The "Fast Track Money Matrix" I Use On Every Deal
Today I’d like to share something with you I call the “Fast Track Money Matrix”. (Whoa...)
Essentially it's a kind of filter I use for each deal that comes my way that helps me make better, stronger offers. The bottom line benefit for me is that I’m better able to craft deals that both meet the seller’s needs and also fit perfectly with both my short-term and long-term business plans at any given time.
As I’ve had the chance to share this with others lately through teaching and coaching, I’ve really enjoyed seeing the light turn on for people. Not because the pieces are so “top secret” or magical – you’re likely familiar with most all of them already. I think it’s just how I view them and suggest using them to filter your leads, based on your goals and resources at any given time. It tends to be kind of a light bulb moment when you get it.
Maybe that’s why they call me the Clever Investor. ;-)
The Four Transaction Baskets
So for starters, the way I see it you can take any potential deal that comes your way and drop it into at least one (maybe more) of four different “transaction baskets”. These baskets are:
- buy, fix, and flip
- creative real estate
- buy and hold
Here’s a graphical look at what I’m talking about:
Each of the four quadrants of this matrix represents one of the “transaction baskets”. And as you can see each one is a type of deal structure that ultimately creates an entirely different experience and net benefit for you.
But Which Basket to Choose?
First off when I’m talking to newer investors, I strongly encourage them to set both short-term and long-term goals for their business right from the start. And these goals should of course take into account the type of income you’re aiming for (fast cash vs. cash flow) as well as your current available resources – components which you can see represented above and beside the matrix.
So you’ll be asking yourself:
- Am I all about chunks of cash? (transactional income)
- Or is cash flow more my goal? (residual income)
- Do I have access to cash/credit to leverage? (can I get them?)
- Or am I basically cash/credit broke? (for now)
Now if you hold your honest answers to these questions up to the matrix pictured above, you can tell pretty fast which basket(s) will be the best fit for you to focus primarily on, right?
Be aware that I always encourage keeping an open mind, because any lead could take on a life of its own. I’m a big proponent of outside-the-box thinking and recommend it highly. In fact I prefer presenting more than one offer to a motivated seller whenever possible – maybe one cash, one terms and one a combo of the two. Because the fact is you never know what kind of opportunity you can open up for yourself with a little creativity. (More on that in a minute)
But generally your short-term goals and resources will chiefly determine which of the four baskets any given lead ends up in – or at least which basket you’ll strongly favor.
(1) The Wholesaling Basket
I've made a fortune wholesaling houses. I would say wholesaling is the ultimate no money down investing strategy and that you need to learn how to wholesale real estate! Very low risk. You don’t need a lot of resources.
You do need a little money but not much at all. Basically you need a phone, a computer, and ideally the ability to do at least some marketing, even if it's cheap guerrilla marketing.
In its simplest form wholesaling is putting a piece of real estate under contract at a significant discount, then turning around and flipping that contract.
So really you just need to get out there, get a good deal under contract and flip that contract. The asset isn’t the house, it's the contract you have on the house. And you’re flipping that contract to a back end cash buyer at a discount from retail. Your profit is the spread in between. This is wholesaling 101.
A great number of newer investor I’ve worked with start off strongly favoring the no money down, quick turn, “I just want to make my first dollar in real estate” mindset. They’re not really focused on building their big real estate empire yet, and tend to have little or no cash or other resources to play with.
So typically my starting point with people like this is to point them towards the wholesaling basket first. If you have little to no cash/credit resources to start with and you really want to generate some fast cash, there’s just no better place to start in my opinion.
Now after notching a few wholesale deals and banking a few decent paydays, some folks decide they just want to crank this way up for a while – which is great. That was my first two years investing…wholesale, wholesale and more wholesale.
But at some point it seems you typically start getting curious about the other possibilities out there that you haven’t tried yet. You’ve got the fever, you’ve got confidence, experience, and better resources you can tap into. So now that you’ve conquered this wholesaling thing, you begin to wonder if maybe it’s time to evolve.
(2) The Buy, Fix and Flip Basket
For many the next natural step seems to be trying your hand in the fix and flip basket. You still get to enjoy the “cash now” aspect, but it also takes a little more in the resources department – specifically you’ll need access to cash/funding. There’s also a higher risk, though your paydays will tend to be much fatter than your wholesale deals – as in slower dimes vs. fast nickels.
I’ve realized that some folks seem drawn to this arena thanks largely to all the flipping TV shows we have now. Flip This House, Flip That House, Flip Your Momma’s House, and whatever. Every day there’s a new one coming out. Lots of folks see these shows and go, “Oh, wow, I want to do that! I want to take something yucky and turn it into something pretty like they do on TV!”
I get it. It’s sexy. It’s visible. And yes, it feels good to watch a dilapidated junker transition into a beautiful lady and to be responsible for that. You feel like you are doing something good for the community and the neighborhood, and there are great paydays waiting for you if done correctly. Whereas wholesaling, you get a bunch of little paydays.
But let me just say: It's not quite like it seems on TV. I’ve done a LOT of rehabs and I’ve helped a ton of folks make great money in the fix and flip basket too. I’ve also seen a lot of folks get their lunch eaten by jumping into the fix and flip basket without some good education to guide them.
Truth be told, the fix and flip arena is rich with opportunity - you can make a stinking fortune honestly. But it requires a different set of skills and mindset than wholesaling – a factor most don’t really tend to consider before jumping in.
Dropping deals in the fix and flip basket means you’ll be managing contractors…draw schedules…dealing with Realtors, commissions… hold times, market shifts…
We actually have a whole system and strategy I like to take people through on dealing with contractors and pricing out the cost of the materials, etc. It takes a huge chunk of people’s learning curve and it can all absolutely be learned and mastered. But you should really just go in fully aware that it’s a whole different game than wholesaling, and be prepared to learn about it.
(3) The Creative Real Estate Basket
At some point investors often find themselves getting the itch to try something a little more creative. And thus enters the basket of Creative Real Estate Investing.
The world of creative real estate investing is just that – very creative. Also very deep and very wide. Seriously you just have no idea how many different ways there are for you to skin a real estate cat until you start dipping your toes into these creative waters.
This is the realm of the transaction engineer. You’re using your creativity (rather than just cash) to think outside the box and work your way into or out of transactions. Through creative paperwork and concepts, you position yourself to profit nicely from deals most “normal” investors wouldn’t even recognize if it bit them in the face.
There are so many different ways you can do this:
- lease options…
- sandwich lease options…
- wrap-around mortgages…
- creating and buying/selling notes…
- subject-to investing…
…The list goes on and on. We could literally spend all day breaking down each individual technique.
But what you really need to understand in light of the matrix, is that the creative world typically favors those who like to get into a deal with little-to-no cash/credit involvement, and it also tends to be a great place to create streams of cash flow income.
Make no mistake – you can definitely score cash chunks in the creative realm too. I think it’s the most diverse and option-full of all the baskets. But the cash flow opportunities are rich and plentiful.
Also the creative basket is often a good bit more involved and in-depth than the others, which can sometimes mean a little higher learning curve. But it's also be extremely worthwhile when you find yourself able to craft creative, profitable deals seemingly out of thin air. A great way to impress your friends at parties! :-)
(4) The Buy, Fix and Hold Basket
Then the final frontier for most investors is typically building long-term wealth, right? That’s maybe even why we got involved in real estate in the first place. We all said to ourselves we want to get rich through real estate. And often before we even know about things like wholesaling or creative real estate investing, we automatically think of either fixing and flipping or, more importantly, owning a huge rental portfolio.
The great news is if you can structure a wholesale deal or a seller financing deal, then you are already in a great position for the buy, fix, and hold deal. Because the key to creating long-term wealth owning a portfolio of real estate is that you make your money when you buy, right? We’ve all heard it before and it’s just plain true. So if you can structure a good buy price or some really great creative terms, then you’ll be in a really great position to buy, fix, and hold.
Just so you know, the days of speculating on deals is dead and gone. Buying houses, then keeping them as rentals earning negative cash flow just to hopefully some point in the future flip it for a big profit – that’s the stupidest investing model ever, and thankfully most everyone woke up from that nightmare in 2007. Ask me how I know that! (Hint: I live in Arizona – our whole entire economy imploded because of that methodology)
But when you get in right, and you structure your deal and financing the right way, then you can absolutely create some great long term wealth through a rental/cash flow portfolio. Then your biggest decision is whether to manage your own deals or outsource that to somebody else. (That’s a whole different blog post, trust me!)
Now make no mistake – I’ve seen people walk into this arena too fast with too little insight and get clobbered in short order. Some common reasons would be:
- Getting in too quickly/agressively without enough cash reserves for each property…
- Buying houses all over town and in crappy neighborhoods just because they’re super easy and cheap to get into…
- Convincing yourself that $200 cash flow is really all you need...
- Tenant screening mistakes (hugely important)
Like any of these baskets, you need to learn what you don’t know first. Find and follow a good map, and don’t just wing it. When investors are ready to start the filling the buy, fix and rent basket, I’ll show them how to structure their legal entities, their paperwork and their tenants so they don’t have to deal with tenants and toilets all the time.
Pulling It All Together (Beyond Linear Thinking)
Now as I said before, generally your short-term goals and resources will chiefly determine which of the four baskets any given lead will typically ends up in – or at least which basket you’ll strongly favor.
And especially for newer investors – you can’t learn everything at once and you shouldn’t try. You should start off focusing on the one basket that best fits your situation right now.
But at some point you can and should mature and expand. And my advice is to start considering a number of different ways to present offers, so you can see how many of these "transaction baskets" any given deal might fit into. Then you can choose from multiple options what you want to do with the property to get either a chunk of cash today, long-term cash flow over time, or maybe even both.
Said another way, rather than thinking linearly about only one specific type of offer, as yourself: What are your goals, and how can you potentially structure this deal to best meet those goals? Could there be other ways to skin this cat that you and/or the seller haven’t even considered at first?
For example, maybe your seller’s fixated on a cash price, but doesn’t even realize that he could potentially score a much needed income for dear old Grandma by selling her house to you on low interest terms instead of outright for cash.
Dual Offers, Directly With Sellers
I think the market is ripe right now to be dealing directly with motivated sellers. For a long time everybody was getting their inventory from banks. That has been restricted now nationwide in the last few months. Many investors are now scrambling to uncover where their next acquisition source is or where they are going to get their next big deal. The banks have restricted how much inventory is hitting the market, and less inventory equals higher prices.
For this reason I’m now saying we should be focusing on going directly to the motivated seller, and presenting that motivated seller with at least two options:
- an all-cash purchase (at a significant discount)
- or a terms purchase (which is more towards the creative real estate investing basket)
My advice is to, as soon as practical, start learning how to position any lead to potentially fit into either of those two baskets, depending on the choice that the motivated seller makes.
Then from there, the world becomes your oyster.
- Say you don’t have any money, but you can partner with somebody to fix and flip it that is willing to put up the money.
- You could decide to keep it. If you have created a good terms offer, you can keep it as a rental and just earn some cash flow over time, then worry about cashing out and earning your big payday sometime down the road.
- You could just quick turn and wholesale it
- You could lease option the property, then turn around and lease option it again to someone else, putting yourself in the middle earning some nice ongoing cash flow.
I’ve done exactly this last tactic before, then had another investor came to me asking if I had any good deals. I said, yes, I’m in between these two deals collecting a nice monthly spread. If you pay me $7,500, I’ll let you step into my place. You can collect the monthly income, and you can worry about getting paid at some point down the road. He agreed and basically I wholesaled a creative real estate deal.
My point is, once you get a little experience, if you start running every lead you get through the “Fast Track Money Matrix” like this, the opportunities are only limited by your creativity, your short-term goals and your current resources.
This was a long post! I hope this has been enlightening to you. It’s a really powerful concept that few other investors really “get” in my experience. But it can make a huge different in your development as a real estate investor in the near and long term.