was a huge success. This house kind of sits up off the street level about one, one story. So it means it has a basement at the street level. And so two bedroom, one bath house on the main floor. These are of course old houses here in my in my market in Portland services house from the early 1900s. And had an addict but no second story. And so what I’ve done on the other project, which was very, very similar, we had added a second story. And then we had also built an accessory dwelling unit and ad you which is like a second unit in the basement. So ultimately from this project, I had a four bedroom, two bath main house, all new construction, and then I had to either one bath at you in the basement. So get two units, great rents, built a lot of equity and doing it. And I when I found this new property that we’re talking about now, I looked at it and I said, Hey, this is the same thing as the other deal, let’s do the same thing we did to that. So there were several considerations, though, that I had to take into effect into account.
It takes a while to get plans drawn and to get permits. So it’s really nice if the property can generate some income. While that happens, especially to offset the debt service. On the first project I had done that was the case that property was already occupied with tenants, they were paying rent and wasn’t amazing rant. But it was enough to significantly offset the cost of the debt service while we got our ducks in a row, our permits ready and we’re ready to do construction. In this new deal, though, that was not happening, this property was not actually even habitable, did not have any tenants and I wouldn’t be able to put any tenants in it. Without doing a lot of work, probably I would say $30,000 for just to get it rent ready, there is no financing from the seller. So I was going to have to go find private, more expensive money. So I’ve got more expensive money now and no income stream at all. And so that was a big, big hurdle. So didn’t want to put 30,000 bucks into what kind of felt like a band aid renovation, that would be in place for you know, nine to 12 months, only then to do the full project and maybe to have some redundant costs with the band aid renovation that we would have done just to get it rent ready. So it wasn’t really going to make sense to pay expensive debt for a year. So while we put the whole project together, so what I had was a mismatch between my property vision, and my financing. And that was kind of a non starter in terms of holding the property for the long term. Also my construction resources or tied up on other things, other big things that are important things. And even if I redirected their attention to this new project, this was going to be a major undertaking, that would have taken several months, which means there’s opportunity cost with the contractors that when they’re working on this project, they can’t really be working on the other ones at the same time very much.
Also, we had just bought some other significant long term old properties. So I was feeling kind of tapped out in terms of my own down payments, short on capital. And so to put more capital into this project was feeling like it was going to be difficult. So ultimately, what I decided, unfortunately was, although what I wanted to do is keep this property by myself and keep this property for the long term after a huge renovation. It just wasn’t a possibility at this exact moment. So the next question becomes what how about reselling it? How about flipping it. And I looked at that closely to and I did all that analysis. And I found that it was still of course going to take a lot of time and money with expensive financing. And I didn’t feel like I wanted to invest all that at a time. That was I have a lot of other things going on. Plus, we also had one other flip that was just about to hit the market at a higher end, much more expensive property. And I really wanted to see how that would play out before I committed to doing another one at this exact moment. So that left me with one path. And that path was to wholesale the deal to somebody else. And so that’s exactly what I did. I assigned it to somebody else, which was great because it gave me a smaller short term infusion of cash, which was very helpful to me at that exact moment. And it was my way of monetizing my hard work and getting the deal to the second example or two example and a half is it to house package that I bought from a seller. Now one of the houses was it in a decent area, but not great. It had affordable homes for from the perspective of first time homebuyers. But it was generally not the kind of property and neighborhood that I really want to work in. It’s not the type of property I really wanted to take title of. Nor did I really want to associate my own kind of brand with. This house is a little bit funky. A little bit what I would call Frankensteinian, meaning it wasn’t all built as one it was sort of you know, as an original old house that had been added on to and I didn’t think the additions all fit perfectly. The seller really wanted to cash out on this property. It could be rented it was rented at the time. It could be resold a first time homebuyer so there were options there. But what I knew pretty quickly was it I didn’t really personally want to buy and hold this property. And frankly, I didn’t even want to flip it myself, regardless of the profit considerations. The availability of my team, this just wasn’t the kind of project I wanted to do myself. But I have this relationship with the seller, and there was an opportunity to buy multiple properties from or at the same time. And even though this one was outside my strike zone, I wanted to I wanted to find a way to fall through to monetize the lead that I generated and the relationship that I had created. So we decided to wholesale this property. And we did that for about a $15,000 assignment fee. The other property that I was able to buy from her in this package deal was in a decent working class area and not the area I typically do my work in. But a decent area absolutely with a very a neighborhood of very consistent homes that are extremely versatile and and have universal demand. The three bedroom two bath ranch home is one of those from the 60s. And to a certain degree, this is like America’s house ran the most average type of house, which means there’s lots of demand in lots of different ways. People always want to buy these people always want to buy them to rent them out, people always want to live in them. It’s a very versatile house and fits the average American family really quite well. Now on this particular deal, the seller was interested in and able to provide seller financing and I was able to negotiate quite good terms overall good interest rate, reasonable down payment and nice duration nice term of the loan. And this house was kind of dirty and stinky. But I really felt like with some some simple cosmetic improvements and cleaning up landscaping and things like that, this property could present much, much, much better than it was currently. And it wasn’t going to necessarily be rocket science to get it there. And I knew that I could rent this property out after about it, there was actually a ton of there already. So I can keep it rented to them. I could buy it, fix it in reruns to somebody else, I could resell it for a profit when I I estimated I can make about $75,000 on a flip. I could wholesale it and I estimated I could make a profit of $25,000. on that. I felt very good about the marketability of the house overall all sorts of different demand for this type of a property in this average kind of working class area. The availability of my team was good, I felt good about that the financing was great. And plus with the other wholesale deal from this package, giving me a little bit of cash to work with, I felt good about doing this as a flip myself. And so that’s the decision that I decided to make. But my options were open and even after closed it, I could still could have kept it I could have kept the existing tenant renovated it whatever, I could have done a lot of different things with it. But all of the options were really quite good. And so I felt very confident going ahead and closing the property. And that’s what we did we closed it we the tenant decided to move out, we fixed it up, we put it on the market, and we made a profit of about $75,000 on the flip. And I felt good about that the whole way because I knew that even if Plan A for some reason decided to not started not going so well. There were plans B, C, D and beyond for that property. So I decided to take that one on myself.
But the bottom line with that example is that the financing and the general demand for that type of property gave me major major options. So in summary, the Triple Threat acquisition strategy gives you the best possible options for both making an income today. And building long term wealth. And the name of the game with a triple threat acquisition strategy is this to assess and to evaluate the intersection of a maximum opportunity that the deal presents with be what you need and what you want. In your own business at that moment. It’s always good to have options, and the choice is yours. And as long as you make that choice thoughtfully, deliberately, there is no wrong answer. You can choose whatever you want as long as you assess it, and you decide that the right path for you.
So thank you for listening to Sleaze-Free Real Estate Investing. On the next episode, we’re going to be discussing relationship wholesaling. That’s the term that we use to describe the way Thoughtful Real Estate Entrepreneurs approach the business of wholesaling. Again, please do yourself and do us a big favor by hitting the subscribe button and your podcast app. So that way you’ll know the second to the next episode is released. And a reminder to today’s show notes including a full transcript of this episode can be found at www.thoughtfulre.com/E6. Until next time, this is Jeff from The Thoughtful Real Estate Entrepreneur, signing off.