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

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

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.

See this reply in the discussion

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Dennis Cosgrave
Rental Property Investor · Member since 2019 · 304 posts · 462 votes
7y
I have previously expressed my opinions about California real estate. The long term prognosis for the market in that state is not good. There are too many factors that will negatively affect the market in the coming few years. Therefore, I would be looking to buy property that is undervalued. You add value by improving the property so that you can increase rent which increases cap rate. I certainly would not be looking to buy and hold for the long term.
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George Pauley
Chandler, AZ · Member since 2017 · 174 posts · 269 votes
7y
Just throwing this out there. 11 years ago I bought my first rental. It was a disaster. I cash flowed negative $100 a month. I sold it 7 years later for $30k less than I bought it for. Properties 2, 3 and 4 were better, but still not anything I'm proud of.

Today I own 18 rentals, all of them cash flowing. I survived the bad investment(s), you likely will too. I don't think I would be where I am today if I hadn't bought that first house. There's something about learning through doing.

Yes, you should be aiming for a home run on your first investment. You're probably going to strike out. But that's OK. It probably won't destroy you. (Remember you get to come to the plate more than once during a game!) But if you never step up to the plate I can guarantee you'll never even get a base hit. #thismetaphorisoverextended!
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Johana Salazar
Developer · Memphis, TN · Member since 2019 · 3 posts · 0 votes
7y
@Daniel Whitmore
Hey Bud, I been investing in real estate for the past 3 years and I was once all over the place because I dint understand what I need to do.
So here is what you need to understand First deals are people.
Your job is to solve people’s issues. Marketing and communications skills are key to this business you have to learn how to listen to the people’s issues and solve them.Ask question for the things you don’t understand and find solutions. The property is just the product the but your real deal is in. The people.
You will not know if your first deal was a slam dunk deal or not because at the beginning you don’t know what is a good deal at the moment it might be a great deal but later you will have more and you may say oh I remember my first deal
You have to get started.
Start by marketing put some signs out, use face book let people know that you are a Real estate investors that solves problems.
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Daniel Whitmore
OP
Rental Property Investor · Los Angeles, CA · Member since 2019 · 78 posts · 40 votes
7y
@Johana Salazar thank you! I think it’s great advice to remember the deal comes from the people not the property. Also I need to focus on finding solutions to people’s problems.
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Daniel Whitmore
OP
Rental Property Investor · Los Angeles, CA · Member since 2019 · 78 posts · 40 votes
7y
@George Pauley I appreciate the overextended metaphor. It really helps drive it home. Thanks for the advice. You have managed to endure many challenges, rise above and succeed. Congrats! That is very impressive and I hope I have the same level of resilience. Thanks for assuring me it’s ok to strike out. It won’t be the end of the world, I will have another chance to go to bat. If my first deal is a strike out, it will at the very least be a great learning experience.
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Brock Mogensen
Real Estate Syndicator · Milwaukee, WI · Member since 2018 · 1k+ posts · 907 votes
7y
@Daniel Whitmore The duplex showed me the power of real estate and caused me to think much bigger. The 89 unit definitely required more work during the due diligence process. However, now that we have created systems the next big deal should be less stressful.
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Joe Facenda
Realtor / Investor · Vienna, VA · Member since 2014 · 133 posts · 114 votes
7y
@Daniel Whitmore A few thoughts on financing as you said you "may not live there" and you probably need a co-signer.
1. You put in an offer - If you did, you had better have your financing and plans squared away. Much better chance of acceptance if you present a strong lender letter. Plus if you change your mind about the type of financing or whether or not you are going to live there, it could, depending on the contract terms, put you in default if you do not settle. Read the contract carefully.
2. If you were pre-approved for 10% down, almost certainly it was based on you being an owner occupant. If you decide to not live there, all traditional investor loans I am aware of require at least 20% down.
3. DO NOT MISREPRESENT WHETHER OR NOT YOU ARE GOING TO LIVE IN THE PROPERTY. Owner occupancy means a lower rate and lower downpayment. (should be closer to 4%) Investor means a higher rate (5% could be fair depending on your finances.) If you say I'll live there but never do, that is mortgage fraud and not the way to go. How long do you have to stay before renting? That is an open question. Some say a year. Some say at least one tax reporting cycle. Others may have a different opinion. Check with an accountant. But make sure you abide by the rules.
4. I am sure you already checked this out but a non-occupant co-signer throws a wrinkle into many loans. FHA is fine with that. Some but not all conventional loans are okay with that. For FHA, that would not cause in increase in the rate. For conventional loans, it would be program specific but still 5% seems high to me.
Hope that helps.
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