Grand slams and strike outs. What about the base hit?

25 Replies

I'm at a point I'm sure many other new investors in BP are at where significant time self educating has been spent, but are struggling with the lack of experience or network to make some of the strategies and guidelines recommended work in the near future.

Going back through podcasts and posts led me to @Brian Burke 's blog post from several years ago about needing base hits before you can get the grand slam. Yet most conversations center around good deal vs bad deals, or around more experienced investor's guidelines. I get it; we want to model those who are successful, but what about the mediocre deal that get's your foot in the door? To my point, there have been some recent satirical threads that have capitalized on seemingly ridiculous posts (which I have thoroughly enjoyed as well). But when all you hear is "how to buy with no money down" or "I get $XX.XX dollars per door all day in my market" that's what you get. The 2018 second quarter RealtyRates Investor survey says that apartment cap rates are on average between 4.9-13.8 nationwide depending on LTV, but the survey is not limited to recent acquisitions and I assume that those that participate in the survey know what they are doing .

So this bring me back to my question: for those who are actually set up to responsibly invest but don't have the experience or network to hit the 15% CoC returns in today's market where the pros are also claiming good deal are hard to come by, is shooting for the 5 cap cash purchase on their first deal to learn the ropes a crazy idea? I haven't seen this advice given in the many posts asking about what type of returns new investors should realistically expect. Why not and what about that base hit?

And full disclosure, I'm in contract for a small commercial multifamily property that is probably considered a mediocre deal by many, but one that I have confidence (for what that's worth) won't lose money, with the intent of using it as a learning platform and equity tap for better performing acquisitions. Happy to share more details for those interested in my situation or want to charitably help me make some critical decisions in the next couple days.

Here is Brian's article I'm referring to: 

https://www.biggerpockets.com/renewsblog/2013/01/2...

@Ken D. I understand where you are coming from. Many new investors that I work with in the Chicago market are in the same boat. They are looking at properties that have appreciated 15-20% in less than one year, and they are struggling to make sense of buying things above list, as is, with deferred maintenance. 

It is funny, but I actually felt the same way you feel now in 2014. I had been looking for a solid deal for 6-9 months, and hadn't seen anything. I felt like everything was overpriced (talk about lack of perspective!) and wasn't sure if some of these properties would be good deals. I patiently waited, and when I finally purchased my first four unit in Lyons, IL, it was a home run. 

If I were in your shoes I would keep doing what you are doing. Don't settle. Wait for something you feel very confident will work and keep building your network by going to local REIA events, etc.

John is accurate be patient and while you are waiting - BE READY! In other words get your financing lined up - inspectors / contractors you can rely on etc... then when the opportunity presents itself you can act accordingly. The other tip I have is attend attend attend all networking events in your local market. Knowledge is free flowing and you may pick up a deal or 2. I have been investing for almost 40 years yikes! Anyway cap rtes are thrown on here frequently and the way theya re defined on here befuddles me as I am used to the Walgreens / Targets of the world and ( typically A+ tenants in the 5 range A Multi family will get you high 6's low 7's in various markets ) cap rates determine value eg... I/R = V or another way of explaining Income as in NOI divided by return or cap rate = value. Please help me understand the Cap rate on BP investors discuss.

THX and 

Best wishes

I don't want to nitpick but cap rates don't have anything to do with LTV.

But to your point, I'm not big time or anything and think there's nothing wrong with singles and doubles. I am always thinking about the best way to grow, and that's growing. 

@Ken D. , itchy trigger finger syndrome, eh? I understand and empathize with the situation. No wonder people get confused when one reads (from your post) "RealtyRates Investor survey says that apartment cap rates are on average between 4.9-13.8 nationwide depending on LTV".

WHAT?  How is that big a spread an "average"? Kinda like having one foot in a bucket of boiling water, the other in ice water, and on average, you are comfortable!

The advice about networking is right on from @John Warren , and I would add to that, inspect, Inspect, and INSPECT some more.  

Investing in real estate is a long term strategy for wealth building.  Buy what makes sense for you in the CURRENT market; those who roll the dice looking for appreciation, or buy high today hoping the market will make that below-average investment a prize winner seldom last.

Remember, "prices will always continue to go up, they never go down!?! Interest rates will always remain low.  The economy will always continue to expand":  That was the investment strategy folks used around 2006.  

in my mind you have two things going on .. Long term buy hold investing  ( what the vast majority do and want to do) then you have transactional real estate that those that work in the business do

IE RE brokers   flippers  builders  court house steps buyers etc etc.  the later here is complelty different then searching out something that going into it you are planning on holding for your lifetime like most will say .. IE i will never sell i am long term buy and hold et etc.. 

So if in fact your horizon is 20 years to forever to worry about over paying by 10k or 20k on a property in my mind is shortsided thinking..  why sit on the side line and wait for a crash that may never happen .. and probably if it does wont be near the magnatude of the last one.

There are multiple different types of investments in and around real estate other than being a landlord.. 

so maybe we confuse the developer who just did a subdivision and flipped the plat to LEnnar and made 2 million in it in 16 months with 150k into it.. .. those are pretty cool homeruns.. and done all the time.. but you need the skill set to set into the guy or gal that can source a property that a company like DR or Lennar will buy you need the strength to talk the farmer into letting you have an option on the property you have to have the Risk tolarnce to put up 150k and maybe lose it... becasue you can t flip that plat.. you have to have contacts at the big builders to get to their land ACK guys or gals.. but you put that all together and thats what a homerun looks like. 

guys that buy at courthouse steps  hit tons of base hits.. And if you bought in CA 5 years ago in most markets you got to ride the appreciation title wave that those that dont invest in CA say you should never do and your just lucky but there are tons of lucky millionaires in CA that this happened to.

So you need to define what a deal is how much work you want to put into it. and in my mind if your in the mindset of cash flow real estate for the remainder of your life then dont get put on the side lines becasue you think the market is a tad to high or that some future event is going to create a buying opp .. 

Just some saturday morning musing..

Originally posted by @Ken D. :

I'm at a point I'm sure many other new investors in BP are at where significant time self educating has been spent, but are struggling with the lack of experience or network to make some of the strategies and guidelines recommended work in the near future.

Going back through podcasts and posts led me to @Brian Burke 's blog post from several years ago about needing base hits before you can get the grand slam. Yet most conversations center around good deal vs bad deals, or around more experienced investor's guidelines. I get it; we want to model those who are successful, but what about the mediocre deal that get's your foot in the door? To my point, there have been some recent satirical threads that have capitalized on seemingly ridiculous posts (which I have thoroughly enjoyed as well). But when all you hear is "how to buy with no money down" or "I get $XX.XX dollars per door all day in my market" that's what you get. The 2018 second quarter RealtyRates Investor survey says that apartment cap rates are on average between 4.9-13.8 nationwide depending on LTV, but the survey is not limited to recent acquisitions and I assume that those that participate in the survey know what they are doing .

So this bring me back to my question: for those who are actually set up to responsibly invest but don't have the experience or network to hit the 15% CoC returns in today's market where the pros are also claiming good deal are hard to come by, is shooting for the 5 cap cash purchase on their first deal to learn the ropes a crazy idea? I haven't seen this advice given in the many posts asking about what type of returns new investors should realistically expect. Why not and what about that base hit?

And full disclosure, I'm in contract for a small commercial multifamily property that is probably considered a mediocre deal by many, but one that I have confidence (for what that's worth) won't lose money, with the intent of using it as a learning platform and equity tap for better performing acquisitions. Happy to share more details for those interested in my situation or want to charitably help me make some critical decisions in the next couple days.

Here is Brian's article I'm referring to: 

https://www.biggerpockets.com/renewsblog/2013/01/2...

Ken, I'm with you on this one. I think there is something to be said for both sides of the argument. I work in a fairly small, rural area where typical rental properties are in the $50-100k range. A lot of our areas are well below the poverty level so there isn't an abundance of cash flow. I think the goal is to determine a long term strategy. My number one goal is that the property cash flows and pays for itself. The deal I'm negotiating right now has an estimated cash flow of $150-$200/mo. depending on how the numbers fall in the end. It's not a property that I have to hold forever but it's a great start for me to get into rentals.

If you are a beginner in this business the biggest problem is that most wouldn't recognize a good deal if it came up and punched them in the nose.  Oh everybody will say they can, and some of them are right, but think of the statistic of how many boot camp graduates are not investing in real estate two years later.  

I was no exemption to this rule.  I read every real estate investing book imaginable when I was trying to start in this business and my first deals were anything but home runs.  Lost on the first one, made $1,500 on the second one, and got a bit better (luckier?) on those that followed.  Over time I was able to hit a lot of home runs and even a few grand slams.  But the vast majority were base hits, or even a few barely break-evens and my share of losers.  In over 700 deals I think that's to be expected.

Have you ever seen a photographer in action?  They take 1,000 pictures and only one or two make it in the magazine.  Now I'm not advocating that you go out willy-nilly buying every piece of real estate in the hopes that you'll have a winner in there but my point is that you have to do the best you can, do the deals that you think have a low probability of being a loser and gain experience that will give you the skills and the access to the home runs and grand slams.

If you read the books and follow the blogs and even some forum posts you might think that everybody hits home runs on their first try.  Yes, and golfers also get struck by lightening.  Things happen, and when they do people write about it.  But when nothing happens it's not interesting so that story never gets told.  

@Chris Youssi @Dustin Beam @Marc Winter Let me clarify my comment on Cap rates and LTV. I also understand how this can confuse new investors because it took me a few months to figure this out. I also don't think there are different definitions of cap rate on BP vs other places.

There is only one definition of cap rate: cap rate = NOI/value

The problem is that how NOI is determined and value are determined are not always consistent. Value can mean ARV, purchase price, or asking price depending on the context. For NOI there is huge variation on what is included as income and expenses. For marketing material, I've found most caps rates bogus. Some are gracious enough to clarify how they calculated the cap rate. The investor survey I refer to clarifies that the cap rate excluded cap ex reserves. Which can swing a calculation by several percent. Data is from A and B class properties only.

Where LTV comes in is your debt service is part of your expenses. So generally as you go into a deal with more equity the better the cap rate looks. The survey I refer to uses three brackets of data and a average cap rate for each (LTVs of 75%, 50% and 68%). I see how I presented the data can create confusion. You're right! a spread of averages makes no sense at all.

Originally posted by @John Warren :

@Ken D. I understand where you are coming from. Many new investors that I work with in the Chicago market are in the same boat. They are looking at properties that have appreciated 15-20% in less than one year, and they are struggling to make sense of buying things above list, as is, with deferred maintenance. 

It is funny, but I actually felt the same way you feel now in 2014. I had been looking for a solid deal for 6-9 months, and hadn't seen anything. I felt like everything was overpriced (talk about lack of perspective!) and wasn't sure if some of these properties would be good deals. I patiently waited, and when I finally purchased my first four unit in Lyons, IL, it was a home run. 

If I were in your shoes I would keep doing what you are doing. Don't settle. Wait for something you feel very confident will work and keep building your network by going to local REIA events, etc.

 Here's my concern about simply waiting:

1) I don't learn anything from waiting. When the time comes to strike will I be ready to move quickly enough?

2) Every day I wait is money lost due to inflation.

3) Interest rates are rising.

4) I'm have opportunity costs from not purchasing property that can be making me modest returns. 

With that said pulling the trigger early would be a mistake. Especially if higher returns can be made without much additional effort. Unfortunately my lack of experience in the market I'm in makes it hard for me to effectively weight the different risks and is throwing a wrench in my plan.

Originally posted by @Jay Hinrichs :

in my mind you have two things going on .. Long term buy hold investing  ( what the vast majority do and want to do) then you have transactional real estate that those that work in the business do

IE RE brokers   flippers  builders  court house steps buyers etc etc.  the later here is complelty different then searching out something that going into it you are planning on holding for your lifetime like most will say .. IE i will never sell i am long term buy and hold et etc.. 

So if in fact your horizon is 20 years to forever to worry about over paying by 10k or 20k on a property in my mind is shortsided thinking..  why sit on the side line and wait for a crash that may never happen .. and probably if it does wont be near the magnatude of the last one.

There are multiple different types of investments in and around real estate other than being a landlord.. 

so maybe we confuse the developer who just did a subdivision and flipped the plat to LEnnar and made 2 million in it in 16 months with 150k into it.. .. those are pretty cool homeruns.. and done all the time.. but you need the skill set to set into the guy or gal that can source a property that a company like DR or Lennar will buy you need the strength to talk the farmer into letting you have an option on the property you have to have the Risk tolarnce to put up 150k and maybe lose it... becasue you can t flip that plat.. you have to have contacts at the big builders to get to their land ACK guys or gals.. but you put that all together and thats what a homerun looks like. 

guys that buy at courthouse steps  hit tons of base hits.. And if you bought in CA 5 years ago in most markets you got to ride the appreciation title wave that those that dont invest in CA say you should never do and your just lucky but there are tons of lucky millionaires in CA that this happened to.

So you need to define what a deal is how much work you want to put into it. and in my mind if your in the mindset of cash flow real estate for the remainder of your life then dont get put on the side lines becasue you think the market is a tad to high or that some future event is going to create a buying opp .. 

Just some saturday morning musing..

There seems to be 2 schools of thought. Wait for right opportunity group and the keep moving so you're always progressing group. I think it's a huge gray area. And determining which group you want to belong to depends on your risk tolerance and strategy, which is why I started this thread. However, I tend agree with you. I don't want to sit on the sidelines waiting for an opportunity to capture especially if my expectations are realistically unobtainable due to skill, market performance, or other. This is where the experience comes in handy. I am part of the group that rode the appreciation wave but it was a fluke/ luck what ever you want to call it. If I had a better head on my shoulders I would've been doing what I'm doing now a year after I purchased my first property and pushed hard to acquire more. So much for waiting. 

Originally posted by @Ben Sears :
Originally posted by @Ken D.:

I'm at a point I'm sure many other new investors in BP are at where significant time self educating has been spent, but are struggling with the lack of experience or network to make some of the strategies and guidelines recommended work in the near future.

Going back through podcasts and posts led me to @Brian Burke 's blog post from several years ago about needing base hits before you can get the grand slam. Yet most conversations center around good deal vs bad deals, or around more experienced investor's guidelines. I get it; we want to model those who are successful, but what about the mediocre deal that get's your foot in the door? To my point, there have been some recent satirical threads that have capitalized on seemingly ridiculous posts (which I have thoroughly enjoyed as well). But when all you hear is "how to buy with no money down" or "I get $XX.XX dollars per door all day in my market" that's what you get. The 2018 second quarter RealtyRates Investor survey says that apartment cap rates are on average between 4.9-13.8 nationwide depending on LTV, but the survey is not limited to recent acquisitions and I assume that those that participate in the survey know what they are doing .

So this bring me back to my question: for those who are actually set up to responsibly invest but don't have the experience or network to hit the 15% CoC returns in today's market where the pros are also claiming good deal are hard to come by, is shooting for the 5 cap cash purchase on their first deal to learn the ropes a crazy idea? I haven't seen this advice given in the many posts asking about what type of returns new investors should realistically expect. Why not and what about that base hit?

And full disclosure, I'm in contract for a small commercial multifamily property that is probably considered a mediocre deal by many, but one that I have confidence (for what that's worth) won't lose money, with the intent of using it as a learning platform and equity tap for better performing acquisitions. Happy to share more details for those interested in my situation or want to charitably help me make some critical decisions in the next couple days.

Here is Brian's article I'm referring to: 

https://www.biggerpockets.com/renewsblog/2013/01/2...

Ken, I'm with you on this one. I think there is something to be said for both sides of the argument. I work in a fairly small, rural area where typical rental properties are in the $50-100k range. A lot of our areas are well below the poverty level so there isn't an abundance of cash flow. I think the goal is to determine a long term strategy. My number one goal is that the property cash flows and pays for itself. The deal I'm negotiating right now has an estimated cash flow of $150-$200/mo. depending on how the numbers fall in the end. It's not a property that I have to hold forever but it's a great start for me to get into rentals.

That's awesome that you've set a strategy that seems to be appropriate for your market and that you are able to act on it! Is this your first deal and do have a plan to scale to the second purchase after this one? 

@Ken D. no it's not my first property. I've flipped 7-8 houses around the area with some decent success. This will be my first rental that I'm going solo on. I'm going the traditional route of a conventional mortgage, fighting underwriting, etc. All of my flips have been cash with privately money which is temporarily unavailable. I have some goals that I'm trying to reach and I don't kindness doing it with of fashioned sweat equity and streetsmarts. I wish you all the best no matter what you're cash flow endangers up being. 

Originally posted by @Brian Burke :

If you are a beginner in this business the biggest problem is that most wouldn't recognize a good deal if it came up and punched them in the nose.  Oh everybody will say they can, and some of them are right, but think of the statistic of how many boot camp graduates are not investing in real estate two years later.  

I was no exemption to this rule.  I read every real estate investing book imaginable when I was trying to start in this business and my first deals were anything but home runs.  Lost on the first one, made $1,500 on the second one, and got a bit better (luckier?) on those that followed.  Over time I was able to hit a lot of home runs and even a few grand slams.  But the vast majority were base hits, or even a few barely break-evens and my share of losers.  In over 700 deals I think that's to be expected.

Have you ever seen a photographer in action?  They take 1,000 pictures and only one or two make it in the magazine.  Now I'm not advocating that you go out willy-nilly buying every piece of real estate in the hopes that you'll have a winner in there but my point is that you have to do the best you can, do the deals that you think have a low probability of being a loser and gain experience that will give you the skills and the access to the home runs and grand slams.

If you read the books and follow the blogs and even some forum posts you might think that everybody hits home runs on their first try.  Yes, and golfers also get struck by lightening.  Things happen, and when they do people write about it.  But when nothing happens it's not interesting so that story never gets told.  

I am probably one of those people who wouldn't be able to tell if a good deal hit me in the face, although I hope I'm at a point where I could identify a great deal and a terrible deal. It's also easy to recommend developing a plan but to your point how do you know your strategy is worth any salt if you have no experience or context to base it on? Based on my goals and calculation to find 30 properties that that provide 80% CoC returns within 3 months does not fly in reality. No amount of patience will help you land a deal to reach success if your criteria doesn't make sense. Thanks for the blog post and these comments. I enjoy and appreciate the additional perspective.

Any advice for partnerships or mentors to help improve your chances on identifying what kind of deal you have? Players still need a coach at each base. Coaches in this game tend to be very busy with lots of people asking for help.

Ken I disagree as to the cap rates being the same as what your referring to above and in the commercial real estate world. For starters debt is never used in a calculation. The other variable is the caliber of the tenant and the length of the lease . Here is a real world example:

http://www.loopnet.com/for-sale/chicago-il/retail/...

and another

http://www.loopnet.com/for-sale/chicago-il/retail/...

Cap rates in the Commercial / retail/ industrial world are calculated as follows:

Net operating income ( again this will assume no debt ) divided by cap rate = value

Talk to any CCIM Broker and they will verify this formula.

 Jay Hinrichs can you pipe in here?

THX

Originally posted by @Ken D. :
Originally posted by @Jay Hinrichs:

in my mind you have two things going on .. Long term buy hold investing  ( what the vast majority do and want to do) then you have transactional real estate that those that work in the business do

IE RE brokers   flippers  builders  court house steps buyers etc etc.  the later here is complelty different then searching out something that going into it you are planning on holding for your lifetime like most will say .. IE i will never sell i am long term buy and hold et etc.. 

So if in fact your horizon is 20 years to forever to worry about over paying by 10k or 20k on a property in my mind is shortsided thinking..  why sit on the side line and wait for a crash that may never happen .. and probably if it does wont be near the magnatude of the last one.

There are multiple different types of investments in and around real estate other than being a landlord.. 

so maybe we confuse the developer who just did a subdivision and flipped the plat to LEnnar and made 2 million in it in 16 months with 150k into it.. .. those are pretty cool homeruns.. and done all the time.. but you need the skill set to set into the guy or gal that can source a property that a company like DR or Lennar will buy you need the strength to talk the farmer into letting you have an option on the property you have to have the Risk tolarnce to put up 150k and maybe lose it... becasue you can t flip that plat.. you have to have contacts at the big builders to get to their land ACK guys or gals.. but you put that all together and thats what a homerun looks like. 

guys that buy at courthouse steps  hit tons of base hits.. And if you bought in CA 5 years ago in most markets you got to ride the appreciation title wave that those that dont invest in CA say you should never do and your just lucky but there are tons of lucky millionaires in CA that this happened to.

So you need to define what a deal is how much work you want to put into it. and in my mind if your in the mindset of cash flow real estate for the remainder of your life then dont get put on the side lines becasue you think the market is a tad to high or that some future event is going to create a buying opp .. 

Just some saturday morning musing..

There seems to be 2 schools of thought. Wait for right opportunity group and the keep moving so you're always progressing group. I think it's a huge gray area. And determining which group you want to belong to depends on your risk tolerance and strategy, which is why I started this thread. However, I tend agree with you. I don't want to sit on the sidelines waiting for an opportunity to capture especially if my expectations are realistically unobtainable due to skill, market performance, or other. This is where the experience comes in handy. I am part of the group that rode the appreciation wave but it was a fluke/ luck what ever you want to call it. If I had a better head on my shoulders I would've been doing what I'm doing now a year after I purchased my first property and pushed hard to acquire more. So much for waiting. 

I think basically what you are saying is there is no right or wrong way.  You can do all planning you want, things will go wrong.  But to not plan at all is planning to fail.  Map out your plan, adjust your plan, execute your plan, keep going when you plan doesn't work, finish out the plan, and do it all over again.  You will lose and you will win but keep playing.

Originally posted by @Ken D. :
Originally posted by @Brian Burke:

If you are a beginner in this business the biggest problem is that most wouldn't recognize a good deal if it came up and punched them in the nose.  Oh everybody will say they can, and some of them are right, but think of the statistic of how many boot camp graduates are not investing in real estate two years later.  

I was no exemption to this rule.  I read every real estate investing book imaginable when I was trying to start in this business and my first deals were anything but home runs.  Lost on the first one, made $1,500 on the second one, and got a bit better (luckier?) on those that followed.  Over time I was able to hit a lot of home runs and even a few grand slams.  But the vast majority were base hits, or even a few barely break-evens and my share of losers.  In over 700 deals I think that's to be expected.

Have you ever seen a photographer in action?  They take 1,000 pictures and only one or two make it in the magazine.  Now I'm not advocating that you go out willy-nilly buying every piece of real estate in the hopes that you'll have a winner in there but my point is that you have to do the best you can, do the deals that you think have a low probability of being a loser and gain experience that will give you the skills and the access to the home runs and grand slams.

If you read the books and follow the blogs and even some forum posts you might think that everybody hits home runs on their first try.  Yes, and golfers also get struck by lightening.  Things happen, and when they do people write about it.  But when nothing happens it's not interesting so that story never gets told.  

I am probably one of those people who wouldn't be able to tell if a good deal hit me in the face, although I hope I'm at a point where I could identify a great deal and a terrible deal. It's also easy to recommend developing a plan but to your point how do you know your strategy is worth any salt if you have no experience or context to base it on? Based on my goals and calculation to find 30 properties that that provide 80% CoC returns within 3 months does not fly in reality. No amount of patience will help you land a deal to reach success if your criteria doesn't make sense. Thanks for the blog post and these comments. I enjoy and appreciate the additional perspective.

Any advice for partnerships or mentors to help improve your chances on identifying what kind of deal you have? Players still need a coach at each base. Coaches in this game tend to be very busy with lots of people asking for help.

Everything starts with basic knowledge.  You don't need experience to gain basic knowledge.  A simple goal of 3 house with positive cash flow over the next 2 years is reality.  One of the things I got from Brandon is how to create deals.  If you're looking for certain numbers, you can create them.  Example House is 70k and rents for 600.00... So this deal does not meet 1% rule for you.  What if you offered 60k and the rehab got you 775 rent?  This is just an example but simply saying the deals are not there or not great is not being creative enough.  I think home runs, base hits, and strike outs are all apart of the game.

@Ken D. Every time I got up to that plate in high school hoping to hit a homerun, I either struck out or hit a fly ball. When I got up there with confidence, swung easy, and just tried to make good contact.. I hit the homeruns. Anytime I force anything it doesn’t pan out good. I make educated, researched decisions today (But also following my heart). So far it’s worked well.

@Ken D. - 100% supportive of getting the "base hit." 

Example: Our first deal was an excellent one for us (my partner/wife and I).Its a duplex. It cashflows. It's may even appreciate well, based on the market... but that would be a bonus.

The CoC and ROI ain't anything to write home about. It has been the perfect 'learning deal.' Most folks on BP would categorize it as a 'base hit.'

I ain't sharing the financials on here because I've seen how, on occasion, some investors start high-roadin' newbie with their epic tales of deals-to-end-all-deals and miss the point. The point is: other investors don't need to agree with your strategy, because it is uniquely your strategy. If it works for you, it really doesn't matter what any other investor on the planet happens to think about it. Building that confidence in your own competence and gut is a critical part of getting started. 

If you want to hear more about ours first deal, happy to connect if you send over DM. 

Since that 'learning deal'.. we've closed homeruns. These homers likely wouldn't have happened if we never entered the game and built the competence/confidence to charge forward. 

My advice: Set your criteria with a 'learning deal' discount. I'm not advocating to rationalize and flex on your criteria, I'm  advocating for deliberately discounting it because it's your first, acknowledging the context of your situation and setting a strategy that aligns to the amount of hustle, education and proaction you are prepared to take. If you truly can't find a 15%+er... step back, reevaluate, make a new plan and move forward. You've got this!

Originally posted by @Chris Youssi :

Ken I disagree as to the cap rates being the same as what your referring to above and in the commercial real estate world. For starters debt is never used in a calculation. The other variable is the caliber of the tenant and the length of the lease . Here is a real world example:

http://www.loopnet.com/for-sale/chicago-il/retail/...

and another

http://www.loopnet.com/for-sale/chicago-il/retail/...

Cap rates in the Commercial / retail/ industrial world are calculated as follows:

Net operating income ( again this will assume no debt ) divided by cap rate = value

Talk to any CCIM Broker and they will verify this formula.

 Jay Hinrichs can you pipe in here?

THX

The links both take me to the same Chicago Loopnet page, but I get your point. I can only pull from my last 6 month of looking through commercial listings so if that is the industry standard method, I'm not the person to try and change it. Thanks for the feedback. this is what makes BP great. Hopefully others who have questions about their targets and running their numbers can get something out of this thread as well.

Originally posted by @Mel Hayes :
Originally posted by @Ken D.:
Originally posted by @Brian Burke:

If you are a beginner in this business the biggest problem is that most wouldn't recognize a good deal if it came up and punched them in the nose.  Oh everybody will say they can, and some of them are right, but think of the statistic of how many boot camp graduates are not investing in real estate two years later.  

I was no exemption to this rule.  I read every real estate investing book imaginable when I was trying to start in this business and my first deals were anything but home runs.  Lost on the first one, made $1,500 on the second one, and got a bit better (luckier?) on those that followed.  Over time I was able to hit a lot of home runs and even a few grand slams.  But the vast majority were base hits, or even a few barely break-evens and my share of losers.  In over 700 deals I think that's to be expected.

Have you ever seen a photographer in action?  They take 1,000 pictures and only one or two make it in the magazine.  Now I'm not advocating that you go out willy-nilly buying every piece of real estate in the hopes that you'll have a winner in there but my point is that you have to do the best you can, do the deals that you think have a low probability of being a loser and gain experience that will give you the skills and the access to the home runs and grand slams.

If you read the books and follow the blogs and even some forum posts you might think that everybody hits home runs on their first try.  Yes, and golfers also get struck by lightening.  Things happen, and when they do people write about it.  But when nothing happens it's not interesting so that story never gets told.  

I am probably one of those people who wouldn't be able to tell if a good deal hit me in the face, although I hope I'm at a point where I could identify a great deal and a terrible deal. It's also easy to recommend developing a plan but to your point how do you know your strategy is worth any salt if you have no experience or context to base it on? Based on my goals and calculation to find 30 properties that that provide 80% CoC returns within 3 months does not fly in reality. No amount of patience will help you land a deal to reach success if your criteria doesn't make sense. Thanks for the blog post and these comments. I enjoy and appreciate the additional perspective.

Any advice for partnerships or mentors to help improve your chances on identifying what kind of deal you have? Players still need a coach at each base. Coaches in this game tend to be very busy with lots of people asking for help.

Everything starts with basic knowledge.  You don't need experience to gain basic knowledge.  A simple goal of 3 house with positive cash flow over the next 2 years is reality.  One of the things I got from Brandon is how to create deals.  If you're looking for certain numbers, you can create them.  Example House is 70k and rents for 600.00... So this deal does not meet 1% rule for you.  What if you offered 60k and the rehab got you 775 rent?  This is just an example but simply saying the deals are not there or not great is not being creative enough.  I think home runs, base hits, and strike outs are all apart of the game.

 Agreed. To build on your example, you need experience to understand the application of the basic knowledge. For example how do you know how to create a realistic deal? Or that 3 houses over the next 2 years is realistic. How much positive cash flow should be expected? Say you get that far, how do you know your rehab numbers are accurate? To understand that you have to put in offers to see if $60K sticks in your market, or get quotes from contractors on properties your'e seriously investigating. This is experience. What a base hit vs home run is also will vary for every individual, but if you don't play you'll never win.

Originally posted by @Brian Ellis :
@Ken D. Every time I got up to that plate in high school hoping to hit a homerun, I either struck out or hit a fly ball. When I got up there with confidence, swung easy, and just tried to make good contact.. I hit the homeruns.

Anytime I force anything it doesn’t pan out good. I make educated, researched decisions today (But also following my heart). So far it’s worked well.

 I wish I could read this and go back to my couch with a cold one and start swinging easy. On my first purchase, although my motivation was not for investment reasons, I had to work very hard to find a property and close on it. It turned out to be a home run. I'm personally trying to move up a level to the commercial realm. From what I gather from those who've made it big they didn't swing easy either. I'm happy it comes to you naturally! You're a lucky guy.

Originally posted by @Spencer Hilligoss :

@Ken D. - 100% supportive of getting the "base hit." 

Example: Our first deal was an excellent one for us (my partner/wife and I).Its a duplex. It cashflows. It's may even appreciate well, based on the market... but that would be a bonus.

The CoC and ROI ain't anything to write home about. It has been the perfect 'learning deal.' Most folks on BP would categorize it as a 'base hit.'

I ain't sharing the financials on here because I've seen how, on occasion, some investors start high-roadin' newbie with their epic tales of deals-to-end-all-deals and miss the point. The point is: other investors don't need to agree with your strategy, because it is uniquely your strategy. If it works for you, it really doesn't matter what any other investor on the planet happens to think about it. Building that confidence in your own competence and gut is a critical part of getting started. 

If you want to hear more about ours first deal, happy to connect if you send over DM. 

Since that 'learning deal'.. we've closed homeruns. These homers likely wouldn't have happened if we never entered the game and built the competence/confidence to charge forward. 

My advice: Set your criteria with a 'learning deal' discount. I'm not advocating to rationalize and flex on your criteria, I'm  advocating for deliberately discounting it because it's your first, acknowledging the context of your situation and setting a strategy that aligns to the amount of hustle, education and proaction you are prepared to take. If you truly can't find a 15%+er... step back, reevaluate, make a new plan and move forward. You've got this!

 I love the learning discount comment. That'd be a base hit if I ever heard of one. Maybe a bunt? It allows for a deliberate strategy for some one new to take the first step without "breaking their own rules" and increasing their chances of actually getting started.

Sending you a PM. I'd love to share stories.

Most investors who are starting out can't or don't know how to add value.  This makes investing incredibly hard and it requires precision in execution.  Figure out how to add value and you can purchase real estate at any point in the cycle.

And to answer your question, the home run is doing the learning and taking real action.  We have to unlearn that trying and striking out is a bad thing.  Easier said than done.

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