The Five Traits That Make an Extraordinary Real Estate Deal

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I have many philosophies around real estate investing, some of which I’ve expressed in my articles and Podcast here on BiggerPockets as well as my own blog.  But one of the biggest is this:


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Extraordinary Opportunity Defined…

Obviously, the essence of that which defines the extraordinary is relative to the investment strategy and specific technique being applied.  For instance, for a sub 2-er it is extraordinary in this day and age to come across an assumable mortgage.  For a flipper, it is extraordinary to find $150,000 or more spread.  And so on…

I am not a flipper, wholesaler, subject 2-er, or a lease-optioneer, and while I obviously recognize the above examples as indeed extraordinary circumstances worthy of taking action, in my world there many other structural elements that combine to constitute an extraordinary opportunity, which is the topic for today.

Immediately below is a bullet point outline of a few of the attributes which make a deal extraordinary in my life, followed by a brief discussion of the items on the list.  This should really be an eBook, and perhaps it’ll become one some day, but in the context of this article the best I can hope to do is to skim the surface.  My intention is to encourage you to see past that which is the obvious and mundane in the world of Real Estate Investing, and to shine the light on the world of creative finance, which is all about PERSPECTIVE

Attributes of an Extraordinary Opportunity – Outline

  1. Multiple Exits
  2. Cash Flow
  3. Time
  4. CAP Rate
  5. Expandability
    • Income expandability
    • Expense expandability
    • Expandability Through Financing

i.      100% financing

ii.      Time-frame vs. Price

iii.      Interest rate vs. Price

1. Multiple Exits

Don’t Lose Money – this should be every investor’s number 1 objective, and while there are many items that can be discussed relative to this, the most pertinent for me is presence of Multiple Exit Strategies.  An extraordinary deal should lend itself to multiple exist possibilities.  Sadly, few opportunities and strategies afford this, which is what makes this element extraordinary.

2. Cash Flow

Cash Flow is the essence of why I, a fundamental investor, buy property.  I am in search of Financial Freedom, which is a function of gaining the ability to pay my bills and maintain my family’s life-style without earned income – without a job. 

Can you relate?

I buy property not because I am in love with it, think it’s sexy, or because it somehow satisfies my sensibilities – not at all.  I buy property because it represents passive revenue streams, which result in passive cash flow, which over time accomplishes the stated objective.

With this in mind, an acquisition can satisfy the threshold of extraordinary if the minimum requirement for monthly cash flow of $100 per door is met.  Note, simply having met this requirement does not necessarily constitute an extraordinary opportunity, which is why I say can instead of using the word does – but it is a good start…

3. Time

The third attribute of an extraordinary deal is Time.  I don’t know if you’ve had an opportunity to meet him yet, but I am very close friends with Mr. Murphy – yep, he is alive and well indeed!

I have learned to have utmost respect toward the fact that no matter how well I plan things, something always goes wrong, and it seems to do so at the most inopportune times.  Time, more than anything else, is the structural element in any transaction that is going to save your butt when things go sideways.  Time will allow you to restructure, to adapt, to “find a way”.

With respect to time, therefore, an extraordinary acquisition is one that addresses to objectives:

I.      Provides for unlimited time-frame of ownership, i.e. does not require the sale of the asset as part of the over-all investment strategy.

II.      Not only must you be able to own it forever should you choose to or should it become necessary for any reason, but the acquisition must make equal sense 20 years in the future as it does now.  Translation – don’t buy crap you wouldn’t want to own in 20 years!

4. Capitalization Rate

A lot has been said about the validity of the CAP Rate as a metric by which to analyze an investment opportunity.  Still, there seems to be disagreement as to how definitive this metric is.  I feel that the reason for the disagreement is due to a certain misunderstanding relative to the application of this metric…

The Obvious

Cap Rate is a measurement of return on investment which juxtaposes the annual NOI (Net Operating Income = Gross Income – Operating Costs aside for the cost of money) against the total cost of investment.  The formula is:

CAP = NOI / Purchase Cost (Value)


Purchase Price (Value) = NOI / CAP

Thus, if you are analyzing a building which shows an NOI of $10,000, then if you are willing to deploy capital so long as you receive a 8% return, then you would be willing to pay $125,000 for the building, since the 10k of NOI represents 8% against an $125,000 purchase price.  However, if you are willing to pull the trigger only if you can generate a 10% rate of return relative to the Cap Rate, then the most you’d be willing to pay for $10,000 of NOI is $100,000.

Notice that in the above example nothing changed about either the building or the financials representing this building in order to cause a 25k discrepancy in the purchase price.  What changed is your expectation of the rate of return, which brings me to my next point!

The Less Obvious

While most investors seem to focus on Cap Rate as a means of setting value to a specific asset, the more important function of this metric is that it represents the behavior of the marketplace.

Think about this – if you asked 100 investors what kind of CAP they would accept to pay for a particular type of building in a specific location, and you received answers ranging from 8% to 8.5%, this would define “The Norm” for you, wouldn’t it?  This would also tell you that if the building you are considering is showing an 8% Cap, then you are within that which is the norm for the marketplace; anything lower would not be good enough, and anything higher would therefore be above average.

Thus, an extraordinary deal relative to the Cap Rate would seem to involve beating the “Going Cap Rate” by whatever margin you define as an acceptable threshold.  Furthermore, CAP should be given consideration relative to the purchase price, and also relative to your capacity to grow the rate through strategic management.  And with this we’ve arrived at the last characteristic, or rather a batch of characteristics which combined under one subheading help define the Extraordinary in my world…

5. Expandability

Expandability is defined in the following way – any tool, technique, term, or approach which either increases the investment return, or facilitates a transaction which otherwise would not be possible. 

Expandability can be something we do during our ownership, it can be a technique we apply in structuring the transaction or during the acquisition process, or it can be a structural component of a deal such as a item in the Purchase and Sale Contract, the Promissory Note, or the Mortgage / Deed of Trust.

Income Expandability

In that we purchase long-term holds for the income that they generate, it should be rather obvious that the value of an investment opportunity is relative to the income it generates.

Having said this, most investors prefer to focus on what I call the Present Value – value which is justifiable on day one of ownership of the investment.  While this is indeed important for me as well, even more important to me are the available options for improving upon those returns and therefore creating value.  In fact, I am not interested in any deal whereby I can not clearly define opportunities to improve upon the present returns.  Therefore, presence of significant opportunities to do so constitutes an Extraordinary opportunity in my life!

One of the very obvious ways to improve the transaction is by improving the income, which is done in one of three ways:

  • By expanding the present revenue streams associated – in essence raising rents
  • Changing the character of the revenue streams – rezoning property for highest and best use
  • By creating additional revenue streams – installing coin-operated laundry, adding units in attic or basement, subdividing SFR into a duplex, charging for storage and parking, etc.

Expandability on the Expense Side

Whenever I use the phrase “improving income” what I really mean is improving the NOI, which of course is a function of Gross Income less Operating Costs.  Simply understood, the NOI is the spread between what the building earns and what it cost to operate (not including the cost of money).

Therefore, the opposite but equal piece to improving the revenue is to lower expenses, which increases the spread and results in higher investment returns and in the commercial space also forces appreciation.  As such, presence of significant opportunities to lower the operating costs is also part of what constitutes an extraordinary deal.  Anyone can plump some dough on the table to buy a perfectly-run asset.  But, the real money is made in seeing the opportunities and having the know how to improve upon that which is currently there.

Expandability through Terms

While improvements to the income and expense structures of the investment certainly require management know-how and are the prerogative of the professional and seasoned investors, the next batch of ideas that I’ll be sharing with you are truly some of the most sophisticated concepts in real estate investing.

It’s Not All About the Bricks and Dirt…

You see – most investors make the grave mistake of defining value in real estate strictly as it relates to physical property, completely ignoring, to their great detriment, the fact that an awful lot of value resides within the terms of financing and the structure of the transaction.

Let’s talk about a few general concepts, and then, if my fingers don’t bleed too hard, I’ll zero in on one or two specific tools.  Here are 3 simple examples to illustrate the basic perspective:

Example 1:

Suppose you are considering two identical buildings – they are situated adjacent to one another, identically constructed, identically laid out, and their income and expense structures are the same.  However, the building on the right must be purchased utilizing traditional bank financing, necessitating that you compliance with qualification standards and a 25% cash down-payment.  However, the building on the left can be financed by the seller with only 5% down…

Question – Would you be willing to pay 10% more for the building on the Left?

Answer – YES!  If you assume purchase price of $120,000, then in the first example you would need to provide a $30,000 down-payment.  However, even having paid $132,000 (10% premium) for the owner-financed building, your down-payment would only need to be $6,600!  Which is better and more accessible?

Naturally, you’ll likely need to give up a bit of cash flow due to financing a higher amount; however, many of you who have access to $6,600 simply are unable to do $30,000 down…small piece of the pie is better than no desert!

Needless to say, all of the metrics previously discussed in this article (Multiple Exists, CF, Time, and CAP,) as well as some other ones that I haven’t touched on have to work well at the higher purchase price.  But, if they do, the value of the owner-financed package is quite apparent!  But – you must give the owner a reason to play ball…

Example 2:

Suppose we take those same two buildings again, but this time the difference in the financing package is relative to the interest rate.  Suppose that in one case, you would be able to finance the building at 6% for 30-years, but in the other case you would have the option of paying an additional 20k of purchase price but financing the building at 3% over 30 years.

Question –Which would you chose?

Answer – Let’s do the numbers.  The monthly payment on a $90,000 at 6% amortized over 30 years is roughly $540/month.  On the other hand, $110,000 (approximately 20k more) financed at 3% over 30 years come with a payment of $464/month!

Question – which is better $540/month or $464/month on a long-term hold?  I think you know the answer to this one

This next question is HUGE!

Question – do you think that having the ability to pay 20k more than your competition gives you an edge?  I mean, all of your competitors are out there trying to steel each and every thing they see – that’s because it’s all they know to do.  Do you think there is value to the seller in your ability and willingness to pay 20k than anyone else – from here it’s just about knowing how to negotiate, which is an eBook in the making. J

Example 3:

As you know by now, when it comes to financing, time-frame is very important with respect to the safety of a transaction.  As you grow your portfolio, you will eventually arrive at the reality that you can no longer utilize traditional, conforming Fannie Mae/Freddie Mac mortgages and are forced to play on the commercial side.

When this happens, you’ll find out that Balloons and ARMs are the flavor of the day, month, and year – you can not avoid it.  So, here is another question:

Question – Would you be willing to pay an extra 10% for the property if it allowed you to avoid a 5-year balloon payment?

Answer – You probably should, if the other metrics are still intact.  There is nothing worse than having a ticking time-bomb in the form of a looming balloon payment.  On a long-term investment that
you are planning to hold for many years, and which possesses all of the items of expandability, there is huge value in avoiding a balloon whenever possible.  You should be willing to pay for this value – you’ll thank me later J

Before I finish, I’ve got one final question for you:

Question – do you think that may be the time has come for you stop scouring the MLS for dirt and bricks, which is what everyone else is doing, and start looking for terms instead?  Terms very often transform an OK deal into an extraordinary deal, and you will NOT find terms on the MLS.  I’m just saying – take it or leave it…


There is much more where this came from, but I am considerably over 3,000 words – are you still awake?  I hope this gives you a bit of perspective on what is creative finance.

Allow me to leave you with this thought by the great German philosopher Arthur Schopenhour:

“Talent hits a target no one else can hit; Genius hits a target no one else can see.”

I am not suggesting that genius is a requisite condition for success in real estate investing – not at all.  In fact, what makes real estate great is that you can buy one silly building, and if you buy it right you can create a better retirement for yourself by far than the Social Security check that your neighbors rely on.  However, people who find lasting success in this business are indeed able to make distinctions that others can not; they are able to see things that others can not.

And the difference is – you got it – EDUCATION!

Please feel free to hit me up with your thoughts and questions below! – Good Luck!

Photo: Lucas Fox Barcelona – Ibiza

About Author

Ben Leybovich

Ben has been investing in multifamily residential real estate for over a decade. An expert in creative financing, he has been a guest on numerous real estate-related podcasts, including the BiggerPockets Podcast. He was also featured on the cover of REI Wealth Monthly and is a public speaker at events across the country. Most recently, he invested $20 million along with a partner into 215 units spread over two apartment communities in Phoenix. Ben is the creator of Cash Flow Freedom University and the author of House Hacking. Learn more about him at


  1. Jeff Brown

    Hey Ben — Much thought went into this post, which is always appreciated. Here’s my question.

    Considering the last several years has seen historically low interest rates from traditional, institutional lenders, under what conditions are these properties not selling with conventional financing? Why are investors passing on them in such great numbers?

    • Hey Jeff –

      To answer your question, here is my perspective:

      For property that is worth something, the sellers want too much money that conventional financing can not justify. At the end of the day, $50,000 at 6% is a payment of $250/month. While most people will buy the property for $400,000 and put $100,000 down, I can buy it for $450,000 and all it costs me if $250/month of interest (a bit more amortized). If the down-payment becomes $15,000 in lieu of $100,000 – I am good 🙂 On a long term hold, especially if I can force appreciation, this is a good proposition in my view.

      Obviously I won’t pay $600,000 for something that’s worth $400,000. But 450 at the right terms is not out of the question, and it gives me significant competitive advantage !



      • Purchased Walgreens in 2010 with 18% dn to get cash flow of 4.50% ( retiree). But would have got same rate and terms, if I only put 5% dn, which gives me negative cash flow, meaning not enough income to pay mortgage. No chance of appreciation, or more income. Walgreens write 25Yrs guaranteed lease, and can extend to 75 yrs, with no rent increase. Would you have done it differently? Interest rate was 6.11%, 24 yrs fix, so at end of 24 yrs, 0 loan balance. Cap rate 7.35%

        • Kris,

          What you did was buy Cash Flow in this case. You traded in the down-payment, money that was otherwise either sitting in the bank and doing nothing, or being put at risk in the paper markets, for cash flow. You are retired, and I am sure that regardless of the metrics, the cash flow that you are getting answers the need you had – you would not have done it otherwise. Furthermore, it is completely passive. So – great for you!

          Would I have don it? No – I would have lent the money privately to a young guy like yours truly and received a much higher return and possibly a piece of the equity pie(how do you think I do the stuff that I do), or I would have bought notes and I believe also would have received higher returns with almost the same passivity. That’s what I would likely have done if I were looking at retirement and needed to stay passive…

          Nowadays, absolutely NO. I buy undermanaged assets and I manage them. I improve the income and thus back into value. But, this is work, and for this reason likely was not a good option for you.

          But in the end Kris – who cares? It’s done. It’s safe. It’s triple-net with a 5 star. And it pays for your retirement and likely your kid’s. You did more than most would have known or had the guts to 🙂

          Thank you so much for your comment Kris

    • Thanks a lot Karen!

      I should have listened to Brandon and made 8 posts out of this- God knows there is enough content here lol. For the next 4 weeks, could you PM me on Monday nights “did you remember to listen to Brandon Ben?” hahaha

      The sad part is that I wasn’t really able to do anything but skim the surface in 2500 words – perhaps I did more to confuse newbies than help. As I look at who is commenting, it’s the pros. I should have known better…

      Thank you so much for taking the time to read my short story!

  2. Michael Dorovich on

    Hi Ben, brilliant article. I don’t own any multifamilies so I guess that makes me a newbie.

    Is 100 per door for larger properties, i.e. 10 units or more? Or does that apply to 4-6 units as well?

    Also, you mentioned increasing rents, rezoning, and adding extra income streams, what about improving the property itself to attract better tenants and justify higher rent?

    You also mentioned that terms deals are not found on the MLS, how do you find/create them?


    • Hi Michael,

      I don’t think anyone outside of my Jewish mother has ever used “brilliant” in conjunction with anything I did or said before – I must say, I kinda like the ring of it 🙂

      SFR should come in at $200 – $300/door CF. Duplex / Tri / 4-plex should come in at $130 – $150/door CF. Anything larger is your preference, but I don’t pull the trigger on any less that $100/door.

      Having said that, the 10-plex that I’ve written extensively about here, started out at $100/door – it is now averaging about $130/door. When I am done, it’ll be up at about $170/door. That’s an extraordinary deal, especially considering that it was basically 100% financed.

      Yes – one of the main components of expandability is simply taking over that which is undermanaged and improving. This can be as simple as a few lighting fixtures, door knobs, and countertop.

      You have to be careful though, and this is where a lot of people go wrong. This 10-unit is situated in a location and has the bones that can justify higher rent if units are more appealing because the more appealing units will attract tenants who can afford to pay more and will choose to pay more in this location and for these amenities and lay out.

      If the building was the wring kind of building, with the wrong kind of units, or in the wrong location, then spending 20k per unit will still not create more value because people who can afford to pay more and have options, would choose another building. Makes sense?

      Finally, the last question is the easiest to answer and the most difficult to do – ready….


      For more on this jump over to my website Michael. There is a phone number there – feel free to use it 🙂

      Thanks so much for your comment!

  3. Hi Ben,
    Where have you found the most opportunity for creating great terms? Private landlords looking to retire who are used to getting income? Something else? Are having success with direct mail and terms? What would be your top 3 lead sources for a likely deal with creative construction in the terms?

  4. Hello Tiffany – thanks for reading,

    All of the above 🙂 I let the world know who I am and what I do and I wait…

    The caveat in this has to be that the world sees you not only as someone willing to but also able – how many people do you know who will vouch and tell their friends that you really know your stuff?

  5. I really liked this one! Especially the about the value of paying a little more than others are willing to pay under the right terms. Too bad the properties I am looking at won’t qualify for the conventional loans(20-30k) and FHA is out of the question for my family.

  6. Ben Durwood on

    Great article, Ben. There is some really insightful stuff in there.

    I agree with your statement that you can’t find terms on the MLS. I am more of a novice investor and would love to have the opportunity to buy investment properties using less than 20% down but am not sure how to go about finding those opportunities.

    Do you have any specific advice for finding properties for sale that offer seller financing? It sounds as though the idea is to network and market yourself and hopefully those opportunities present themselves?


    • Ben – thanks for your comment!

      Obviously – the owner can’t finance that which he does not own – right? The owner can only finance equity (we are not talking about wraps, sub2es, options, or any other fancy stuff here).

      Well, this means you are looking for equity. How? Who, chance are, owns equity in property? Why this person and not the other? There are things you can do to make good educated guess at this. But, ultimately, owner will need to trust you (if the property is worth a damn to begin with). Equity or not – what it takes is a relationship – you can’t get it with a yellow letter Ben. It takes time. Just like attracting capital which will make deals possible without owner-financing or the 20% down – time and patience…

      Thank you so much for reading and commenting!

  7. Tim Chasteen

    Wow, my brain almost exploded with the creative thinking here. Great strategies on paying more for increased leverage and cash-on-cash return! Not to mention the strategy of paying more for a lower interest rate, which results in higher cash flow. I have heard that inflation benefits carrying debt, so that extra $20,000 you offered in purchase price may actually be worth a lot less by the time you pay it off.

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