60-Day Newbie Challenge: 6 Action Steps to Land Your First Deal in 2 Months or Less
Owning real estate is a great feeling and owning INVESTMENT real estate is a grand adventure! Yes, what I just wrote is true. Most anyone who owns real estate investment property can confirm this.
However, I know from personal experience that to foray into the “adventure” part can be akin to jumping out of a perfectly good airplane and hoping a thin piece of cloth will lower you safely to the ground from thousands of feet in the air.
I assume that there are many reasons you have told yourself or your spouse why you should not or have not purchased your first investment property. Fear of failing is likely the main one.
I remember one time when I was young and helping my grandfather. He wanted me to back up an old grain truck into a tight spot inside a building. I was 12 years old. (Yes, 12-year-olds driving farm vehicles/equipment is common on farms.) I remember asking him to do it because if I messed up, I would hit the building and most certainly cause damage. I will never forget what he told me.
He replied, “When you are afraid to do something because it may not turn out well, it is the perfect time to learn to do it.”
Even at that young age, I understood the logic in his statement. Not doing something new because you are afraid of failure means you are going to miss out on a lot of opportunities in life.
New investors miss out on a lot of opportunities due to fear of the unknown. As a result, they waste years before investing—or never even get started.
My day job is in law enforcement. One thing we teach new officers is to look for “indicators,” meaning indicators of activity that is either legitimate or criminal. The more indicators. the higher the probability that there is a criminal act being committed. Once it reaches the level of “reasonable, articulable suspicion,” we can then jump into action.
Each of the steps below could be compared to an indicator. In and of themselves, it’s unlikely they will get you to that investing point. However, when compounded, they will likely get you to the level of that “reasonable, articulable suspicion,” where you will feel comfortable acting.
Below are six action steps that I used to move from “wanting to invest” to “investing” in real estate. As I state in most all of my articles, I am not advocating that my process is the only way—nor even the best way. It is simply the way that’s worked for my brother and me.
These are relatively simple steps that can be accomplished within the next 60 days. My hope is that you will be able to take parts of the whole and tailor it to your situation in order to land that first property in the next two months.
Action Step One: Education
Louis L’Amour, probably my favorite author, wrote, “In knowledge lay not only power but freedom from fear, for generally speaking one only fears what one does not understand.”
This quote likely represents a vast majority of the reasons you (and at one time me) have yet to invest. It is difficult to do something you do not understand.
In my opinion, the simplest remedy and the most important step is education. In today’s world, you have literally an entire world full of knowledge at your fingertips. On BiggerPockets alone, you can learn to do virtually everything there is to do involving real estate.
Educate, educate, educate is my mantra.
Actor Matthew McConaughey once said in a motivational speech, “First know who you are not, before you begin to know who you are.”
Through education, you can learn what you do not want to do in real estate, and then focus on what is left. There are many types of investments, such as flips/rehabs, wholesales, single family homes, multifamily homes, apartment complexes, and notes—just to name a few. Your first step is to determine which ones you do not want to do, via education.
Once you have determined that, then educate yourself about the ways to fail and the ways to succeed. Learn from your peers on BiggerPockets about what went right and what went wrong, what worked and what didn’t. Remember, fear is often a result of failing to understand, and understanding comes from education.
Action Step Two: Understanding Limits
This next step is vital in your success. Understand YOUR limits. Once you have educated yourself and have a firm grasp on the basics, that education should help you understand your limits.
What is your financial risk tolerance? Your time tolerance for managing the property? Are you going to invest nearby or out of your area?
Will you choose single family homes or multifamily? Do you have the ability to do a full remodel or cosmetic upgrades or even basic repairs or maintenance?
Are you good with people? Can you handle confrontation? Do you have the ability to say no?
All of these things and more will directly impact your understanding of real estate investing and give you the confidence necessary to move ahead with your first purchase.
People are far more comfortable within their limits. This does not mean you should never push those limits. But as a first step, as a new investor, you should work within your limits and expand them later as you grow.
Action Step Three: Focus
While education is, in my opinion, the most important step in the process, focus is often the hardest. Here’s what I recommend: for your 60 days, eliminate all unnecessary distractions.
Louis L’Amour wrote, “Forever the dream is in the mind, realization in the hands.”
What this means is that whatever you dream, you can accomplish—if you work at it. Focus is what leads to deal completion.
Unfortunately, it is easy to lose focus.
I recently gave up my satellite television service in order to eliminate one more distraction from my journey toward my real estate investing goal. While I did not watch a lot of television, I realized that the time I did spend watching was time I could be growing my business, educating myself, or just brainstorming ideas. Television impaired my focus, so I got rid of it.
Your ability to lock in your first property purchase hinges on your ability to focus on the task. Education takes focus. Understanding your limits takes focus. Finding property takes focus. Securing financing takes focus.
Focus is the common denominator here. In reality, focus is what often separates the successful investor from those who fail. Give real estate investing your full attention for 60 days.
I am not asking you to give up your family and friends and lock yourself in a room for 60 days. But simply weed out any unnecessary distraction. You will likely be pleasantly surprised by the results.
Action Step Four: Financing
The first three steps are all steps that can be accomplished by you and you alone. This fourth step is often seen as the most daunting, because in most cases, you are relying on someone else to purchase your first property.
Of course, if you have the financial means to purchase the property outright, then you can just skip over this to the next step!
You can take a number of different routes when it comes to financing, but I will focus (see what I did there) on the three most common (or most practical, in my opinion). There is traditional bank financing, owner financing, or private financing.
While I realize there are others, in my opinion, one of these three is the easiest for a new investor to understand, secure, and implement. I will touch briefly on each of the three and leave the details up to you to look into during your education phase.
My disclaimer before I start is that I am NOT in banking, and I am far from an expert on lending. My statements are based upon personal experience only.
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Traditional Bank Financing
Now, let me be blunt. Dealing with a ban—any bank—is going to lead to frustration. Banks are designed to loan money safely and to make money for themselves. While their success is often tied to the number of loans they make, it is also handcuffed to the successful repayment of those loans. As a result, they want to make loans that are constructed in their favor.
Most banks will only loan 70 to 85 percent of the value of the home. You can make up for the remaining 15 to 30 percent in a variety of ways.
I used equity in my personal residence to fund my first property. This goes back to what I said above about knowing your limits. If this is outside your comfort level, then I would not recommend it. Other options include saving the down payment or borrowing it from a friend or family member.
However, I have seen some banks who want proof with regard to where the money is coming from, as they want to ensure no one else has the ability to put a lien on the home.
Banks will require an appraisal, or an “as completed” appraisal if you are doing any remodel or upgrades, prior to determining the exact amount they will loan. Bank financing can take longer to complete, but you can still offer on a property and make one of the stipulations be that your offer is contingent upon financing. Just be prepared for a long litany of paperwork, emails, and/or phone calls to get a bank loan completed.
My favorite way to finance a property is owner financing. Essentially the owner acts like the bank and carries the note. Instead of making payments to the bank, you make payments to the owner. There is no one set way to find owner financed properties except to ASK. Even if the property is listed with a Realtor, I still ask if the owner will consider owner financing. The worst thing the owner can say is no.
I have purchased three of my five properties this way. Closing costs are often under $1,000 on a $100,000 property. On one with a $180,000 purchase price, I had to put $5,000 down; on another with a $100,000 purchase price, I put $10,000 down. I only pay 5 percent interest on both of those loans.
The third option is private financing. This can be from a friend, family member, or private investor who is interested in alternate forms of investing. Sometimes you may pay a little higher interest rate. This is because the individual often does not qualify you like a bank does and will loan you up to 100 percent of the cost. However, in my experience, I have paid only 3 to 5 percent interest.
While many people do not want to be involved with family in business deals, I am a big proponent of it. If you are careful and put EVERYTHING, including an exit strategy down in writing, you alleviate a lot of headaches.
There are numerous ways you can structure these loans, and you should be able to find the type of loan you want to pursue during your first step of educating yourself.
Action Step Five: Property Identification
Once you have completed the above steps it is time to find the property. You may say you need to find the property first before financing, but I disagree to some extent. You need to have some idea of how you are going to finance the property prior to looking.
There are a lot of people who will find the property and then find the financing. However, most of these people have some options to explore or contacts they have made prior to finding the property and are not new investors.
As a new investor, learn how important location is and never forget it. Cheap properties are often cheap for a reason. Location is usually part of this reason.
For a new investor, your chances of succeeding increase if you find a property in a good location. During my initial education phase, a banker friend of mine told me, “Properties are sold by the square foot and rented by the address. Find small properties in good locations.”
This is excellent advice. Find an area you want your property to be in, and do not deviate from that area.
Type and Condition
Once you find an area to look in, you should have already decided what type and what condition of property you are going to pursue.
My brother and I seek out duplexes or larger multifamily properties that were built as such and not converted. We look for two-bedroom, one-bath units, as we believe we get the most bang for the buck in our area on those.
We want properties with good bones, meaning good roofs, electrical updates, plumbing updates, solid foundations, modern HVAC, etc. We are OK with cosmetic updates but not full-blown rehabs.
All of this you should have researched during your education phase. You should have determined what you were going to pursue during your “understanding your limits” phase.
If you have limited construction knowledge, then hire an inspector or walk through the property with a trusted contractor. My brother does all of our inspections, as he is far more detailed and sees things that most inspectors or contractors do not.
Look at the craftsmanship. If it is poor, the property was likely poorly built. If the craftsmanship is good, it is an indicator that the property was properly built. Knowing this can save you time and money down the road.
No matter what type or condition of property you search for, keep your focus and do not get distracted by other types of property outside your comfort zone. I heard Brandon Turner say on a podcast that a good deal at the wrong time is a bad deal.
Stick to your plan with the location, condition, and type of property you want. Expanding your horizons comes with experience, but in the beginning, you want to stack the odds in your favor—not expand your horizons.
Action Step Six: Offer
This last step is the most fun in my opinion! The offer is the amount you are willing to pay for the property, period. It should have nothing to do with what it is listed for or what the owner is selling for.
When we examine a property, we take what we believe the fair market price to be for the property, minus any of the repairs or upgrades we believe are needed (even if they are cosmetic). We also factor in what we can get for rent. Then, with all of that information, we determine a price WE are willing to pay.
I make all offers in writing. I explain in my offer how I came to that price prior to presenting it. I am a big fan of Chris Voss; I have read his book Never Split the Difference several times. I use some of the techniques he details in this book.
I try to be fair on my offer. If I can pay more, then I offer more. I am not trying to steal a property away from someone. I’m simply attempting to get it for a price that I can make work in the way and timeframe I want. Sometimes my offer is accepted; sometimes it is rejected.
Just remember, you don’t know what you don’t ask. You may be surprised at what you get.
I have gotten concessions on things I did not ask for simply because I asked about something else. I look at it like a game. I am trying to utilize the knowledge I have gained in order to obtain something that someone else has. If my offer is accepted, I win. If it is not, I lose. I want to win, but I only want to win what is valuable to me.
It is easy to overpay for something just because you want it. If you are not prepared to walk away, you have lost before you even began. Never, ever let emotion influence your offer.
Remember, buying an investment property is a business, an investment. It is not personal, so don’t make it that way.
Educate, educate, educate. If you start with education, the rest of the five steps will be relatively simple.
Stay the course, focus on real estate for 60 days, follow your own variation of the steps above, and you will lock in your first real estate purchase.
Where are you on your investing journey? Stuck on any of the above steps? Do you have any questions I can help answer?
Leave a comment or question below.