The Compass Never Lies

Many years ago I was being taught how to navigate. We would spend a couple hours memorizing a trail between 6 or 7 points we were supposed to pass. We were staring at a topographic map and trying to make up a story of everything we were supposed to see on the way. Then, at night, we would have to walk that imaginary trail by way of the waypoints without using the map. The only thing we were allowed to use was a compass. One night, standing on hill in some desert, I was unsure of where to go next exactly. The way I wanted to go looked just like I remembered the story I had constructed earlier that day. So I took out my compass to make sure. The compass told me to go in the opposite direction, or rather, it was telling me that what looked like terrain that matched the story of the way I was supposed to go was in fact something else entirely. I decided that there must be something wrong with the compass and walked the way I wanted to go. Suffice it to say, I got badly lost. In my defense, I was 19.

Now I am teaching myself real estate investing, much through what I find here on BP and one of my early "aha" moments was understanding how important deal analysis is to successful investing. Before I started learning about REI, I made the common mistake of thinking that if the rent covered the mortgage payment, you had a deal. I now have my ever evolving deal analysis excel. This is my compass. I can look at a deal and with enough information decide if I should spend more time analyzing the deal. The more deals I analyze, the more I use this compass, the more I am able to start refining my criteria. Defining good criteria is difficult when starting out. I consider criteria to be my map.

I see people asking about deals here on BP where they are clearly not analyzing correctly. I see RE agents claiming properties as "great investment opportunities" where their "analysis" clearly points to at least willful ignorance. I now confidently tell the few wholesalers that are sending me deals to start sending me "deals" when I discover they haven't done their math.