Purchasing your first property is exciting. It can also feel daunting, scary, intimidating, and thrilling.
You may have spent years researching how to get started investing in real estate. Or maybe you just decided last week that it’s something you want to do.
Either way, buying your first property is an important milestone to building your real estate investment portfolio.
However, some people struggle to make that first purchase. They spend years reading books, analyzing properties, and feeling that they have to know the answers to every possible situation before jumping in. Meanwhile, others are able to dive right in with less concern about what could go wrong and are willing to learn along the way.
If you are struggling to get off the sidelines, here are five tips to get you unstuck and through your first purchase.
1. Establish realistic expectations
You likely have grand visions of your future portfolio. It will be large, profitable, and produce enough cash flow to change your life and achieve financial independence. Those are great goals that are important to have in the long-run, but they can also feel overwhelmingly paralyzing in the beginning.
Focusing too narrowly on your end goal can make you believe your first purchase will define your overall success. Instead, consider your first property as your “learning property.” Going in with this mindset will help create realistic expectations about the situation.
Take the opportunity to learn throughout each phase of the process. There are some things you can only truly understand by experiencing the problem or situation.
For example, I had never heard of putting a “Revert to Owner” agreement in place for utilities before I started investing. I wouldn’t have even known to research the term! But when the issue arose, I took the necessary steps to figure it out and learn with the process.
Know that you will make mistakes and will face things you don’t understand. Don’t worry, you’ve got this. You are smart, resourceful, and surrounded by a network of people who are willing to share their knowledge.
2. Be honest about what is making you stuck
In reality, there are hundreds of things you must know, but allow yourself the time and space to learn them as they come up. Focus on “just in time” over “just in case” learning.
Rather than pressuring yourself to learn everything, ask yourself, “What is my biggest fear that is holding me back?” By doing this, you can focus on figuring out the correct next step—the most immediate thing you must do to get unstuck.
If your answer to the fear question is, “I’m afraid I will run out of money,” take a hard look at your capital reserves or review your financial assumptions to see if your figures are too optimistic.
Or if your answer is, “I’m afraid I won’t find tenants,” look at your product strategy. Are you looking in the right neighborhoods? Are your rent assumptions realistic for the area?
Maybe you are worried about exposing your family and business to increased liability. If this is the case, take action to research investing under an LLC or talk with your insurance agent about establishing an umbrella liability policy.
Your concerns may be different, but the point is to take a true look at what is holding you back and addressing that roadblock—not distracting yourself by trying to learn less important details.
3. Right-size your target purchase
Each of us has a unique financial situation that influences how we invest. If you are new to investing and are making a purchase on your own, a 100-unit apartment building may not be your best move out of the gate. However, if you are investing with an experienced partner, you could take on a larger purchase with more complexity.
Select a target property for your first purchase that matches your financial situation and experience level. For example, a single family home is a great property to learn from.
Additionally, you may want to consider a turnkey property or one that needs minimal improvements to make it rent-ready if you lack renovating skills, haven’t established relationships with many contractors, or don’t have much time to work on the project yourself.
My first purchase was a move-in-ready single family home I purchased for $98,000. This allowed me to focus on other areas of the process for my first investment as opposed to worrying about construction loans, contractors, and a renovation. Instead, I directed my efforts toward finding a property manager and getting comfortable with the process of evaluating deals and negotiating offers.
I knew that if I purchased the home and failed at any of the key steps, the worst case scenario was that I would have to carry the house for roughly $600 each month.
This made my first purchase less scary. I knew in my financial situation, an extra $600 monthly expense would not cause financial ruin.
4. Get specific about your strategy before you expand
All too often I hear newbies say things like, “I’m going to start by wholesaling. Plus, I plan to flip one house a quarter and hope to pick up some rentals in the first year. I’m also considering investing in notes.”
The skills, processes, and systems needed for wholesaling, flipping, holding rentals, and note investing are not identical. While there are some aspects that overlap, trying to execute multiple strategies in the beginning is simply a mistake. Talk about feeling overwhelmed—not to mention scattered brained!
Jeff Bezos didn’t immediately set out to make Amazon the store “where people can come to find and discover anything they might want to buy online.” He started by selling books. That’s it. Just books.
But through his laser-focused start, he was able to set up processes and hone in on key areas of his business to support expansion over time.
We all have limited time, money, and energy. When you start, it is helpful to decide where to direct your limited resources. And once you feel you’ve mastered your first strategy, then expand.
5. Align your strategy with your vision
If you still feel stuck, the issue could be that your vision and strategy are not aligned. Is your goal to purchase 1,000 units in three years within a particular zip code? If so, is there enough inventory to support this goal?
You may need to cast a wider net geographically. Are you trying to buy 100 BRRRR properties in an area that has few distressed homes? Maybe you are struggling to find that perfect property that will produce a large cash flow, but in your target neighborhood, sale prices are high and rent demand is low.
There is no wrong vision or goal in real estate investing. Your goals are personal to you and valid in every way. But there are strategies that are wrong for your vision.
Take an honest look at your market and consider if a misaligned strategy is the reason you are stuck.
Adequate preparation is essential, but there is no substitute for actually investing. It is impossible to know everything about buying real estate unless you actually buy a property. You may never know all the requirements of wholesaling, for instance, unless you start wholesaling.
Believe in your abilities, the work you have done so far, and consider these five strategies:
- Double-check your expectations for what you want out of your first purchase
- Be honest about what is holding you back
- Size your first purchase accordingly
- Gain experience before expanding
- Make sure your strategy and vision align
Now, get out there and invest!
Are you scared to jump in? What’s holding you back?
Leave a comment below.