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Posted almost 9 years ago

The #1 Key for Any New Investor!

Wow with a bold title like that I better come through as that is quiet a claim I just made.  Could there really only be one key? Of coarse not real estate is far to complex, with many options, locations, property types, etc to be one of anything.

That said I do stand by my specific statement of "The #1 Key for Any New Investor".

After 15 years of investing, achieving success of passive income greater than monthly expenses and all of that I can confidently look back and say one key made the difference in my career.

My portfolio and business took off once I stopped trying to do one deal or the next deal which was how my first 2-3 years were.  I was the rat on the wheel looking only at the next deal and missing the bigger picture. Then out of no where it hit me.  I was chasing a deal because that is what I had to do but I had no real reason to know how good a deal was other than my fancy Excel sheet that spit out what proved to be "optimistic numbers" all the time (Darn Spreadsheets).

So over a long weekend I sat back with my wife and we talked it out and what became clear is we didn't know a bad deal from a good deal from a great deal from a once in a lifetime deal.  That may seem simple to you but it was one of the great "Ah Ha" moments that changed our trajectory in a huge way.

So what changed? What did we do different and what have we done ever since that day?

The first thing we did is we stopped chasing the next deal and instead we spent the next 45 days doing what I now tell my students is "Homework".  We went out and saw over 100 potential properties and we built a huge Excel file that listed all kind of details about each property with the goal of prioritizing best to worst "deal".  

This exercise was not fun or easy for us as we live 6 hours round trip from our investment area but we did it.  At the end of this significant time investment we used the Return on Cash or what some call Cash on Cash return to prioritize the best deals to the worst deals.  As a Cash Flow investor I can tell you from experience knowing a good deal, from a great deal from a once in a life time deal is an outstanding feeling and knowing it with in 5 minutes is off the charts cool!!!

We learned so much from this 45 day investment that the returns are almost impossible to calculate. It should also be noted that once you complete your homework in your area you will have a leg up on most of the other new investors who look at two deals and pick one because cash is burning a hole in their pocket and they have to do something.

In closing The Key for Any New Investor is do your Homework in your chosen market, your  segment, your property type and I would frankly recommend you do this before you make one offer because I never understood how you can look at two deals, pick one and have a long term successful career. 

Good Investing and Do your Homework

Z


Comments (6)

  1. Thanks for a great article Michael! 

    I was wondering; when you looked at your properties during the research phase were you looking at fairly similar style homes with similar attributes or did it vary across the board?


    For example did you only look at 3-4 BR, 2.5-3.5 B properties? Or was this something that the excel sheet helped provide?


  2. Hi Michael,

    Would you be able to provide us with a template of the spreadsheet you used?

    I'm in the education phase now, and while learning is making me so excited (!) I'm finding that I'm having trouble analyzing deals, if they even are deals. I am in a very expensive market, and I'm afraid I'll end up with an investment that doesn't cash flow. I also like what you said about not investing in places where you're afraid to get out of your car. Here in Westchester, NY, properties are either way out of my league or in areas I'm not comfortable in...

    I need all the help I can get digging for that diamond.


  3. Thanks for the post. Does it make any difference in your decision making if the properties are currently occupied or not?


    1. hi Keith

      A little because occupied houses are harder to get true make ready estimates. You never know how an occupant will leave it or what little surprises were hidden by stuff

      Z


  4. Hi Matt,

    As you indicate Cash on Cash is my metric and I do keep it that simple.  I will caveat that with one tweak as reality says that most fancy Excel Worksheets for new investors would produce higher returns in lower income areas.  I don't want to invest in areas where I won't get out of my car during the day.  Thankfully that is not too many places but I won't let silly Excel math have me invest in a dangerous area regardless of a return.  I have plenty of Section 8 housing and properties in low income areas which is great but I have to feel safe at my investment properties regardless of Excel Math.

    Lastly most people find it odd that I use Zero Forced Appreciation or Expected Appreciation in my math.  Simply said I have seen that go "Poof" on too many people so appreciation is a pleasant surprise when and if I ever sell.

    Z


  5. @Michael Zuber

     aside from Cash on Cash, what other aspects of the 100 properties that you looked at influenced their position on the spreadsheet?