Hey Guys -
I was hoping for your feedback on a process question we've been pondering.
What decisions do you believe an individual needs to make in order to close their first deal?
I'd love to hear your thoughts on those steps you underwent to get to your first deal.
e.g. (in no particular order)
- Decide on how you're going to finance the deal
- Choose a farm to focus on
- Find an agent to work with
Thanks in advance everyone.
here are a few:
* will you manage the property yourself?
* Multis or single families?
* Buy & hold or flip or?
* Region or geographic area for property search
After viewing several (many) properties it became very clear to me that my focus would be on turn key, 3+ units, in village settings (not rural). So all of those could be decision points - but the investor likely needs to look around a bit before making that call. This is a personal preference but once I narrowed that down it made searching and eliminating properties much easier.
I did a live-in rehab of a SFR with FHA lending. Purchased at $77k and put $10k into it over a year. Appraised at $125k...refinanced and pulled out $30k...rolled it into the next one...turned it into a rental property...not a bad way to get going. It rents now for $1,200 a month.
I didn't know enough to tell how good of a deal my first one was...but I knew enough to jump in and that I wouldn't totally sink. Newbies just have to go for it...this was the safest way I found.
Thanks @Joshua Dorkin
Well Josh, I have yet to close my first deal. My main focus is to remain consistent and analyze my business on a month to month basis. After listening to the podcasts I've learned that being consistent and sticking to a game plan and not getting the "shiny object syndrome" will help me remain on the right path. Finding your niche market and sticking with what works in your area. I'm extremely optimistic and know that once I get the first the second deal will be right behind that one. I'm responding to this post because I am currently in this situation and could use feedback. I've been marketing to 4 areas in San Diego and placed them on a direct mailing schedule every 4 weeks. My main goal is to buy and hold property out of state and build my portfolio in the TN, TX, or GA. Wholesaling is how I'm starting to gain momentum and invest in buy and hold properties. Thanks for all the great podcasts and creating this sight! I've learned a lot and am very excited for my future in real estate.
I would say there are a couple types of questions. Practical feasibility questions, and then questions of the heart (or drive).
First someone needs to make the decision to do a deal and commit to it.
Second they need to overcome the obstacle that presents itself. (This decision is a recurring one where they will need to continue to overcome challenges and setbacks)
How much money are they able to invest in the deal.
How much time are they going to commit to the process (this will help define a timeframe in which to set the goal of closing the first deal).
What type of risk are they willing or able to stomach?
Who do they want to work with? This would include potential partners, mentors, agents, lenders, and really anyone in their network.
It is extremely important to decide on a plan or method and then set a S.M.A.R.T. (Specific, Measurable, Attainable, Realistic, Time based) goal that puts the ideas to paper and defines a path to get there, this must be written down.
Where they want to do their deal is good to think about, and obviously critical to decide on in order to get the first deal.
When do they want to do a deal, in the next 24 hours (yes this is possible for almost anyone), or in the next 5 years?
The list could go on and on and would vary depending upon what type of 'deal' is being pursued, but in my opinion the most important decision is the following:
The why of what you are doing is the single most important decision that you can make. If you have the why defined clearly than the twists, turns, bumps and detours in the road will be taken in stride. If you know your why than the who, what, when, where, and how will fall into place.
Whether deal #1 or deal #20:
1. Am I buying under market
2. what can I rent it for
3. What will my expected return be
4. Quality of unit and location
5. exit strategy
If all those look good and funding is available, buy. If no funding lined up first, I would find that and then shop. Be prepared to move fast if the deal is a steal. If you don't, someone else will. When I have found properties I wanted that were right, I made sure I had funds and then wrote contracts. Never played games with long inspections and weasel clauses (those are for unlicensed brokers). No need to fear making your first investment if you know it is right. If not, get a second or third opinion from investors with experience. Sometimes the 1st one is the most difficult one due to self doubt. After a few, you won't have that anymore. There are places I will not buy regardless of numbers. If I would not live in the unit, I won't buy it. Remember the quality of the unit and location matter to many and you want the best tenants possible.
Josh, I am currently getting started with my first buy and hold property and here is what I am systematically doing in order to get off the ground. I am posing this information as questions under the headings as well as my thought process so you can understand the process that I went through. The info is very brief and certainly had a lot of thought put into it but I wanted to keep it as short as possible for the purposes of this reply.
I am a very process oriented person so I wanted to answer as many things a so could prior to that first prospective tenant calling me. I have learned so much from BP and I want to pay it forward as best I can. Most of what I have learned is from BP and reading books on my own so thank you for the site and just know how much it has helped.
So here goes:
All of the following assumes that I have met my goals for the deal (COCR, financing, etc...) and I am moving forward with finding a tenant. If you would like me to go into identifying goals and specific property targets as well, I would be happy to do so because it is a very important part of the process as a first step. If you haven't identified where you want to go, it is difficult to see the forest through the trees.
- How do I advertise and where? What is most effective? What do I use (software, Craigslist, etc...). Who is my audience and where would I go to find a rental if I was them?
- I have decided to use Zillow Rent Manager, Craigslist and Cozy as I feel they provide the best combination for visibility to my listing from the demographic I am targeting.
(2) Property Mgmt.
- Will I manage or not?
- I have decided to self manage at first to get going so I moved to step 3. Otherwise I would have been talking with PM companies as a next step.
- I think this is a vital part of my growth as an investor so I am forecasting my returns based upon using PM but will self manage at first so I can understand the process and the finer details of what goes into PM.
- Now that I have my property advertised and I have people calling, what next? How do I handle the calls? What is ok to ask legally? What is the purpose of this call? What do I want to hear and what do I not want to hear (this helped me create my list of questions to ask). What identifies a prospective tenant to move to the next step in the process?
- I have decided to place most of my prescreening metrics directly into my listing so I can eliminate tenants that do not meet my criteria. I think this will help with the screening of my tenants since I am new to this.
- I created a prescreening form along with questions that I can ask each prospective tenant so I am not caught off guard when they call. I keep this handy in One Note so I always have access to the questions.
(4) Onsite Interview
- How does this get handled? What questions do I ask? Again, what do I want to see and what do I not want to see/hear? What are the appropriate questions to ask during this meeting? What determines if we move forward with the application?
- I feel that this is the tenants meeting as much as mine. This will determine if we move forward on both sides. Body language, appearance, and organization are all things that I will be paying attention to as we are meeting.
(5) Rental Application:
- Do I use software or do I create my own application? What questions are ok to ask? How do I run a background and criminal check? Who pays for it? What is my criteria for accepting an applicant? Denial Letter: How do I send this and what do I say as the reason?
- These are all questions that I had to answer for myself.
- I have a detailed answer to each of these questions. I have also created another set of questions for the references the tenant lists as well as the employer they list.
- I ended up creating my own rental application for use based upon best bets from all of my learnings.
- I will be using software to run criminal and background checks that the tenant will pay for when they complete the app.
- Where do I get this for my state?Should I pay an attorney to draft this or are there other ways to get a lease? Can I take something from BP and will it be current? What is legal and what is not? Where are the statutes for my state? Security Deposit laws? Pet fee laws? Where do I get addendums if needed? What are possible addendums?
- I decided that I really need to know the laws before I start this venture. I continue to study all of the statutes in my area which I recommend for any new investor.
(7) Rent Collection
- How should I collect this (mail, software, other?). Are there fees if I use software? Who pays those fees? How do they affect my ROI? Are the fees legal in my state?
These are all items that I wanted answers to before that first tenant called. I think that I have done a fairly good job so far and hopefully will eliminate some bumps in the road later on. Time will tell I guess!
Anyhow, I hope this helps and sorry it is a bit messy, I typed all of this from my phone. Feel free to let me know if you would like me to elaborate on goal setting or any of the other items that I mentioned.
I decided that I wanted to "house hack" a single family by living there and renting rooms to friends. First step was to line up financing which was easy because I work a steady job and have little debt. Then I decided what area to target, which turned out to be an area where lots of college students rent and also recent grads who save money by living together. I paid retail off the mls. I didn't have the experience to do a big rehab or find a "deal" which is why I paid retail. So I bought the place and moved in and now my friends pay my mortgage for me and allow me to save for my next investment. Those were the decisions I made and now they are reality.
Awesome job. You didn't let fear stand in the way. Now, with more experience, your next deal will come with more confidence.
1. didn't know nothing about nothing but i knew i wanted to be involved in real estate somehow in some kind of way
2. became a realtor to learn about the market, working with buyers and sellers, enrolled in real estate school and didn't do anything is real estate for a long time.
3. drove 18-wheeler over the road never thought about real estate for awhile but something kept me pulled into real estate, somewhere don't remember where but it got stamped into my brain that real estate residential especially would be the biggest investment someone would ever make just opened my eyes wider.
4. made a decision this year to learn as much about the mechanism called "envestor" aka investor, took some workshop training and learned to set a niche that could be the streamline to build my portfolio.
5. took action by networking with area realtors that i knew to feed me MLS leads
6. set my aim at the Multi-Family sector, it just seems so right for my approach of buy and hold.
7. build up my network which lead to me finding 1st deal,
8. got in touch with my lender through my primary bank when i opened line of credit
9. interviewed my contractor who i eventually employ which lead to his dad selling me his property, a 2-plex
10. staying humble and committed to real estate with a passion to succeed, it is what drives me along with my faith to get up every morning and help my community build and grow stronger than ever, "we are stronger together!"
Location, Long term or Short term, Type of Building and 2 exit strategies.
Welcome to BP.
1. Get pre approved (No matter how good the purchase is, you can't buy, if you don't have funds)
2. Find you niche (Don't try to be jack of all trades, find one or two and stick with them
3. Decide your farm area (I cover 5 counties)
4. Be a PRO Member of BP so you could learn a lot for just a little bit of money (Thank you @Joshua Dorkin ).
5. Once you lock something, go for it. Don't let fear come in your way.
Hope it helps.
@Joshua Dorkin @John Thedford
Just purchased my first property about a month ago in hopes of making it a future rental. Cash flowing the remodel as of now and building a list of Trusted and Licensed Contractors/Maintenance guys and nothing has really sunk in until I took the giant leap. John Thesford has a good list but I'd also include "No Emotion" and have "Location" as #1. It may just be a Single Family home but after hearing Podcast and doing my First home purchase it's changed my whole view and I'm currently on the prowl looking for my 2nd deal. It's been fueling my New passion of real estate and once I have that "passive income" rolling in whether it be from Rentals or Commercial I'm feeling determined and unstoppable.
"First someone needs to make the decision to do a deal and commit to it."
He is absolutely right. The majority of potential investors I meet are unable to commit and actually do their first deal! They are afraid to get their feet wet. Remember it doesn't have to be a perfect deal, just has to be a GOOD deal.
Its still fresh in my mind!
The most important, and IMO the most often overlooked on a first deal is knowledge and action.
I believe you should arm yourself with books that are highly regarded by people on this site and be careful to not to pick up analysis paralysis. The naysayers will always have their opinions, often times it is the people closest to you.
- Grab a book. Learn, study, review.
- Save some money, get Pre-approved, find an agent, farm the area you're familiar with.
- Search for FHA owner occupied Multi (2-4)
- Learn first hand. (Experience is the best educator)
Just remember you CANNOT fail. Failure is a good thing, it shows you what isn't working so you can fix it. There are two things in life, success and lessons. No such thing as failure!
@Joshua Dorkin - What decisions do you believe an individual needs to make in order to close their first deal?
An individual needs to decide that they need a complete life altering change. They need to decide that they are done with the rat race. Once they have that conviction, then start looking for deals!
Looking for deals won't happen if they don't first have that need/want to change their life. So start there and everything else will fall into place!
@Joshua Dorkin my first deal was a single family house in Duncanville, TX (15 min south of Dallas) but I lived in New York City at the time. So here are the decisions I had to make:
- who is going to manage the property?
- how do I find a good mgmt company?
- who will find the property for me? (i.e. agent, wholesaler, myself)
- how do I run the #s on it to make sure it's profitable?
- who are the inspectors I need to hire after getting it under contract?
- how do I find those inspectors?
- what type of home insurance do I need to get on it? Do I need to get general liability insurance too? How much does this all cost?
- how do I evaluate properties for purchase without personally visiting them? Do I feel comfortable doing that on my first purchase?
- does an agent coordinate with the house inspector or do I?
- what does the house inspection look like and how the heck do I interpret it to determine what's important and what's not?
- who is the best lender?
- should I have a pre-approval letter or a pre-qualified letter? What again is the difference?
- how do I manage the property manager to ensure they are doing their job? What reports will the provide me?
- what is my role in reviewing prospective tenants?
- what fees are charged by property mgmt and are those fees reasonable?
- what agent should I pick and does he/she know how to work with investors?
- should I create a property website for leasing if the mgmt company doesn't lease it?
- how much money do I need for all closing costs plus reserves if mgmt company doesn't quickly find a tenant?
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You just have to do it. You can't wait for perfect conditions. Once you find one that's GOOD enough, you have to roll with it.
Very first should be in lines of getting your life in order and ready to invest.
1. Get your personal finances in order, budget wisely, and save money.
2. Have a goal for your investments, and have a personal why and a reason for investing.
3. Learn, study, educate, and connect with other investors.
My post assumes you've already made the decision that you're going to invest in real estate.
My very first question to myself is this: If, for whatever reason, I decide I want rid of this property, can I realistically, and conservatively, do no worse than a very small return on my money? If the answer is no, I will walk away. Nothing is more important than a viable way of recovering, at the least, what you've spent plus a little bit. If not, I might as well invest in Treasury Bonds or gamble on some stocks, which are far less labor intensive than anything in real estate will be. Note that return doesn't just mean "I bought the house for $50k, I need to get at least $51k back when I sell". It might be acceptable to surrender some long-term equity for stronger returns, the same way you might buy a flat stock because the dividend is spectacular. However you work the numbers, if your exit strategy doesn't include a concrete game plan for recovering all+1 at a minimum, my opinion is that it is a poor strategy.
Outside of that, of course you need to have identified your funding source, your market, your timelines.
Got to have the guts to make an offer. Most talk more then they do and missed the best deal which is the first deal.
lots of good answer above: but I would also add:
- support at home from your spouse- depending on their risk tolerance vs. yours you may need to over-communicate early on regarding the money down, risks, returns, and physical property details, and then keep them involved and knowledgable on a regular basis.
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