How a new investor landed his first deal
Here to help anyone starting out that's looking for some direction to landing a first deal. It can be done while working a full-time job, the right focus and passion will get you there. I'll keep it easy to read and summarize with bullet points, Here's how I did it:
1. Educate with Podcasts, Books, Webinars, absorb as much information as you can and focus on a specific niche. To help find your niche read the Ultimate Beginner Guide that is free on Bigger Pockets. (*Books- Cashflow Quadrant, Rich Dad Poor Dad, All Brandon Turner's Books, All J Scott's Books, Millionaire Real Estate Investor)
2. Build your team, and equity partners make deals much easier to obtain, but be a team player. Build professionals around you- Lenders, Title and Escrow, Insurance Agents, General Contractors, RE Agents. Get out and socialize and learn how a real estate transaction happens from start to finish.
- Found a newer agent to work with at first just to get out and view some houses. We ended up going our separate ways because he wasn't too well versed working with an investor, but it's just the action of getting out and viewing houses that gets your mindset right.
- An owner of a Title Company was instrumental to my success. He gave me some great tips and took a meeting with me at his office. This benefited him as well since we closed at his office.
3. I started to get Analysis Paralysis, but took a step back and realized, all of this is for naught if I can't find a deal. *So I focused on finding deals.
4. Started doing some DM Marketing, driving for dollars, finding eviction records, tax delinquent etc. Kept tract of all my records/ receipts/ costs and created excel spreadsheets to hold info and then mail merge to word.
- Handwrote letters at first and quickly learned that I'm going to print instead. Went from yellow letters to professional letters.
5. As I was doing DM Marketing I talked to two separate contractors who I know, about what I was up to. They liked the idea and I formed two separate LLC's. One for flips and one for buy and holds.
- Don't get all wrapped up in the LLC language, I was trying to read and understand all that lawyer talk and my head started to spin. Learn the basics, pay a lawyer, and move onto the next step.
- Hire a great CPA and again don't try to be great at everything, just get the basics down so you can talk educated on the subject. You can't be a professional at everything. *To me, my ONE thing is to find deals.
6. Ramped up my DM Campaign after many failures w/ minimal replies. Response rate hovered around 1%, but I just kept doubling down. 100 letters to 200, 200 to 400, 400 to 800, and so on.
7. Read posts on BP about the proper language to use with sellers and how to negotiate. Michael Quarrels has some good posts and J Scott's book on flipping houses gave me ideas as how my dialogue should be structured.
- I printed out my own dialogue example and practiced many early mornings so it became natural as I was talking to sellers. It wasn't always perfect but I listened more than spoke and asked the right questions.
8. After about 6 months, got my first property under contract and the due diligence phase began.
- There is a great PDF printout on BP about a checklist for the Due Diligence period and I printed that off and started checking things off.
9. We got financing through a local bank (portfolio lender) and along with the Residential Contract of Sale, I brought our calculations in a BP Spreadsheet along with a spreadsheet for rehab costs. Also, turned in my sample comp analysis which I learned how to do from J Scott's Estimating ARV Handbook.
- The bank was impressed and even though it was our first deal, I was able to explain how the deal was incredibly safe for the bank since we bought it right. *It should also be noted, I was building a relationship with the commercial lender there for many months beforehand- asking for meetings, bringing in financials, we interviewed each other etc.
10. Hired a General Inspector which lead to a Plumbing Inspector and Termite Inspector with Remediation. General inspection we assumed in our costs but the additional inspections/ remediation's we did not.
- *I estimated 4% for closing costs on our purchase price of $108,000 but closing costs were closer to 8%. Luckily we bought under our MOA and built in high prices purposefully on our Rehab Budget to buy safe. *It should be noted that in our marketing piece we say "We pay all your closing costs"
- In our calculations I purposefully underestimated the ARV as well, in my BP calculations it was set at $260,000 but from my comp analysis $270,000 to $280,000 is highly feasible.
11. It's very important to stay in contact with the Bank, Title, Insurance during this phase and make sure everyone is on the same page and has each others contact info. *I felt it was especially important to stay in contact with the seller during this phase, so it wasn't signing of the contract and then, "I'll see you at closing". Maybe I get too attached, but I wanted to ensure him I was there their to guide him throughout the whole process and be as transparent as possible.
- Last thing we wanted was for the seller to get "cold feet". I always took to heart when a guest on a BP Podcast said "the seller is going to tell everyone they are selling their house. You need to be sure that when the seller is attempted to be talked out of selling their house below market value, they stand firm with your offer and say "No, so and so, has been very helpful, they are walking me through every step and are taking this burden off my hands". Even if Uncle Ricky offers more money, the seller is still in your corner because you truly were there to help them and were professional and respectful of their situation" I just thought that right there is gold, and is exactly how it needs to be done.
12. With bank financing on a commercial loan to an LLC, from signing of the contract to closing it was exactly 29 days.
--- I've been in sales for the past decade, selling Verizon accounts and now selling construction equipment. Buying Real Estate is similar, find an account/ homeowner, build a relationship with honesty and a genuine desire to solve their problem and get rewarded for doing so. And ALWAYS follow up.
Here are the numbers on the deal:
- $108,000 Purchase price
- $8400 closing costs
- $70,000 Rehab Costs
- $2,000 holding costs for two months (estimate is 5 weeks to completion but lets say two months, it wouldn't be so quick but equity partner is full-time GC on-site)
- $274,900 ARV (Appraisal completed by bank)
- $5,498 Selling Costs
- $16,494 RE Commissions.
Net Profit = $64,508 about 23.5% profit off of ARV.
Now the fun part begins, I'll report back with pictures as we go through this. Thanks for reading.
