Gaining Great Experience or Great Returns on First Property

4 Replies

Hey all,

I hear a lot of people say to not get stuck in analysis paralysis and that the greatest value you get from your first deal is the experience, not necessarily the financial returns. What is your opinion on that and what lower amount of return do you think would be an acceptable amount as a tradeoff for this gained experience?

The reason I'm asking this is because I know most markets are heavily saturated at this point and properties are expensive, but I don't want to wait potentially years before getting my first property just because prices will eventually go down. I'd much rather get something with marginal returns right now so that when prices do go down, I have the experience to purchase many great deals. So to reiterate my question, what are the "marginal returns" that I should be ok with when taking into account how valuable this experience will be?

@Austin Petrie

Getting a good ROI is usually a factor of buying really well and managing really well. The fact that someone is newer to the process or less experienced will likely (but not always) lead to a less than optimal return in the first place. Therefore, I wouldn't recommend sabotaging yourself from the start with planning to acquire a sub-optimum deal.

There are other ways to gain experience without jumping into a "bad" deal. 

  • Partner with another investor
  • Find a "mentor" and figure out some way you can add value and ask to shadow them on their next deal
  • Look into other markets if your market is too hot to find deals

For example, an 8-12% CoC ROI is considered pretty good in my market. For myself personally, I wouldn't consider anything below a 5% CoC ROI even as a learning experience. I would rather put my money into other investments (stocks, peer-to-peer lending, etc) that consistently return 8+% and look into other alternate methods of gaining experience.

That being said, we all learn differently. You may place a higher value on first-hand experience and be willing to accept a lower ROI in order to get it.

Best of luck!

-Andrew

You need to learn value and what you it means to you.... This goes past the numbers/math that can be made to tell any story you want.

Example could be: Rough area, difficult tenants, eviction, very "hands on".... but you get 600/mo for your 30k house. This could work if you A) grew up in that area and understood the culture B) Had multiple and again able to spread the costs/problems... This could be worth it and you'd place high value on Low Price/High return.

Flip side of that: Nice area, good schools, good tenant pool, typically long term renter..... buy you're looking at 1100/mo for a 120-130k house. They'll probably stay a few years or longer,probably won't trash the house when they leave, maybe you hire a prop manager and outside of an emergency you don't do that much. The value here is the quality and time it frees up. You're making only little per mo (200-300/mo) anything that goes wrong wipes that out... but you're paying down the mortgage and maybe get little appreciation.

Neither example is right or wrong, but the value place on each one will always be different for everyone. Investing goes beyond just numbers, there's a human element to it. Plenty people will try to tell you otherwise and plenty will agree... but whatever route you take, you'll find out how the answer applies.

@Andrew Fredrickson

Thanks for taking the time to respond! I can see the value in that and I think I'll spend some time now figuring out what value I can bring to the table and what skills I think would compliment mine the most and then look into the idea of finding a partner to work with.

@Matt K. I appreciate the insight, you were able to make this point very understandable with those two examples side by side. I guess I have some more thinking to do to decide exactly the path that's right for me. Thank you!