Getting Chilly at the Auction: BRRRRing My Way to F.I.R.E. Part 2

Part 2: (B)RRRR

Tactical Empathy

Now that I Bought, I needed to get to work on Repairing, so I could Rent, Refinance, and Repeat.

Taking the advice of what my 8-year real estate vet buddy told me, I did not post a 3-day notice, and instead had my father drive by the property, knock on the door to see if anybody was home, and then give them my number to call me. Miraculously, somebody was home and he called me right away. We set up a time to meet and I told him he might be able to stay as a renter.

At this point I was in full Chris Voss negotiation mode. I had listened to Chris on multiple podcasts and read his book so I was basically a seasoned FBI negotiator. I called another investor friend and we planned my info seeking mission #1. I would meet the former owner of my property to A) determine what he wanted and B) get a sneak peek at the repairs I would need to make. Once inside the enemy compound, I would employ tactical empathy to negotiate what I wanted. I also decided I would have the former owner sign a lease so I could start collecting rent right away without having to do any rehab. Just like Brandon Turner taught me.

We met on a Saturday and I said right away I had only 20 minutes to talk. Boom! Frame control and timeline established. I’m a busy man. FBI negotiation.

I let him know how much I appreciated him calling me right away, apologized for his situation, and asked a bunch of questions to try to figure out why he was foreclosed on. We talked for about 15 minutes and then he gave me a tour of the house. The whole time he talked about what a great tenant he would be. I didn’t argue. I didn’t bring up the evidence to the contrary. I listened, empathized, and said I thought he would be a good tenant too but I had to talk to my girlfriend because we bought the house together and it was her call (not true). He and I would talk next weekend. FBI negotiation.

What I learned...the easy way

I majored in English in college so I was great at arguing. I learned to give you my thesis then all the reasons why I was right. If my thesis didn’t tell you how right I was then all my evidence sure did. All those theses and evidences also told you how smart I was. When we were done talking you were definitely ready to agree that I was smarter than you. Over the years I met a lot of people who didn’t want to talk to me anymore but they would certainly agree how smart I was.

Obviously I was not fun to talk to. Chris Voss helped change that and he helped prepare me to navigate this deal where a grown man had just lost his home of 8 years to some whippersnapper. He didn’t care how smart I was or why I now owned his house. All I cared about was that I could talk to him and not be killed. By listening empathetically instead of patronizingly demonstrating my intelligence, I learned that the number one thing he did not want to do was move. He had so much stuff. He had been here for so long. He felt so comfortable. It would take so long to move his basement full of stuff. 

Lesson #3: Read books to broaden your skillset. Audible, Kindle, Blinkist, library card, whatever.

What I also learned was that I had bought a deal. The roof was new. The hot water tank was new. The furnace was newer and the central air worked. The house was clean. The kitchen was nice. The basement was dry and partially finished. New carpet, paint, appliances, and an exterior paint job on the aluminum siding and we were ready to rent.

What I learned...the hard way

Stupidly, I implied that I might let the former owner rent for 9 months so he could get his stuff together and plan to move next year. I was motivated by short-term profits and the desire to not have to pay to make the minor repairs the house needed. My three investor friends told me not to do it. My lawyer told me not to do it. I was an FBI negotiator so I thought I could do it.

Reason prevailed when I figured out that somebody who does not want to move his stuff today will not be any more likely to want to move his stuff in one year. I told the former owner, now squatter/tenant, that my girlfriend wanted to move in so we couldn’t rent to him. I also pitched two scenarios: he can pay rent for up to 2 months to get his stuff together or he can move out in 2 weeks for $500. If we couldn’t agree to anything then I would file an eviction. I gave him a week to decide.

At this point I knew the house was in great shape and I only had money to lose if I pissed him off and he trashed the place. I would happily pay $500 to get him out on good terms. Ultimately, we agreed that he could have 1 month to move out for $500 by August 31, or be evicted, which would cost me $500. I was ok with this timeline because the county told me I couldn’t touch the property for 60 days so I didn’t think I would have possession until the second week of September anyway.

Unfortunately the county is not a lean mean rental management machine capable of projecting accurate timelines like I am, and they transferred my deed in 30 days, NOT the 60 days they told me and I had planned for. I now had possession of the property, had a freeloading squatter in my house, and I had stupidly agreed to let him stay for 2 more weeks. My lawyer’s like “I told you to evict him dummy.” My real estate investor friends were like “we told you to evict him, dummy.” I listened to them with tactical empathy and then said “FBI negotiator” and hung up the phone, knowing how right I was.

At this point I finally posted the 3-day notice and had my lawyer on stand by for the possible eviction. I let my squatter know the 3-day notice was just to protect myself and was something I had to do because we didn’t sign a lease. I sensed some more urgency in his voice and knew I should’ve posted the 3-day notice right away.

Lesson #4: Walk soft, and carry a big stick. Show tactical empathy face-to-face, but know you have all the control behind the scenes.

If I had posted the 3-day notice on day one, I still could have employed all the tactical empathy and been a reasonable human being to this man who had lost his house, but I would have a firm deadline looming that would have also inspired urgency on his part to move. I could tell he was taking his time. I knew from our interviews that he did not want to move. I knew that the fact that he did not want to move meant his mental inertia would lead to physical inertia and he would make excuses and move slowly.

The county did me a favor by moving quickly, and I probably could have turned around the property by September 1st. Because of my mistake I was now looking at an October 1st rental date which pushed back my refinance, which pushed back my BRRRR strategy, and which ultimately pushed back my financial freedom.

Ultimately he moved out, I rehabbed the house and placed a tenant by January 1. I refinanced almost everything I put into the house and am cash flowing $100 per month and have $18,000 in equity on a 75% ltv mortgage. BRRRR success!

Get in the Game

The auction house was my third rental property, I had listened to all 200+ BP podcasts, some multiple times, and had read over a dozen real estate investment books, but I was still unprepared and still made mistakes. The biggest lesson from this experience was to simply get in the game and do something. A big part of investing is creating systems to manage processes that will let you generate wealth passively. You can’t refine a system if you haven’t even put it to work. You also can’t refine yourself, which is the main component of the system for new investors, if you haven’t put yourself through the process.

I knew I was making a mistake as I made the mistake but I had to make the mistake to overcome it. Now that I’ve gone through the auction process once I’ve already refined my system by making sure the 3-day notice gets posted immediately. Tactical empathy will follow. I will be two weeks quicker. My business will be bigger and better. My mistakes will be bigger and better. I will listen to them with tactical empathy and I will learn. FBI negotiator.