From Good to Great: Taking Your Deals to the Next Level
So you think you’ve found a good deal? Awesome. But before you make a quick buck, make sure to first see if you can turn a good deal into a GREAT deal. Here are some not-so-comprehensive suggestions.
STEP 1: NETWORK
Every deal – seriously every single one – reach out to your network. You want to do this for multiple reasons. Go to every event and talk about your deal. Put it on every Facebook page.
Your network may have someone with a specific need that matches your deal. Everyone in this market is looking for something: a lot, a rehab, a personal residence, a partner, a place for their business, a 1031 exchange property, you name it. You never know. They may understand the zoning/use better (we’ll get to this), they may have a better deal structure in mind (we’ll get to this, too). Lean on the experience of others. It’s amazing how many ideas I’ve gotten in a five-minute phone call with someone in my network.
In addition to potentially making your deal go from good to great, this also helps you grow your network and your credibility (if you’re trustworthy and competent).
STEP 2: MAXIMUM USE
I’ve made hundreds of thousands of dollars buying and selling property being marketed by investors and real estate agents (as opposed to off market). Many have made millions. Yes, even in this Nashville market. How? Because they see value other real estate investors/professionals do not. This is where the quickest money in real estate can be found. So, study up and learn the zoning, codes, land use, etc. for your counties and markets.
Real world example: Investor A sells a single-family home to Investor B. Investor A bought this off market (or has it under contract) for $235,000 all in. Investor A sells this to Investor B for $250,000, making a $15,000 profit. Not bad! Investor A is happy, and a quick and easy $15,000 is amazing. And Investor A needs the money. But WAIT… (cue the screeching tires track). Investor B realizes that if he HPRs this great corner lot, he can sell the house for $225,000 and separately sell the additional building pad for $75,000. Awesome! By having one crucial piece of zoning knowledge or by using step 1 (network), Investor B found an extra $50,000 in value!!!
Go back to your network on this. Sometimes a single idea can dramatically increase the value of what you’re selling.
STEP 3: CREATIVE FINANCING OR STRUCTURING
Check out the article on our new commercial building for this one.
I almost always ask about seller financing. Just ask the seller casually, “do you need all of the money now or would you be open to paid over time?” People tend to focus on price. But smart investors know that price doesn’t matter if you control the financing terms.
Also, explore all the creative structures in your toolbelt to see what fits and could make a good deal a great one: subject to, lease options, tax strategies, seller financing, BRRRR, house hacking, etc. If you don’t know/understand any of these, then study them.
STEP 4: STAY IN THE DEAL
Sometimes you need cash. I get it. I’ve been there many times. It’s ok to leave meat on the bone to sell a good deal, make some money, and allow another investor to take the property forward and also have a good deal. This is what happened in the A to B deal above. Everyone made money and is happy. That’s a win-win, and it’s always a great thing.
But… don’t do this always or forever. Wholesaling is a not a long-term wealth builder. You have to keep some real estate to create long-term wealth. Find ways to stay in deals when you can. This may mean that you need to find partners who have cash, construction experience, lending relationships, or other sources of value you are lacking. It is worth it to keep a percentage of the deal to stay in sometimes.
Let’s go back to the Investor A and Investor B scenario. Investor B sold the lot to a contractor friend and sold the house to someone who rehabbed the house. After a short-term capital gains tax, Investor B probably pockets about $35,000 cash.
Investor B could have instead, for example, just sold the lot for $75,000. B could have then used the money from the lot sale to fund the rehab the existing house. Investor B could have then refinanced the house with a local bank and kept the house a rental – potentially paying no taxes, with no money out of pocket. At the end of the day, B owns a nice, rehabbed property with equity and little to no money out of pocket. We could run the numbers on this, but even if the property does not cashflow much, with the principal paydown, appreciation, and tax benefits B will make A LOT more than $35,000 in the long run. This is just a simple example – there’s an almost unlimited number of ways Investor B could have stayed the deal.
STEP 5: MOVE ON, BUT ALWAYS LEARN
Investors may or may not have regrets about potentially missing an opportunity to make a good deal a great deal. Investor A, if paying attention, will learn the HPR trick for the next deal. Investor B might wise up and keep the house or lot next time. BUT, they both had the opportunity to learn a lot from this deal. I learn something from every deal – especially the ones I make mistakes on (which is pretty much all of them).
Take every opportunity to learn from you mistakes in every deal. Then move on to the next one. Those of us with abundance mindsets understand that there’s always another deal. And next time, we will have learned one more lesson to help us turn a good deal into a great deal.