I believe most successful real estate investors look at the world through the lens of “Glass is Half Full.” This positive attitude helps us tackle challenges, get up when we are knocked down, and keeps us plugging away year after year. That said, a can do attitude left unchecked can lead to terrible deals and horrible decisions. For example, have you ever looked at deal and said one of the following:
“The area isn’t that bad.”
“The building just needs a little more than cosmetic work.”
“The tenant will not miss another payment.”
I know I have said each of these statements multiple times and it was the power of veto that helped ensure I didn’t make a bad decision. As I prospect for deals, I am constantly looking to expand my comfort zone, offer creative deals and dig into the next challenge; that is where the power of veto comes in.
Let me explain. On my team my wife has the absolute and unquestioned authority to veto any deal if she doesn’t feel it meets our needs, requires too much work or is in a sketchy neighborhood. The reason doesn’t matter and she can kill a deal that I have been working on for months. Don’t get me wrong, I hate the fact that she can single-handedly kill a deal that took months to put together, but it is the correct thing to do for our long term success. It ensures we have multiple eyes on our portfolio and that we are both bought in together as we journey down this path.
Now, on occasion, I will admit to wanting to push back, create excuses and explain away her concerns but that is not what a partnership is and that behavior does not respect the power of veto. If you are part of an investment team, I strongly recommend you empower someone on the team with veto authority. The role needs to be respected and that person held accountable, as it ensures the team is either fully on board or they need to look to the next deal.
My ideal investment is a multi-family property that is in a distressed state, which is located in a blue collar neighborhood. This type of investment ensures I get the maximum return on our capital and produces tremendous monthly cash flow.
These types of deals need to pass two critical elements to ensure they are not stamped with veto:
First, the property must be an area my wife feels safe in alone. My wife has to be comfortable visiting the property by herself during the day or we pass on the deal regardless of yield. This additional filter ensures we don’t fall into the trap of high yield deals in problem areas.
The second threshold is the scope of work. While I like the discounts we get on distressed units, my wife on occasion will veto a deal because she feels the amount of work is too much.
I suggest all investors leverage a well defined and respected veto function to ensure investments continue to meet your long term goals. I know it is not easy but I am a better investor knowing I have my wife to double check and review all of our deals.