How Much Pressure Should I Put on Myself for Deal #1?

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How Much Pressure Should I Put on Myself for Deal #1?

Daniel Whitmore
Rental Property Investor · Los Angeles, CA · Member since 2019 · 78 posts · 40 votes

How important is it for my first deal to be a good deal?

I’m new to real estate. My network is small. I don’t have muscles to flex, I don’t have past experience to guide me. I’ve read books, listened to podcasts and webinars but that can only help me so much, right? I have a lender and an agent but I don’t have a contractor, attorney, CPA, or inspector I trust.

To make matters even more difficult, the markets I’m looking to invest in are hot. Good deals go fast. Starter homes are more expensive than I anticipated. Everyone is paying asking price or higher. Most deals are gone before I ever hear about them. I’m competing with investors who have been doing this for 20 years. They know the market far better than me. They have teams in place. They have systems I don’t have.

I have little hope that my first deal is going to be a home run. I’ll be lucky if I break even in terms of cash flow. In reality, it seems a lot harder than all the books make it out to be.

Here is my question: how important is it that my first deal is a good deal? How much pressure should I be putting on myself? This stuff is stressful and it sometimes consumes me. Should I spend the next 2 years reading every real estate book, vetting/ interviewing every potential team member, studying the market daily, finding a mentor I trust and can learn from, BEFORE I do my first deal??

Or... Should I work with my investor friendly agent and just buy an OK deal found on the MLS just to get it out of the way?

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Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
7y

Two comments:

1 - What?!?!?
2 - Why in the world would you think it's OK to have your first Property be a bad deal...just so you can make one?  NEVER, EVER, focus on the goal being the property.  All properties, especially your first property, should ALWAYS be focused on the "deal".

3 - (OK, three comments).  I have found in life in general, that the solution to every problem, can be found in the problem itself...hidden, in plain sight.  Read your first two paragraphs, and find your answers.

21Reply
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  • Joe Facenda
    Realtor / Investor · Vienna, VA · Member since 2014 · 133 posts · 114 votes
    7y

    What are you looking for - a long term rental or a flip? 

    If  a long term rental, just do it.  if it cash flows anywhere close to what you want, take a shot.  You only learn by doing, not by reading and over analyzing.  if you are wrong, you may feel a little pain but it won't put you on the sidelines. 

    However, if you are looking to flip a property, analyze once, twice and then again. A mistake here could be very costly. The renovation costs too much. The ARV was aggressive. The market changes quickly (which can happen).

    But on a buy and hold, the downside - if it cash flows - is minimal.  If the market turns, you still have cash flow.  If repairs cost a little more, well,  you have cash flow to help rectify the mistake.

    Just my two cents.

    Where are you looking?

    9Reply
  • Sam Shueh
    Real Estate Agent · Cupertino, CA · Member since 2016 · 4k+ posts · 1k+ votes
    7y

    Suggest you focus working on making offers. All realtors will give you guidance. However, they will tell you that you need to be ready mortgage pre-approval and have funds. That is the first step. They will wait when you are ready.  The realtors are there to make deals and have just enough time for the most willing, qualified clients. Good luck.

    0Reply
  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    7y

    Two comments:

    1 - What?!?!?
    2 - Why in the world would you think it's OK to have your first Property be a bad deal...just so you can make one?  NEVER, EVER, focus on the goal being the property.  All properties, especially your first property, should ALWAYS be focused on the "deal".

    3 - (OK, three comments).  I have found in life in general, that the solution to every problem, can be found in the problem itself...hidden, in plain sight.  Read your first two paragraphs, and find your answers.

    21Reply
  • Jonathan BombaciBusiness Member
    Real Estate Agent · Lowell, MA · Member since 2019 · 1k+ posts · 1k+ votes
    7y

    Great advice from the others. If your looking to buy and hold then your first deal probably won't be a home run. That being said even if you buy a bad deal it will probably still make you money over the long run and the cost of doing a bad deal is a heck of a lot less than never doing any deal. Get the first one under your belt and get into the market place. Go out to meetups and talk to other investors, that's where you hear about the deals that are gone before they hit MLS. I think you've read enough, it seems like you're in the paralysis by over analysis stage.

    You seem to have plenty of book knowledge the time has come to take action and that first deal will lead to the 2nd, and then the 3rd and eventually that HOMERUN deal that makes all the rest worth while. Just remember you'll never hit a home run if you stay on the bench. 

    Goodluck and best wishes, its a fun game and it snowball quickly. I hope you enjoy the ride!

    [email protected]978-710-8611
    Candor Realty4.760 Reviews
    WebsiteView Page
    5Reply
  • Bill Plymouth
    Real Estate Agent · Philadelphia, PA · Member since 2018 · 416 posts · 396 votes
    7y

    Never “settle” for a deal.  That’s a sure way to to fail. 

    4Reply
  • Daniel Whitmore
    OP
    Rental Property Investor · Los Angeles, CA · Member since 2019 · 78 posts · 40 votes
    7y

    @Joe Facenda

    My strategy is to buy and hold. I want to buy 1 property per year for the next 10 years. I am currently focusing on the Utah market where I have some friends and family. Ideally my first deal will be a duplex or “mother in law” where I will have the ability to house hack.

    Please allow me to share an example. I found a duplex (4 bd 2 bath) in a C class neighborhood (Rose Park) for $325K. I put down 10% at 5% rate, 30 yr fixed. Mortgage is about $1600 per month + $600 for taxes, insurance, MIP, capEx, utilities. I rent out one unit at current market rent of $1150. I move out a year later and receive $1200 for unit 2. I see a positive cash flow of approx $150-200/month only after I move out. For Deal #1, would you consider this good, bad or OK?

    8Reply
  • Daniel Whitmore
    OP
    Rental Property Investor · Los Angeles, CA · Member since 2019 · 78 posts · 40 votes
    7y

    @Sam Shueh I am working with a lender my agent recommended so that I can make offers when I find properties I’m interested in based on my criteria.

    I agree that I need to start making offers but typically I’m not willing to pay asking price. However, because of high demand here in UT, good properties are getting multiple offers some higher than asking price. I don’t see how I can compete in such a hot market. Perhaps I need to look elsewhere.

    1Reply
  • Daniel Whitmore
    OP
    Rental Property Investor · Los Angeles, CA · Member since 2019 · 78 posts · 40 votes
    7y

    @Joe Villeneuve thanks for your feedback. I’m shocked, too. I assume your advice for me, based on my first 2 paragraphs, is to give it time and focus on turning my deficits/weaknesses into strengths including building a team, building my network, building systems, generating leads and the rest will fall into place?

    1Reply
  • Daniel Whitmore
    OP
    Rental Property Investor · Los Angeles, CA · Member since 2019 · 78 posts · 40 votes
    7y

    @Jonathan Bombaci thank you very much for the support and feedback. I appreciate the insight that the cost of a bad deal is less than the cost of no deal (in the long run). That is not what I’m going to strive for obviously but it does give me comfort knowing that it will be OK regardless.

    Regarding networking and attending REIA meetings, i think this is great advice but I feel like I have a disadvantage because I'm looking at a market out of state. I can't attend these meetings in person. I may relocate to the market (UT) eventually which will help me network and learn about potential opportunities/deals. Until then, is there another way I can network from OOS to find deals before they hit the MLS?

    0Reply
  • Sam Shueh
    Real Estate Agent · Cupertino, CA · Member since 2016 · 4k+ posts · 1k+ votes
    7y

    @Daniel Whitmore

    On the preapproval letter- Consider local loan broker or big name bank. Most listing agents will not entertain out of the area especially internet based banks. You should make a high offer(your definition) at least see how far you are off. Many properties owners are willing to consider an offer as a starting point.

    0Reply
  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    7y
    Originally posted by @Daniel Whitmore:

    @Joe Villeneuve thanks for your feedback. I’m shocked, too. I assume your advice for me, based on my first 2 paragraphs, is to give it time and focus on turning my deficits/weaknesses into strengths including building a team, building my network, building systems, generating leads and the rest will fall into place?

     Like I said, "...in plain sight".  Well done.

    2Reply
  • Jonathan BombaciBusiness Member
    Real Estate Agent · Lowell, MA · Member since 2019 · 1k+ posts · 1k+ votes
    7y

    If you can’t attend local meetups then the agent/brokerage you use will be imperative. Try to find one that specializes in what you’re looking for and an agent that has invested themselves. 

    I invest out of state in large multi-families so I established a good relationship with the largest commercial broker in the area. I told them bring me a good off market deal and if I buy it you can keep both sides of the commission. I'm closing on a great 12 unit next week that they brought to me before putting it on MLS and they have promised to keep the deals coming.

    [email protected]978-710-8611
    Candor Realty4.760 Reviews
    WebsiteView Page
    4Reply
  • Joe Facenda
    Realtor / Investor · Vienna, VA · Member since 2014 · 133 posts · 114 votes
    7y

    I see your first deal as a worthy one to start with. I say that without knowing the alternatives but you will have cash flow AFTER factoring in cap ex so why not? My question though is why 5% on the mortgage. That seems a bit high for an owner occupied home which this would be at the start. Current rates are a point or so less. Even if you built the MIP into the rate, that seems high. Maybe there is something I don't know. But if you got a rate closer to 4, well, it is even a better deal.

    1Reply
  • Ian WalshBusiness Member
    Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
    7y

    Every deal should be good.  Learn your market and learn to market.  Don't give yourself a reason not to find a deal either.  People that are brand new send me deals to fund every day.  They find them and they make it work.

    0Reply
  • John Barrows
    Real Estate Broker · Auburn, WA · Member since 2015 · 151 posts · 106 votes
    7y

    @Daniel Whitmore

    ABSOLUTELY NO PRESSURE!

    Find a market few or none are working in! The properties are plenty if you look and search... start small, look for seller financing, don’t depend on any of the people you’ve suggested!

    Go to INVESTOR NETWORKING meetings.. learn from people but, don’t necessarily follow them... use the information and apply it to your experiences... good luck

    7Reply
  • Amy KendallBusiness Member
    Real Estate Broker · Lehi, UT · Member since 2016 · 397 posts · 318 votes
    7y

    @Daniel Whitmore  I think you have a good strategy worked out.  Especially if you are going to stick with the Utah market.  I would say that most investors starting out in our market buy a house that they will live in initially with the plan of renting out in the future.   I think buying a multifamily and/or a house with a basement apartment or an ADE is one of the best options.  If you can get your portion of the mortgage covered as much as possible or completely, then I would consider that to be a home run.  It will allow you to save all that money and put yourself in a good position to take advantage of deals in the future and continue to achieve your goal of buying a property a year.

    2Reply
  • Heather Schmidtknecht
    Rental Property Investor · Winona, MN · Member since 2018 · 87 posts · 90 votes
    7y

    @Daniel Whitmore, I think part of the answer to your question(s) depends on what you are looking to get out of this transaction... for instance, are you after cashflow?

    My motivation as an investor is to diversify my retirement portfolio, as I have a W-2 that I LOVE and plan to keep... so what I want from my rental(s) is for the rent collected to pay most/all of the mortgage and other monthly expenses, as well as long-term maintenance, etc. and for the property to be paid off (and to have appreciated in value) within 15 years. Because I don’t *need* cashflow, I may do a deal that others may not. But I sleep well at night knowing that right now my properties are “paying their own bills” and if needed, I could sell them at any time, for more than I owe the bank.

    Other advice: start small and think through the worst possible outcome(s) before jumping in. Good Luck! :)

    2Reply
  • Tylor Williamson
    Investor · UT · Member since 2017 · 19 posts · 27 votes
    7y

    @Jonathan Bombaci.   Here are my thoughts. 

    My spouse is much more fiscally conservative than I am. If I would have lost money on my first deal, that would’ve been my last deal. My advice would be to ensure that you have a good experience on your first transaction. So much of what you do on the first couple transactions will dictate all the future transactions.

    I have been in real estate for a couple years doing flips, I have managed to make a profit on each of the 10 or so houses we have done.  As a flipper I have a much shorter time line horizon, and as such, how I approach buying flip properties is different than if I were buying a rental.  So I approach stuff differently that you would as a long-term investor. But in many ways, having a longer timeline can make it a little easier to find properties. You have a longer runway to cover  mistakes that may be made on the purchase. 

    I would suggest you join the local REIA meetings and begin building your local network. I am also in the Salt Lake City area and I found that to be very helpful when I got started. Feel free to connect if you want to chat some more off-line.

    2Reply
  • Jeffrey Vazquez
    Rental Property Investor · St. Petersburg, FL · Member since 2019 · 4 posts · 1 vote
    7y

    @Daniel Whitmore Really great post. I have yet to make my first move as well. But sometimes you have to dive in, be bold and take the leap. If you fail you will learn invaluable knowledge. For me I’m going to look for a safe play and get that first notch in the belt hopefully minimizing risk and loss and absorbing every bit of the experience.

    Go for it you’ll crush it. Nobody is ever fully prepared. Life and business are the best teachers!

    0Reply
  • Mike Dymski
    Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
    7y

    "Should I spend the next 2 years reading every real estate book, vetting/ interviewing every potential team member, studying the market daily, finding a mentor I trust and can learn from, BEFORE I do my first deal??"

    Nope

    Analyze 100 opportunities (X per week)

    Offer Y properties per week/month

    Get out of your comfort zone and start making offers that meet your criteria

    Practice does not make perfect...perfect practice makes perfect

    0Reply
  • Account Closed
    Financial Advisor · CA · Member since 2012 · 128 posts · 76 votes
    7y

    Daniel-we don't know if you want this for a long-term investment or a flip or whatever.  My goal is to put down as little as possible.  I buy small properties with little risk.  Everyone is different.  You don't need a massive network of anyone to start out.  You are being intimidated by people and while investing is a big deal, you cannot expect yourself to know everyone just starting out.  Personally these days I try to get a "fair" deal  Why?  Because even if I over pay, inflation takes care of overpaying to a degree.  Have fun.  A lot of people here take themselves too seriously sometimes.

    2Reply
  • Brock Mogensen
    Real Estate Syndicator · Milwaukee, WI · Member since 2018 · 1k+ posts · 907 votes
    7y

    You don't want to do a bad deal but you can't expect a home run deal on your first one.  The law of the first deal is very true!  After buying my first deal (a duplex), 6 months later I closed on an 89 unit.  Find a deal that makes sense and pull the trigger! 

    0Reply
  • Sean Nava
    Rental Property Investor · Bountiful utah · Member since 2018 · 6 posts · 7 votes
    7y

    Crawl, walk. Run. Mother in law unit is genius for getting your feet wet. Especially in this market. Keep in mind you are trying to create a snow ball effect. Make your situation better then figure out the next step.

    I am a Utah resident and have started with a mother in law suite. Which puts me about $400 extra a month after additional cost and expenses. I see this as a $400 margin for error as I figure out the next deal. Rather than making a deal and seeing what happens. Training wheels so to speak.

    0Reply
  • Ali Boone
    Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
    7y

    I would do something easy, and doing this will a) give you an idea on the right time to dive in and b) let you start with a decent-enough deal.

    When to try your first investment -- when you can tell someone the exact reasons why you are choosing that property.

    If you can do that, it means you know enough about investing to know what you're getting yourself into and what makes for a good deal. And then, assuming you learned it all right, then it means you're getting a good deal. No real reason to settle for a so-so deal. The reality is that, yes you're probably not going to hit a home run on your first deal, but that's based off you trying as hard as you can to hit a home run. See what I mean? Most people don't hit home runs right off because you have to make mistakes in this industry to learn it that well. But there's enough mistakes to be had when you're legit trying for the home run. 

    Is it LA you're referring to about making your first investment?

    0Reply
  • Caleb Heimsoth
    Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    7y

    @Daniel Whitmore I made no money on my first deal. Made a little on my second. You get the idea. Just get started

    0Reply
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