Newbies: These 3 Simple Steps Will Prepare You For Your First Deal
Many years ago, when I was learning to trade stocks and options (which I subsequently did for a couple of years but no longer do), you are taught to “paper-trade,” which means you make real trades, but you’re using “fake” money, i.e. paper money. Many trading accounts let you paper-trade. It’s a fantastic way to get experience and build a track record without losing your shirt.
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We don’t have this in the real estate investing world. But we should. And we can, if we’re intentional about it.
Newbies are stuck in the endless cycle of having no experience to be taken seriously so they never get started and never the get experience to get out of the gate.
“Paper-trading” with real estate lets you overcome this catch-22.
My passion is to help people get into their first apartment building deal, so I’m going to illustrate the 3 steps to “paper-trading” real estate from this perspective.
Step #1: Visualize to Believe
Professional athletes use visualization techniques every day. They visualize themselves performing at the highest level, beating the world record, and holding the gold metal.
It should be the same for us real estate entrepreneurs: see yourself touring the apartment building, negotiating it, and signing the contract. Visualize yourself at the closing table, signing the closing documents. See yourself meeting with the property manager to discuss the previous months’ performance. Imagine the bank account grow as the rents come in. See yourself selling the building in 5 years and getting a $430,000 check at closing.
Step #2: Create a Sample Deal Package
A Sample Deal Package is a document about the kind of apartment building deal you WANT to do. Everything in it is real: the property description, photos, financials, your business plan and projected returns. The only difference is that you don’t have it under contract.
The main reason I teach people to create a Sample Deal Package is to use it as a tool to raise money from other people. (To read more about this, see my article “Psst … The # 1 Secret to Raising Money to Invest in Apartment Buildings.”)
In addition to helping you raise money, the Sample Deal Package is a tool that forces you to behave as if you had an apartment building under contract. You’ve reviewed the marketing package and the financials. You’ve made assumptions and projections. Perhaps you’ve even visited the building.
Behaving “as-if” makes it seem real.
Step #3: Start Making Offers and Don’t Be Afraid to Go Under Contract
A student of mine managed to get a 54-unit apartment building under letter of intent. He felt that the building was too big for him (he was looking for a much smaller one), but we decided to keep moving forward. We put it under contract and worked together on due diligence for nearly 3 weeks. At the end we decided to terminate the contract, but he told me that he learned SO MUCH during the process that he no longer felt a 54-unit was overwhelming. By simply going through PART of the process, his comfort zone quadrupled.
In the same way, we can “fake it before we make it” by making offers and not shying away from putting something under contract. If you construct your contracts correctly, you’ll have several weeks to perform due diligence and you can terminate the contract for ANY reason.
I’m not advocating that you do this repeatedly; otherwise, you’ll develop a bad reputation for not closing, but you don’t need to do this very often to see your comfort zone expand dramatically.
The secret to getting into your first deal (or a much larger deal) is to “fake it until you make it.” Visualize what you want to accomplish, create a Sample Deal Package, visit properties, network with professionals, and make offers. You do this long enough, and you’ll eventually get someone to accept your offer. When this happens, don’t freak out, but go with it.
Worst case scenario, you terminate the contract before the due diligence period expires. Best case, you figure it out, overcome your fears and end up with your first deal.
Even if you don’t end up closing the deal, you will have gained the experience you were looking for by “paper-trading” a real estate deal. No harm, no foul, but your comfort zone just exploded and you’re one step closer to that first deal. So don’t sit on the sidelines because you lack the experience. Get out there and “paper-trade” a bit!
Talk about a time when you got into a deal that didn’t go anywhere. What happened to your comfort zone? How did this impact what came next?
Be sure to leave a comment, and let’s talk!