After a year of analysis paralysis

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After a year of analysis paralysis

Jose Gallegos
Rental Property Investor · Bloomingdale, IL · Member since 2020 · 20 posts · 15 votes

I'm just getting started in my REI journey after nearly a year of analysis paralysis. I'm an engineer by degree but always wanted to get into REI and get out of the rat race. My hometown of Aurora, IL is where I have started my first deal. Currently in the closing process for my first 3 unit in late 2020. My goal is to get to 100 doors in 8 years. I'm starting small to refine my process for the first few years and kick into high gear in the later years by doing larger CRE deals. Will probably make mistakes along the way but that's what the first years a for. I hear it all that time that RE is a relationship business and as I mildly introverted engineer this could be challenging but very much doable. I want to gain valuable inside from others that have been in this game for sometime or meet other investors, new or season, that want to collaborate to help each other achieve our goals. Send me a message.

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Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
5y

There are so many things wrong with your statement that I'm having a hard time figuring out where to begin, so I'll just go in the order of items in your statement:

1 - "My goal is to get to 100 doors in 8 years."  - Your goal should NEVER be the number of doors within any time period. Your goal should always be financial. Also, the number should ALWAYS be a number with a dollar sign in front, and NEVER with a percentage sign behind. Percentages lie...especially in REI.

2 -"Will probably make mistakes along the way but that's what the first years a for." - No, the first few years are NOT for making mistakes.  If that was true, I want to meet the person that lost the most money in their first few years...that person must be an absolute genius.  Of course they probably ran out of money before they stopped losing money, so...
3 - "I hear it all that time that RE is a relationship business..." First, stop listening to those people. REI does involve relationship building, however, REI is , as every business is, a numbers business.
4 - "...and as I mildly introverted engineer this could be challenging but very much doable"....and as a numbers business, your background in engineering should help you greatly with the numbers.  The problem with being an engineer, is you have know when to stop trying to "make it better".  Engineers are great problem solvers.  This will be your greatest tool, and will put you head and shoulders above most REI because you will be able to think on the left side of the equal sign, instead of the right...like most REI do.  This will allow you to see the opportunities others don't, and to put deals together others can't, simply because you will have a greater understanding of math...and that means you will be able to develop strategies others won't.  This also means less competition for deals, and much greater returns (remember, based on dollars...not percentages).

 

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  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    5y

    There are so many things wrong with your statement that I'm having a hard time figuring out where to begin, so I'll just go in the order of items in your statement:

    1 - "My goal is to get to 100 doors in 8 years."  - Your goal should NEVER be the number of doors within any time period. Your goal should always be financial. Also, the number should ALWAYS be a number with a dollar sign in front, and NEVER with a percentage sign behind. Percentages lie...especially in REI.

    2 -"Will probably make mistakes along the way but that's what the first years a for." - No, the first few years are NOT for making mistakes.  If that was true, I want to meet the person that lost the most money in their first few years...that person must be an absolute genius.  Of course they probably ran out of money before they stopped losing money, so...
    3 - "I hear it all that time that RE is a relationship business..." First, stop listening to those people. REI does involve relationship building, however, REI is , as every business is, a numbers business.
    4 - "...and as I mildly introverted engineer this could be challenging but very much doable"....and as a numbers business, your background in engineering should help you greatly with the numbers.  The problem with being an engineer, is you have know when to stop trying to "make it better".  Engineers are great problem solvers.  This will be your greatest tool, and will put you head and shoulders above most REI because you will be able to think on the left side of the equal sign, instead of the right...like most REI do.  This will allow you to see the opportunities others don't, and to put deals together others can't, simply because you will have a greater understanding of math...and that means you will be able to develop strategies others won't.  This also means less competition for deals, and much greater returns (remember, based on dollars...not percentages).

     

    12Reply
  • Aaron W.
    Rental Property Investor · Northern Virginia · Member since 2019 · 793 posts · 620 votes
    5y

    @Jose Gallegos It is great to hear you are taking the leap into real estate investing. 

    You have set great goals for yourself, but as @Joe Villeneuve, what are your specific financial goals?  Having 100 doors is great, but what if they only cash flow $10/door or worse negative? It will be hard to sustain or live off of that!

    Mistakes are inevitable. However, the great thing about real estate is that, over time, many mistakes can be mitigated or smoothed out over time through appreciation or rent increases. As your title suggests, analysis paralysis can stop many from even taking the jump. Being analytical, like yourself, it can be hard to make the leap because you want everything to be perfect and know exactly what to do and when. It's the fear of the unknown that stops many. 

    Know your criteria of what makes a great deal and analyze, analyze, and analyze. Your background as an engineer will be invaluable in this regard. If you end up partnering with someone, make sure they have complimentary skills to you and not the same ones. 

    Good luck on this journey!

    3Reply
  • Jose Gallegos
    OP
    Rental Property Investor · Bloomingdale, IL · Member since 2020 · 20 posts · 15 votes
    5y

    @Joe Villeneuve thank you for the great insight. I most definitely will work on my goal statement and define an appropriate metric. Also, I do enjoy getting into the numbers and analyzing the deal so thank you for your encouraging words.

    2Reply
  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    5y
    Originally posted by @Jose Gallegos:

    @Joe Villeneuve thank you for the great insight. I most definitely will work on my goal statement and define an appropriate metric. Also, I do enjoy getting into the numbers and analyzing the deal so thank you for your encouraging words.

     Just remember, there is a final answer.  I find most engineers keep looking for a better one...which is good,...and bad at the same time.  LOL

    0Reply
  • Jose Gallegos
    OP
    Rental Property Investor · Bloomingdale, IL · Member since 2020 · 20 posts · 15 votes
    5y

    @AJ H. Thank you for your great insight. I completely see your point on the 100 doors and everything else.

    0Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    5y

    At the end of the day what matter is IRR and DSCR coverage.

    You can buy 100 doors but not making money and give you headache but you can buy 3 doors that's cash flowing nicely.

    1Reply
  • Kenneth GarrettPro Member
    Investor · Florida Panhandle/Illinois · Member since 2016 · 4k+ posts · 3k+ votes
    5y

    @Jose Gallegos

    When most of us started we looked at the number of units and analysis paralysis set in and we couldn't get started. I spent my first year attending REIA meetings and meetups to learn. I found BP after I was well on my way.

    I look at cash flow as my metric. If I look at my goal and I want to generate 10K a month in cash flow then I convert that to units/buildings. Depends on SFR, multi-unit rentals, etc. SFR cash flows at a higher rate per door, but then you have multiple roofs, heating/cooling systems etc. Find your strategy. I originally only wanted to flip and found that being a landlord will build generational wealth more than flipping. Take your time. The first one is always the hardest. After the first one and you didn't have a heart attack or go broke as most non real estate people will tell you, the sky is the limit. Don't do a deal to do a deal. The only thing that matters are numbers, which of course as an engineer you are inherently good at. Determining whether something is a deal or not is the biggest challenge.

    Good Luck.

    2Reply
  • Jose Gallegos
    OP
    Rental Property Investor · Bloomingdale, IL · Member since 2020 · 20 posts · 15 votes
    5y

    @Kenneth Garrett thank you for the insight. I can do the numbers with no problem but where I lack the experience is in determining the appropriate expenses for a neighborhood. Given that is a C class area, older stock of homes, and other factors, there the connection between my calculations and the real word becomes a bit fuzzy. I play it conservative and expect at a minimum $100 per door. Also, there is upside opportunity on the property by updating the kitchen and a lot of other cosmetic updates that would allow me to increase the rents and do a cash-out refinance....if the RE markets holds up. Taking on more risk with the amount renovation needed but worst case I still bring in good, tax free, cash flow on my investment.

    0Reply
  • James Ma
    Burnaby, BC · Member since 2017 · 282 posts · 268 votes
    5y

    Joe had some great advice. I'd be a bit softer on his comment about making mistakes early on - I think that's inevitable for people starting out but you should be doing what you can to minimize those mistakes and learn from them if they do happen.

    I'm part of a local landlords group and there seems like a decent number of them who have no idea what the basic laws and regulations are and how being a landlord even works - don't be those guys. Study books, read your local laws and regulations (the internet is a beautiful thing!) and chat with others on BP you'll do just fine.

    3Reply
  • Jose Gallegos
    OP
    Rental Property Investor · Bloomingdale, IL · Member since 2020 · 20 posts · 15 votes
    5y

    @James Ma thank you much. I’m going hard on studying up city code right now. I don’t want any surprises during rental registration inspections.

    0Reply
  • Michael K.
    Investor · Chicago, IL · Member since 2018 · 352 posts · 176 votes
    5y

    @Jose Gallegos

    So you are already under contract on your first three unit? Tell me about that? How were you able to decide it was a good acquisition?

    0Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    5y

    I can do the numbers with no problem but where I lack the experience is in determining the appropriate expenses for a neighborhood-----> 

    This is what I feel too. I think the primary focus for investors shall not be analyzing the property ROI first but more focus on the Inspection report to determine the future Capex. Before even purchase, we need to understand the age of the roof/HVAC/any structural issue/etc. The problem is, those metrics sometimes are not undisclosed to us as the buyer during the purchase.

    0Reply
  • Michael K.
    Investor · Chicago, IL · Member since 2018 · 352 posts · 176 votes
    5y

    @James Ma

    Totally agree, investors just starting out should not expect their first deal to be their best deal, that's just not realistic. That said... do your homework and remember, buyer beware!

    1Reply
  • Jose Gallegos
    OP
    Rental Property Investor · Bloomingdale, IL · Member since 2020 · 20 posts · 15 votes
    5y

    @Michael K. I haven’t closed yet so I prefer not to get too much in the details. But would be happy to set up a virtual meet or call to go over this. Message me if interested.

    0Reply
  • Jose Gallegos
    OP
    Rental Property Investor · Bloomingdale, IL · Member since 2020 · 20 posts · 15 votes
    5y

    @Carlos Ptriawan very true. There is so much more to the expected ROI. Expectations and reality often don't match up I've learn that in my career. But over time I've learn how to make them match more appropriately. I expect the same for RE and I'm doing my due diligence to ensure that I don't fall into a pit. Such as FOIA request, doing a good inspection, chatting with PM professionals, digging into city code, etc...I'm trying to minimize risk as much as possible

    0Reply
  • Michael K.
    Investor · Chicago, IL · Member since 2018 · 352 posts · 176 votes
    5y

    @Jose Gallegos

    Text me @8722407300, I can hop on a call with you to run through the numbers when you have time.

    0Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    5y

    These days I read 10-20 inspection/ledger/title/verifying tax/seller report/checking permit if available than analyzing deals...... The problem with buying investment property OOS is we need to give the deposit first before we can inspect the property. The seller has an unfair advantage. While in CA, most of the time, the seller already provides an inspection report to the buyer. Even when purchasing from a turnkey, there're many operators over there that don't disclose anything prior to a contract. They didn't even have photos sometimes. Yesterday I checked a turnkey that's selling 3BR SFR but in title, it says it has only 2BR. When I confronted this question they only mentioned it's normal in our market. Whaaattt ??

    I think the right way to invest is the buyer shall be able to do buyer inspection prior to a contract.

    0Reply
  • Michael Noto
    Real Estate Agent · Southington, CT · Member since 2008 · 5k+ posts · 3k+ votes
    5y

    @Jose Gallegos This is a very important first step to take action like you did, most never even get to that point. See if you like the business and the investing strategy first and then jump in with both feet. I like that approach. 

    1Reply
  • Jonny Abramson
    Real Estate Agent · Hampshire, IL · Member since 2019 · 28 posts · 17 votes
    5y

    @Jose Gallegos great to see a like minded guy in the area! I'm an engineer from Elgin area. Been stuck in paralysis for a year and although I believe we're getting close, we still haven't landed our first deal. I'd love to connect, learn about your current deal and talk about future plans.

    1Reply
  • Jose Gallegos
    OP
    Rental Property Investor · Bloomingdale, IL · Member since 2020 · 20 posts · 15 votes
    5y

    Thank you @Michael Noto. That’s the plan. I’ve enjoyed it so far...but still have a lot to go till the exit strategy.

    0Reply
  • Jose Gallegos
    OP
    Rental Property Investor · Bloomingdale, IL · Member since 2020 · 20 posts · 15 votes
    5y

    @Jonny Abramson keep at it! Given the current environment it is more difficult to find a deal. It would be great to connect!

    1Reply
  • Linzey Ledesma
    Real Estate Agent · Inland Empire · Member since 2020 · 61 posts · 22 votes
    5y

    @Jose Gallegos

    Hello Jose, well congratulations on finally stepping out of the analysis paralysis and closing on your first deal. I am a newbie investor in Socal and am currently in the analysis paralysis realm rn. I do plan on closing my first deal by May tho. I look forward to seeing you grow as an investor and on this platform.

    0Reply
  • Jose Gallegos
    OP
    Rental Property Investor · Bloomingdale, IL · Member since 2020 · 20 posts · 15 votes
    5y

    Thank you @Linzey Ledesma and best wishes in you journey too. Don't hesitate to reach out to collaborate or chat about REI.

    0Reply
  • Jonathan KlemmBusiness Member
    Moderator
    Contractor · Chicago, IL · Member since 2016 · 4k+ posts · 2k+ votes
    5y

    @Jose Gallegos - Congrats on your first deal!  Super exciting.  Does it need any work or is it rental ready?  I think 100 doors in 8 years is definitely doable, you'll find now that you got your first deal done everything else comes a little easier.  It is like anything in life with practice comes confidence.  

    Also what type of engineer are you?

    @Jonny Abramson - You gotta jump in dude!  The thing I always like to think about when I am unsure or in that analysis state is...will this ultimately be a long term benefit and is this better than my current situation.  The answer is almost always, yes.  

    One of my favorite Michael Jordan quotes "After I made a decision, I never thought about it again"

    Decision fatigue is real - Find a semi decent deal and jump on it.... as I said above, after that everything else gets easy.

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    1Reply
  • Daniel E.
    Investor · Member since 2021 · 19 posts · 5 votes
    5y

    Hey Jose!

    I'm an ex-Engineer myself!  I became financially independent by building a business, selling it, and investing the profits (with a good portion into real estate) and just want to encourage you that it is possible!

    One additional strategy I would recommend looking into are Real Estate Investment Trusts (REITs). I am invested in many types of real estate deals (single-family rentals, multi-family, office, flex, manufactured housing, syndications, BRRRs, hard money lending, etc.) and my favorite type of real estate investment are REITs because they are truly passive and run by well-established companies with access to cheaper capital and better deal flow than most. You get paid quarterly passive income from rent checks in the form of dividends that are tax-advantaged (qualify for the 20% qualified business income deduction currently) and you have far less liability because you don't have a mortgage over your head.

    You can also grow your passive income and portfolio size much more quickly because you can compound your earnings immediately by buying more shares rather than having to wait several years until there is enough to make a new down payment. I still like investing directly in real estate but I prefer REITs and they should definitely be another way that you diversify and grow your passive income! You have to learn how to analyze them but it's not too tough.

    Hope this becomes advice you look back on as playing an important role in your journey toward financial independence!

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