Never Put Passion Before Principles - Real Estate Rule #15

Hey YouTube, this is Cody. I'm here with Christian and I got my Cody shirt on today. Christian's washing his. Today is real estate rules and principles that we follow, specifically speaking number 15: never put passion before principles.

Yep, a lot of people really love to do that. We're doing a whole series. These rules are our principles that we won't violate. Yep. Now there is a quick exception. Sometimes rules will come into conflict and you're going to have to weigh them against each other.

That being said, this is one you don't want to violate ever. Let's say you get super excited about an opportunity. The best thing ever pops up. You're super excited, stoked about the opportunity. A lot of emotions run and you think you're going to get rich quick. Yeah, it can happen. It's just, it's called a lotto. Not a lot of people get it. Well, emotionally speaking, you're going to be charged in that moment and you're going to think, okay, I never do this except for right now. And if you violate principles, you get into a position where you're not going to be very comfortable with because you haven't done that very often. We have our principles that we follow, and if something's going to clash, yeah, we may have to adjust one for the time being, but we're not going to just flat out violate principles because we're emotionally charged about a deal. Emotions don't necessarily make money. Just because it makes sense doesn't mean it makes money. And when you're emotionally charged, a lot more things can make sense in the moment, and that's where you can get burned. So it's really important when you're going out there to keep logical and don't put all the excitement and the future feelings, you know, future pacing, right? If you're a salesperson, you're familiar with this. You future pace the client and you can get them emotionally charged, and that's when people will transact. Well, you don't want to do that to yourself because now there's no logic from either party, which happens to be yourself in this deal.

Practical application on this one, we recently had a deal, it was a lot of units, more than 80, that we were looking at, we were really interested in.

87 units.

There's a principle, and it's not one that we've shared on here yet, but an upcoming principle that we don't violate, which is we only work with people that we trust. We don't work with dishonest people.

If you—

in this particular transaction, they proposed what they wanted. I want this price, these terms, and I'd like you to be the buyer.

And they called me up and said, hey, I want you to come into the office. This is the deal. And it was $1 million down. I'm like, okay, we'll do it.

Shook hands on it.

Yeah. And I would love to own the assets. They're cool. They're great locations. But later down the road, as Christian was getting to, they come back and say, okay, I offered you $6.1. I'm countering my own offer. 7.5.

But Cody, it's the same upside.

No, no, I could justify it at 7.5. However, I'm not gonna get so emotionally attached to that deal where I'm gonna do it because I shook their hand at 6.1, and I'm not gonna let the emotions get in the way. Okay, well, I could justify it at 7.5 because I made it work at 6.1, exactly what they asked for, and we don't violate the one rule of trust. You got to work with people you trust. But today we're talking about being emotionally charged. That would have made me one of the largest property owners in all of Grant County, if not the— if not the largest as far as apartments go. There's a lot of people that own a lot of residential stuff, or the billionaires. And, you know, I'm not a billionaire, sorry, but I could have been the largest, you know, normal as far as like, you know, below a billion. Largest property owner in Grant County when it comes to apartments. That was really exciting for me. That would have been an amazing story that we talked about last week. The story is worth more than the real estate. The story would have been massive, would have been huge for, you know, putting out there on maybe a news article, getting on a podcast. It would have been huge because when I pay that off, I'd be one of the biggest players ever over there. The opportunity was huge because no one could replicate it with without buying my portfolio at a premium. It was just massive and I really wanted to do it, but they violated other principles and I had to make sure that logic stepped in and emotions didn't overpower my other principles, which in that case was you can't do a deal with someone that you don't trust.

Yeah. And one that we have shared is you can't do a good deal with a bad partner and people that you can't trust are bad partners. And in a seller finance deal, while they're not directly a partner in your LLC, they're another player. Like, they're attached to that deal. It is an ongoing relationship, and they have a stake in that opportunity for the remainder of the transaction. If you can't trust them from day one— and I believe they were looking, if I'm not mistaken, that was a 10-year note. We're attached to someone who we don't trust financially for 10 years. That would be awful and potentially devastating if the wrong thing happens.

Yeah. So what did I do? Well, I let emotions go the other way and I blacklisted them and said I'd never take their property for free. Now whether that's right or wrong, I don't know, but I'm not going to violate my other principles because of the passion in the moment. And that opportunity, super excited, but not going to work with people that we can't trust.

Taking this a different direction.

Yes.

There are a lot of people who are passionate about different things and you can have that outweigh just common sense. A principle that we have is we buy on long-term debt, long-term contracts with— so that we have predictable income throughout the year. We like stable rental properties on annual leases. Cody and I have always had a goal of we want to own cool temporary short-term rentals in awesome places, but not until we've set our base and hit our goal in long-term rentals. There have been opportunities where I'm like, oh my goodness, this would just be the coolest Airbnb ever, and we'd get to—

it'd be amazing.

It comes with a pool, we can scale up, our lifestyle can increase, so we can do this. Because we didn't do that, we got to our original goal of over 100 units. Granted, I'm at 95, he's at 105, but average it out, we hit an average of 100 units between the two of us. That's the real estate we control. We hit our our target in 10 months of partnership. Now we have the ability to start looking at other opportunities, and we are looking at a shorter-term—

it's a seller-financed resort.

Yeah. Now it's not quite an Airbnb. We are a huge fan of going bigger, which it lines better with our principles, but we would never do that before we set up what we said we're going to do.

And the owner's awesome. We're going to learn— yeah, we're going to learn so much from the owner that— back to, you know, last week, stories worth more than the real estate. Their story's worth more to me and Christian than probably my whole portfolio. What they've done is phenomenal, and we can use that to go scale up other organizations. But we wouldn't be there if we put the passion before the principle early on. We followed our principles. It put us in a position where now we can do this, and it fits everything that we set out to do, and we're better off financially for it.

And ultimately, I think if we tried to get into the short-term rental space or any of like the resort, the Airbnb, any of that earlier, this opportunity would not have presented itself. We would not have had the net worth, the cash flow, or the business acumen to even land this deal. They would do a review of us, um, provided we do this. I'm going to call my shot right now and say we're going to make it happen, so you guys can refer to this video when we start posting on it.

But we call all of our big shots on YouTube.

It would be seller financing. They'd be seller financing a $3.5 million note.

It's a big deal. That's our biggest note in one deal.

And we would not have that opportunity had we violated principle and put passion before that. Sometimes it's not that fun to buy a Class C building. You don't drive your family out to your big long Class C building with an ugly roof.

Look at this turd. It's—

while we enjoy it a lot, it's not the most exciting thing you can do. It's not like bringing your family to a resort that you own and go, wow, all my stuff looks exactly like this, I promise. The pride of ownership, it's just different. While we provide an amazing economic service and it's something that makes money, it's not glorious every time. And if you put all your passion pieces before and go, I just want to do what I want to do, you miss out on opportunities. Stick to your principles and they will open up the opportunities that you're passionate about down the road. Sacrifice a little now for a lot later.

And whether you follow these or not, you know, that's up to you. But if you set out your principles, don't violate them for passion. If you're going to adopt any of these, this is a good one, because if you get emotionally charged and you start violating your rules, it's a good way to go bust.

And by the way, these are our principles. This is something I actually got from Ray Dalio, a really famous hedge fund manager. He wrote a book called Principles, and the biggest part of his book is, these are my principles, this is how I went from point A to point B. That doesn't doesn't mean they're your principles, and we adopt the same thing. You can take ours, apply them. You might hate a few of these and they don't apply to you, and that's fine. We do recommend that you document and write out your own principles. Know who you are, know where you're going, and know what— really just who you want to be and what rules you don't want to violate. Then never put passion in front of those.

But that's it for this week's real estate principles and rules. If you have questions, drop them in the comments below. We do Whiteboard Wednesday every single Wednesday at 3 PM Pacific Standard Time. So drop those down below and we'll see everybody there.