First deal hurdles
David GreeneBusiness Member
Real Estate Broker · San Francisco Bay Area, CA · Member since 2012 · 225 posts · 266 votesHello, I was curious who on here is working towards their first deal, and what kinds of hurdles they are personally experiencing in getting there.
Hello,
I am new in real estate investing and am working towards finding my first deal as well. At this point, I am still researching real estate investing and trying to make sure that I understand exactly what I am taking on. I will admit that one thing that is holding me back from actually starting is fear. I think I'm fearful of making mistakes that could be costly. Does anyone have any encouraging stories of hurdles they faced and overcame to successfully close their first deal? I know I will learn along the way, but it is slightly overwhelming to think of venturing into something 'brand' new to me trying to get as much right as possible. It's exciting at the same time to think of the reward for the hard work!
Hello,
I am new in real estate investing and am working towards finding my first deal as well. At this point, I am still researching real estate investing and trying to make sure that I understand exactly what I am taking on. I will admit that one thing that is holding me back from actually starting is fear. I think I'm fearful of making mistakes that could be costly. Does anyone have any encouraging stories of hurdles they faced and overcame to successfully close their first deal? I know I will learn along the way, but it is slightly overwhelming to think of venturing into something 'brand' new to me trying to get as much right as possible. It's exciting at the same time to think of the reward for the hard work!
Hi Nicole,
Please dont' feel alone. Every one of us has felt this when we started. Some people feel it so strongly it keeps them from starting at all! Two things to think about.
1) Fear of the unknown:
The majority of fear comes from the unknown. You're scared about what could happen and you don't know what to expect. You don't want to lose money, and you don't want to look like a fool.
Rather than focusing on what could go wrong. Try to focus on what is reasonable to expect going wrong. What I mean by that is yes, it is possible your house could get sucked into a sink hole. Your tenants could completely trash it. You could not realize there are tons of liens against it when you buy it. The roof could be ready to collapse any minute. The market could totally drop. Sharknado could descend upon it on the day of closing and eat your tenants. The driveway might have some cracks due to tree roots underneath it. Etc.
While all these things could go wrong, they aren't likely to. And if they were likely to, you would most likely find out about it during the process. For example: Most areas don't get hit by sinkholes ever, in areas where they do there is insurance for that. Tenants can trash a place, but using property managers to screen your tenants makes this much more unlikely to happen. A title check during the escrow period should reveal any liens. A home inspection would reveal the condition of the roof. Making sure your property cash flows properly will keep you safe from shifts in the market. Sharknado only happens in bad movies. The cost to replace the concrete in a cracked driveway may eat up a few months profits but it won't kill you.
If things were going as horribly wrong as you're afraid they will, there wouldn't be a whole bunch of us fighting to buy investment property.
2) Fear of failure:
Most of us don't ever start because we are afraid of failing. The irony is, we ensure failure by not trying. You may have this image in your head of needing to know everything, or do perfectly. The reality is you're going to learn as you go, and that's ok! There are so many financial advantages to owning real estate that even if things go wrong, they usually get balanced out by what goes right. When I was new, I didn't even expect to turn a profit the first year I owned a property. I still don't. And taking that pressure off myself helped me to take action when i was paralyzed by fear of screwing up or looking stupid.
Think about everything else in life. Who is really ready to be a parent when that happens (I don't have kids but I'm sure I'll never be "ready")? Who doesnt suck at a new job during the first week and hate feeling stupid the whole time? Who learns to surf, or snowboard, or play a sport, or run, or lift weights, or knit, or play video games, or write articles, or TURN ON SOMEONE ELSE'S SHOWER FOR THE FIRST TIME without sucking at it and feeling stupid? It's just the pattern of how life works. If you can accept it will suck for awhile, your brain will start to adapt and figure it out. Then it gets fun. Then it gets addicting. Then you find yourself on this website everyday reading more crap you didn't know and realizing even as a successful investor you still don't know it all.
So to sum it up, I would say that not acting would be the easiest way to guarantee you never succeed. Even screwing up hugely on your first, second, or third deal and losing a ton of money can be a big success if you learn enough from it and don't quit. Imagine if the 4th, 5th, and 6th deals double the money you lost in the first three. You'd be very glad you didn't quit and wouldn't want that you lost money. And that's a worst case scenario. It likely won't be near that bad.
Hope that helped. Just remember as long as you're learning and moving forward you are winning!
I am also new in the real estate pool....I have had an interest since I bought and renovated my own home...However, at that time I had a very good paying job with a pharmaceutical company. When they closed there doors my life completely change....I had to ask myself the question, what do you want to be when you grow up? That thought ran around my head for awhile. I started college classes in business management thinking I could use that in any line of work. One day I was sitting outside on my patio and I said a quick little prayer for clarity on this subject. Out of the blue, right then, my phone rang and a friend of mine wanted to know if I wanted to invest in real estate with him....I took that as a sign....haha Well long story short, he eventually borrowed from a hard money lender and decided to invest in the property himself...since then we have still been in close contact. He has offered to manage my rehab if I want to embark on flipping my own property...I work full time so it would be a struggle....I himmed and hawed and one morning before work I was complaining about my current job and I was crying about not knowing what direction to go in and my boyfriend said to me why don't you focus all of your energy on real estate....that is the only thing I see you get excited about. So I went to work and started listening to youtube videos while at work when I stumbled onto Bigger Pocket....Hallelujah! My life changed....all of a sudden I had some direction....I couldn't believe my ears after listening to all the gurus trying to sell you on something....I was completely emersed in the podcasts.....since then I have been reading books, listening to the podcasts everyday while I work....(paid education) lol....learning all that i can learn on this website....reading J. Scotts book on flipping houses (highly recommend it)!!
so now I am thinking about what my next move should be.....I have found an agent to work with and now I feel as though I need to start drawing up a business plan...
My money situation is not ideal....I have tons of credit so I was going to purchase the house using a few different avenues.....my credit card checks, my home equity loan....0 interest for 12 months....and I am going to sell my car which has 10,000 dollars of equity in it.....Which gives me about 50,000 to start with.
If I get in trouble I have a hard money lender I can go to.....
I was reading the section on creating a scope of work in J Scott's book and I think I freaked myself out a bit....It made me realize that there are a lot of things that go into this ......and then I remembered to ask myself how can I make it happen....
so I can relate to all the other newbies out there....
I guess my next move is to come up with an exit plan and ask myself whats the worst that can happen and can I deal with that.....
I don't have any trouble thinking about what could come of this if I am successful....complete life changer !! I am at a place in my life where I want to be passionate about what I am doing....Life is too short to be sitting around cutting coupons:)
Thanks David for the words of encouragement:) I am taking those with me tonight!
One thing I know for sure is that you are in the right place!!!! Keep putting yourself out there and connecting with people on bigger pockets... surround yourself with people who are smarter than you are and that have similar goals in life....read books that will change your mindset....Rich dad poor dad is a good place to start.....go to your local REIA group and meet people in your area....I have yet to do that but that is on my schedule.....
Best to you both!
@Account Closed Sounds like you're on the right track! Let me know if you ever have any questions. It's usually much simpler than you think.
@Connie Keslar and @David Greene
Thank you both for your time and encouragement! I'm feeling more confident in taking the leap of faith to get started, while keeping fear in proper perspective. :) Connie-I have the book Rich Dad Poor Dad on hold at my local library and am anxiously waiting to receive the call that it is ready for pick up! I keep hearing great things about it.
I just tuned into the BP webinar this evening as well and am going to try and 'take the challenge' to analyze 3-4 deals a day and put in an offer on 10% of the analyzed deals a month. Thanks again for the positivity! Wish you both well.
Sounds to me like your doing all the right things!
Great post, David. Every single person in BP and in the real estate investment world had to get through their first deal.
I call it the "first deal jitters." Like kissing a girl, driving a car or taking math test, you just have to get through it. And you will probably fail the first time.
So find a tiny piece of property in the middle nowhere and buy it for a few hundred dollars. Dress it us for presentation on the internet with great pictures, maps and a class-A written description. Mark it up 100% (yes, double) and sell it.
You will make a ton of mistakes on the phone, with paper work and all the other details associated with the deal. It's only a few hundred bucks and now you're ready to move forward with more money at stake.
Good luck and hope it goes well.
Hi David
My biggest hurdle was getting over the unknown and being afraid of failing. I think if you use this site to help you with the education it will take away a bit of fear. In the end, you have to take massive action and be totally committed to the outcome
Gino
@Gino Barbaro Spot on Gino. That is why we all owe Josh and Brandon huge props for putting together a site like this when nothing existed before. They took a chance building a website without knowing what kind of demand it would get and it's become the juggernaut it is today. Just try and imagine how much scarier this would be WITHOUT having biggerpockets to lean on.
@Jordas Reyes Sounds like you're the type who finds comfort in seeing the numbers written down and having some form of metric to lean on. If this is the case, I would recommend meeting up with some other investors in your area and listening to their war stories. If you can combine the general knowledge they have gained through experience with your comfort in running numbers, you should find yourself getting comfortable enough to finally pull the trigger. That's when the real learning begins!
Yes! This! Thanks for being so encouraging.
To answer your original question, David, about hurdles for a fellow first timer -
1) Getting people to take me seriously.
There's always a seasoning period in which a newcomer to a profession has to dig in and "prove" that they want it, I get that. I think some of it is good ol'-fashioned sexism, too.
2) $275k in student debt. And that's lower than it used to be.
I wouldn't trade my day job for all the gold coins in the world. But, because my profession's debt to salary ratio is very, very high, real estate will be my debt pay-down and discretionary income, preventing me from eventually loathing my (relatively) low-salary day job. Brilliant, if you ask me.
1) Who are the people you are having a hard time getting to take you seriously? i.e agents, lenders, partners, etc.
2) holy heck that is a big number. I can see how that would feel daunting. If it was me, I would be calling that the debt monster and looking at ways to use real estate to slay the dragon. You have a powerful natural motivation that many others don't have!
Hey @David Greene, you're right, I was a little vague. So far, it's been all of the above. I've let both inspectors and potential partners and contractors talk me out of deals. Looking back, they had no "numbers" reasons or "bad deal" reasons, they just thought it'd be "too hard" for me. Recently, it's been my agent and mortgage broker. When pressed, they'll admit that the deal is possible, but they practically wave their wrists at me, trying to get me to move along. I totally get that I don't have cash funds or experience, and that that can be frustrating for experienced real estate professionals. When I don't go away, they'll get it.
And yep, that number is daunting, good word! Fortunately or unfortunately, the majority of it is federal and eligible for the very low monthly payments. Makes my overall debt:income not so bad as it would seem, but the debt never goes down. Not a long term viable option!
Completely agree with you. This site has been invaluable! It's helpful to have access to all these cumulative years of experience when friends and family start questioning how low you have to make your offers in order to actually cash flow and not just make $100 more than the P&I.
Even though it's brief, this thread has been really helpful to me as well. Thanks for all the input!
I bought my first 2 rental properties with cash. I have continuously rented those homes for 4 years which is good, but we haven't grown any. This month I told my husband either we are going to go all in or get out. After much prayer and education, he got on board and decided to go full force.
After purchasing my first 2 homes with cash I became smarter. I have now learned to use my money as down payments for multiple properties instead of buying properties out right one at a time. So now my problem has become finding the right deals to buy. As an attorney and an inactive real estate agent you'd think some things would come easy to me, but they don't.
I now have a goal of only paying out of pocket for down payments and closing cost. However, in order for me to do that, I think I'm going to have to go commercial loan. This means I have to have enough properties bundled together in order to use my cash (or rather a line of credit) as Down payments.
So in a nutshell, my biggest hurdle right now is finding bundle deals that make sense.
For me my biggest hurdle is just finding the right deal and going up against investors with more money than me. I'm thinking its because i'm in California.
After paying off over 100k of debt I finally was able to save up 40k to start shopping for a home. I started looking at houses for my primary residence about 4 months back. I was mainly looking for fixers due to myself having some construction back ground I wanted to fix up my own home. However, when ever I saw what looked like a good deail, (only 80% of market) i'd contact my agent and schedule a walk through. Since I work full time I only have time on weekends. But many times by the time the weekend rolls around the house would be either pending status or backup offer status.
After a few weeks of this I decided on a change of strategy. I would look for houses needing less TLC. But those houses in the area I want are 475k+. I would have won a bid for a house at 490k but after losing a whole nights sleep thinking about a 3k monthly mortgage I decided it wasnt for me.
I just dont konw how people do it in LA. Which now has forced me into another mind shift. I"m now contemplating whether or not to buy a condo and after a year buy a 2nd and renting 1st out. and keep doing that for the next 3 years. but that strategy would only allow me to buy 3 condos in the next 3 years cuz my debt to income probably wont let me buy 4th. And after the 3rd I'd probably be stuck for awhile until i can save up a lot of money.
Or an alternative to buying condos in LA would be to invest out of state. But so many unknowns and so scary when the investment is so far away.
oh boy! didnt realize it's been such a long 4 months. Sorry for the lengthy post.
Hi Folks,
I am having hard time for making my cash buyers list. Suggestions please? (highly appreciated to all inputs).
A few things to think about to get you moving:
1) If you bought two properties with cash, you should have quite a bit of equity right there. See if you can leverage those first two for money for the additional ones you want to buy. A few options would be
A) HELOC'S on each house individually.
B) A Line Of Credit secured by both homes, which you can then add to the balance of as you purchase additional homes. This would help you avoid having to buy houses as a "bundle" but would also let you take advantage of the commercial loans that are used for "bundles", you could still buy one at a time.
C) blanket loan secured by both homes together. Use the money you pull out to buy the new homes
D) Individual mortgages placed on each home separately. Use the money you pull out to buy the new homes.
If you let your mind look for answers outside the box, you'll often realize there are ways to make things happen that aren't "either/or". As in, you don't need to either buy a bundle of properties together or never buy anything new. You have lots of options right now, you just can't see them yet.
I've been where you are before. Believe it or not, I have loan companies that dismiss me or tell me they can do the loan then back out last second (one time when the mobile notary was on her way to have me sign loan docs to close the deal). It can be super frustrating and make you want to quit. Here are a few things I've learned along the way that may make it easier to swallow when you feel like people aren't taking you seriously.
1) People aren't against us, they are for themselves. Knowing this, whenever someone seems like they don't want to help me, I ask myself what is in the deal for them. The answer is usually nothing, and that's why they aren't being too helpful. In order to solve this, a few things you can consider are:
A) cut them in on the deal. If it's as good a deal as you think, other people are going to want to get involved in it too.
B) Find out how they are going to make money and commit to making sure they do, just as much as you commit to making money yourself.
C) Find out how much of their time you're taking and ask yourself if its fair to them or if they can expect to be compensated for it. While I don't know the details surrounding your situation, one possibility is that you're not likely to qualify for the a loan with your debt-to-income situation and the mortgage broker doesn't want to keep working on your file if he knows you won't be able to get the loan. Same goes for the agent.
D) While it's very frustrating having my time wasted or being blown off my people in the investment world, trust me, it happens on the agent side too. Trust me, people have zero problem wasting my time as their agent or asking for 1000 comps just out of curiousity when they aren't serious about buying. In order to protect myself, a lot of these people I have just tell no. This may be what they perceive in you, or it's also entirely possible you are a great client but you are making them think you're not serious and they are labeling you like the other time wasters you've come across.
Now with all that being said, if I was you, I would ask myself if I am really in a situation right now to be able to close a deal, and if so, I would go communicate that very clearly to the different people you're working with. One of the huge keys to success is making sure everyone else succeeds along with you. You'll find that the more people you're helping, the more they want to help you too. Don't give up. You make need to tweak your approach, or find different agent's and brokers, but if you do right by people and keep pushing, you'll get the ball rolling for sure.
If you're having trouble with accurate comps, you may not know the market like an expert yet. That's ok, it just means you're going to need some help. I would look for a young, hard working, ambitious agent with a high motor but not many clients yet. Tell him what you're doing and that you would like him to run comps for you to give to clients. This will benefit him because he will get good at running comps, learn a market area very well, and you'll introduce him as your partner to the clients involved in the wholesaling deal. The sellers may need an agent to find their next house. Your buyers may need an agent when they want to sell this one. He may want to learn more about deals closing. Find some way to bring value to the agent in exchange for him running comps for you and giving you lists to give to your buyers and sellers.
As a last option, you could always pay him a couple bucks to run comps for you.
Mike, sounds like you've thought this out! nice work. I like your thought process. I have a few more things for you to consider.
I also live in CA, and I know about home prices. I'll just tell you right now, if you want to be an investor, don't buy a primary residence right now. It's not a good buy. I owned 6 rentals before I ever bought a house for myself, and now that prices have gone up even more, I'm going to be selling it and dumping the equity into more rentals. Delayed gratification is the key to success in this business, and if you can put off buying a house for yourself and dumping that money into an asset that makes you cash instead of a liability that takes your cash, the results are about 4 times better for you in the long run.
Some things to consider.
1) This is CA. We are cyclical. This is a seller's market, no doubt about it. Lack of supply and low interest rates have created bidding wars everywhere. Why jump in when you're at a disadvantage? Wait until the tide turns in your favor before you look to buy your own home and limit the damage. You'll also gain equity this way when the market rises again. Don't be one of those people who bought at the wrong time, out of their own volition, and then complain when you lose your house later or it's underwater.
2. If you MUST buy, buy something that won't cost you much of your own money to own. I'm talking a duplex, triplex, 4-plex, or house hacking type deal. Somewhere where you can rent out the rooms and keep your mortgage super low. You've already saved 40k. What if you were able to save another 80k before the market crashes? What if you had 120k to spend when all these 500k houses are selling for 300k?
3) Investing out of state is way easier than you think. I'm writing a blog post on this now. I own 9 properties out of state, they all cash flow, have lots of equity, don't take much of my time, and I have never seen any of them in person. Not even once. You're money is going to go WAY farther in a different market. In fact, buying in a different market can still be considered investing. Buying in LA right now is not investing. It's spending money on your own comfort. It's going to hurt your net worth and it's going to set you back. If you want to be an investor, don't buy anything that doesn't make you money. Period.
Feel free to hit me up if you'd like more info on out of state investing. I know it can feel scary but it's really no different.
I'll share as secret with you about buyers lists. Everyone things it's about having a big one. It's not. It's about having a good one. You need 3-5 buyers who are all serious and able to perform. That's it.
Now, as far as how to go about doing that. Find people in your area, or any area, who are serious investors. Someone like me who can tell you exactly what they want and what their terms are with specificity. Once they tell you what they want, its your job to write your wholesale offers to satisfy their terms and still make your own profit.
Speaking from the investors standpoint, there is nothing more annoying than a wholesaler who comes to you with a deal, often full of vigor and excitement and urgency, who has inaccurate numbers or who's numbers don't match my criteria. For example if I tell you I want something that rents for close to 1% of the purchase price each money, and you bring me something not even close, or I tell you I want something that only needs cosmetic upgrades, and you bring me something that needs foundation, roofing, or electrical work, I'm going to write you off and stop looking at or responding to your messages.
Find a buyer who is serious, take his/her criteria seriously, and make it your job to work as their agent, finding them the deals they like. If you can do this successfully for just a few investors you won't need to work on building your buyers list every again. Trust me.