How We Use Leverage in All Aspects

Leverage is important when it comes to financing deals but relationships with brokers to get in front of more deals is more so. At JB2 Investments, we use leverage in every facet of our business.  

4 Important Aspects of Business Leverage

1.      Financing

We will start with the most obvious one when comes to leverage and lending. Let’s say you buy property for $100,000 cash and the return is $10,000 a year. Your return there on your cash is 10%. Now, let’s say you get a loan for 75% and you have $25,000 invested, getting the same $10,000 a year in cash flow. That return is $10,000 cash flow divided by $25,000 cash invested which equals 40% or 4 times the return. So, you can see the power of leverage when you are talking about much larger deals. The other thing with financing is leveraging the relationships with different institutions. Now that we have established a relationship with the bank and deposits, we are getting better terms, less scrutiny, and an overall better experience.

2.      Brokers and Property Manager

Our true leverage with brokers and managers comes after we have done a deal with them. When it comes to brokers, they are more inclined to put future deals in front of you first. We also at times will offer an additional 0.5% more to the agent on the buy-side if they bring us something off-market before anyone else. The more deals we do with the same broker, the more money they are making off us, and the more motivated they are to hunt more specifically for us.

As we give a property manager more business with more leverage, we are able to negotiate better pricing on fees. The more they are willing to be flexible on certain demands we may have like with more depth reporting. We also find as we grow with the property managers, they are more likely to look out for our best interests. The more this relationship with the manager grows, the more they understand what’s important to us. And even better, the good ones start to cater to those needs.

A lot of this is also relationship-based. Do the people we interact with like us? Are we courteous, kind, and professional? We want it to be a pleasure to do business with us while ensuring the best job is done. Yes, they are working for us, but we are conscious that we are all human and we need to work together potentially for years to come. 

3.      Contractors & Vendors

Leverage also comes into play with contractors and vendors. The more we use these partners, the more we can leverage pricing, especially if we’re doing more work on the same property. When it comes to contractors and vendors, it’s more about knowing the quality of the work and the ability to strictly stick to a schedule. You will get varying degrees of this, which many times matches what they are charging.

And this is part of the reason why a lot of times we won’t go with the cheapest bid. You tend to have more issues with the cheapest bid as it may cost you more in the end. The better relationship you have with your vendors, the more you can leverage them. They will go out of the way to get jobs done for you. One of our business partners asked one contractor once why they like working for us. He said that we treat them with respect when many don't. This example simply highlights what we have been saying here. 

4.      CPAs and Attorneys

The trend here continues. As with our previously mentioned partners, with CPAs and attorneys, we can leverage them as do more work with them. This gets us better pricing, a better-quality service, and maybe some freebies here and there. With our CPA, for example, he is now helping with some bookkeeping. So, for every property we buy, he makes a little more off us. He has offered such things as doing a complimentary webinar for us and our investors. We get priority to make sure our K-1’s gets out on time. With our attorney, if we package the syndication documents with contract negotiations, he will give us better pricing.  

Gain Leverage by Showing Respect

At the end of the day, you gain leverage by giving your partners repeat high-quality business. But even more so, treating them with respect will go a long way. Treat them professionally so that you can get to the best of their abilities. You don’t want to be a thorn in their side and you want to push enough to get the best out of them. At the end of the day, you are helping each other get the most of your business in a very symbiotic relationship.