QOTW: How to help a new investor stuck in “Analysis paralysis?
New year, new challenges is our focus for our Question of The Week!
We've all been there, excited about a new adventure, but scared to take the plunge. With the new year, lots of people are looking at starting their real estate journey, but they are trapped by "analysis paralysis". It makes sense. Not feeling like you know enough, imposter syndrome, or the potential financial risk all come into play. Let's help out our newbies or even those who are "leveling up"! How did you get over the analysis hurdle? Did you find out more that you wish you would have known? Did the move work out, or were you able to change your approach to make it successful? Let's show some encouragement that getting started can be scary, but worth the journey!
Adam
Get the Heloc! Even if you don’t use it it won’t cost you anything. I have a TD Bank Heloc. 10 year all interest, then converts to a traditional loan after that. My rate is currently 2.75. sometimes I pay it off, sometimes I don’t. You can dip in and out of this money without any restrictions or penalties. Take advantage of the equity you have and lock it in now while your house is at an all time high. This one is a no brainer even front a financial planning standpoint to have reserve funds at the ready no matter what life throws at you.
Hard money lenders are more expensive and you won’t have as much flexibility.
I believe part of the hesitation, going back to the original question, is the amount of money involved. In my mentoring, I find that a lot of people are looking at the amount of money and get scared.
If you take a $150K purchase price you have a $30K down payment that people often take years to get together and definitely don't want to "waste". It's also the overall number of the property price which is often equivalent to 1 or 2 years of income.
I believe and have tested taking people through the whole process but working with a much smaller amount of money can build confidence in the process and the things that need to be analyzed followed by a purchase. I use Lofty for that and it's a great training tool.
Anybody who feels like they keep looking for the perfect deal or detect hesitance to pull the trigger should go through a few Lofty-sessions to get more comfortable.
I am happy to help if anybody is interested.
I happen to be one of those people, I am in need of finding the team to help get started. I need help finding markers and realtors that can help me find deals. I also think about financing I want to purchasing 4plex in a great growing location.
Originally posted by @Andy Rousch:@Alicia Marks We were just going over this in my office on Friday. I offered to let someone in on a small part of one of my deals, or if he wants to at least follow the deal from start to finish so I can explain the reasoning for each step along the way. I think a big part of it is just not actually seeing it done.
This is the best way to learn, for me at least isit it takes. I shadow someone throgh the pricess that has bee doing what I want to b do.
That is great of you to offer to helkpo in this way, was is accepted?
Please update on how this went?
TY!
#on2danext
I am 18 years old, and have been waiting to invest on my own for years. This January I have turned 18, and I have been trying to push over this hurdle. I say that others should try to do something along the lines of reaching out to others, trying to connect with other investors, and find partnerships, etc. So far I have secured a potential partnership, and am hoping to get under contract our first property before March. Perhaps I can move in beforehand, through seller financing or raising debt.
I think that networking and getting involved probably will be the most important thing for me, as with any new investor.
All the best,
Owen.
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#5 Real Estate Events & Meetups Contributor
- Fund Manager
- Berwyn, PA
When I was starting out, the best way to overcome this was to run your deal by a hard money lender. Chances are, if they won't lend on it, that'll tell you all you need to know right there. Plus they could explain why they won't lend which could help hone your buy box or tweak your renovations/expenses.
I also always found the best rehabbers were the ones who're competent in a construction trade (or two), that way if certain things were to go south or get tight, they could jump in themselves. They could also barter or trade work with other contractors, and they would have more of knowledge on renovation costs in general.
Quote from @Raphael Davis:
I happen to be one of those people, I am in need of finding the team to help get started. I need help finding markers and realtors that can help me find deals. I also think about financing I want to purchasing 4plex in a great growing location.
You have definitely come to the right place! I would suggest checking out the local forums where you intend to invest. There are people to network with as well as get suggestions tailored to your market.
Quote from @Dave Van Horn:
When I was starting out, the best way to overcome this was to run your deal by a hard money lender. Chances are, if they won't lend on it, that'll tell you all you need to know right there. Plus they could explain why they won't lend which could help hone your buy box or tweak your renovations/expenses.
I also always found the best rehabbers were the ones who're competent in a construction trade (or two), that way if certain things were to go south or get tight, they could jump in themselves. They could also barter or trade work with other contractors, and they would have more of knowledge on renovation costs in general.
The HML strategy is a great thought. I have used HML and private lenders. A private lender will be even more scrupulous about the deal, and can have great insight if they are an investor themselves. My private lender walked the project with me and helped me decide where my budget would best serve me given that I want to keep it as a rental vs a flip.
I agree too that having a set of skills or basic understanding can help fill in the gaps and keep the budget reasonable.
Originally posted by @Account Closed:what works for me is to do it without any further analysis. I think that we fear the unexpected so we are eaten by analysis paralysis. So just starting the first step will help us realize that nothing bad will happen and we just need to act on our thoughts to get things done.
exactly nothing bad will happen the worst scenatio is that In loose a deal I never had :)
I've found that when a person is in Analysis Paralysis, they are often aiming for perfection. The reason they get stuck because there is no such thing as perfection in RE investing. Because no matter how much you prepare, there is always a risk involved. Additional planning can mitigate, but can never eliminate the risk.
The simplest way to move forward is to calculate the amount of risk you're willing to take and use that in your analysis phase, to make sure deals fall under your level of acceptable risk.
Originally posted by @Brad Jacobson:Great question @Alicia Marks! I have two immediate thoughts:
1. Most new investors have an amazing opportunity to get into the real estate game by house-hacking. The best part of house-hacking is that any deal is better than no deal. If you're able to divide your housing costs at all, it's better than not doing it 100% of the time. Even if you can't find your perfect house-hack, buy one ASAP and start building that equity and savings rate.
2. In my local market (UT), analysis tools like the "1% rule" are impossible to achieve. Nevertheless, I continued to buy properties that didn't meet the standard criteria and found that all I had to do was invest from a position of strength (with good reserves) and sit on the properties for a year or two before they became incredible investments. Properties I bought prior have up to $800/door more cashflow now than when I bought them. They weren't money makers at first but have turned into the best financial decisions I've ever made.
In other words, don't wait to buy real estate, buy real estate and wait!
Good luck to all!
That's one hell of a lot of rent growth you were able to achieve in 2 years. Someone reading that needs to be careful, because if they house hack or buy a skinny/no cash flow deal with the rents in place being already at market rate, they don't have a reasonable expectation of that kind of growth. Especially in rent controlled markets.
It's really interesting how different personality types play such a role in analysis paralysis. I find that it's good to talk through a property you are looking at with someone who maybe has a different type of personality than you. In other words, if investor A is a "go all-in, jump-in" mindset, and investor B is a "research, analyze, repeat" mindset, the two can really help one another. I know that in my own personal investments (especially for my first) it took talking to a number of agents and other investors who essentially gave me the push I needed to go forward.
No one is going to make decisions for you (and they shouldn't), but without a doubt, the best lessons are learned when you actually pull the trigger. Time is more valuable than the $40 less per month you were hoping to make in cash flow.
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Hi there! Newbie investor here. Thank you @Alicia for starting this thread that so aptly describes how newbies feel. And, sometimes hearing someone else verbalize it, in and of itself, is a huge relief!
1) I need this group's assistance reviewing these numbers please; they're for a 4-plex in Huntsville, AL. Asking price was $450k, but to make this work I am going in 20k lower. As you can see, CoC is low, ROI is good, cash-flow is low but positive (and I don't want to raise rents as soon as I go in because tenants have stayed there a while, and I will lose them if I raise rents in the first year).
2) If this was a single-family, I would have gone ahead at asking price because Huntsville has good economic growth projected for the next few years, and I would've built up equity as the property appreciated. However, with the multi-family, I read someplace that the "equity" in a multi-family is just the money you put in + rent increases. So does that mean market appreciation does not help me a lot? What would your exit strategy look like, in 5 years? Would be easier to talk through, if that's an option - but I'm not sure how BP members connect.
Jump! go for it! JUMP! No really...
Hi all,
Totally a beginner when it comes to investing. I am nervous but excited at the same time. Looking for a BRRRR method. currently I am thinking of starting with a friend investing on single family properties.
Questions - 1. Is that a recommended suggestion or would going solo be better?
2. Do you guys care about the areas for your first or any investments? (i live in Baltimore suburbs-houses in the city are cheaper but they are in the sketchy areas)
Quote from @Adeep Roka:
Hi all,
Totally a beginner when it comes to investing. I am nervous but excited at the same time. Looking for a BRRRR method. currently I am thinking of starting with a friend investing on single family properties.
Questions - 1. Is that a recommended suggestion or would going solo be better?
2. Do you guys care about the areas for your first or any investments? (i live in Baltimore suburbs-houses in the city are cheaper but they are in the sketchy areas)
I would say to weight the pros and cons of partnership carefully. You need different skills and someone really needs some experience, otherwise it's the blind leading the blind.
For your first investment I would find something that cashflowed in a decent area. You aren't skilled in handling tenants yet, and that could make you give up before you see your real potential. You don't need a homerun deal. Just get a base hit!
My properties that are in sketchier areas have good cash flow, but I pay a property manager to deal with things because the tenants are more challenging. Something to keep in mind as you decide.
Quote from @Garrett Crosby:
It's really interesting how different personality types play such a role in analysis paralysis. I find that it's good to talk through a property you are looking at with someone who maybe has a different type of personality than you. In other words, if investor A is a "go all-in, jump-in" mindset, and investor B is a "research, analyze, repeat" mindset, the two can really help one another. I know that in my own personal investments (especially for my first) it took talking to a number of agents and other investors who essentially gave me the push I needed to go forward.
No one is going to make decisions for you (and they shouldn't), but without a doubt, the best lessons are learned when you actually pull the trigger. Time is more valuable than the $40 less per month you were hoping to make in cash flow.
I agree with finding a different personality to run things by. Keep in mind though that some people are so risk averse that they will never see your deal as being worth it. I do run deals by someone like this for all of the potential risks, but I know that he's never going to say he'd do it himself. Thankfully he respects that it's my business as I respect his career. I'm hoping to pull him into analyzing deals for me, because he's good at the numbers, but thinks he has a crazy girlfriend who crawls under houses all the time. (Kinda true)
Small steps…
We all hear of case studies where the investor killed it, or where long time investors with serious deal flow won’t get out of bed for less than double digit returns.
But like the conversation I had with my college age daughter last night, experience is another form of compensation.
My first deal as a Note Investor? I paid par (no discount) for a performing note where I earned 7%. Would I have loved 10%? Of course, but learning first hand what it’s like to buy paper rather than property gave me a different type of value.
My first property as a landlord? A turnkey. Do I receive the type of returns I might if I found and fixed the property myself? No. But again… Experience and confidence.
Originally posted by @Account Closed:
Is it really "analysis paralysis" when you run the numbers on a property and they don't pencil.if you're discipline to only do this, all good. for me it turns into more, so it best optimziatrion of my time to not soend miuch time until I have a moivated seller that will talk to me.
@Alicia Marks
Hi all, super newbie here! Thanks for sharing your stories. I was curious what the best way to do an analysis is to get the most accurate results. Thanks! NC
Many of us here are numbers people.
Forward momentum = more hours “doing” than “consuming.”
Here's a few things that helped me overcome "analysis paralysis":
Learn how to analyze properties...lots and lots of properties, the right way (If the numbers don't work move to the next one) It just so happens BP has multiple webinars on analyzing properties!
Have a knowledgeable person to lean on (friend who invests in real estate or Realtor who also invests in real estate or other BP members!)
overcome fear! I've been fearful on every purchase that I've made, and so far it's always worked out.
You don't have to have everything figured out before you get started, you just have to start
@Adam Beaver
I did both.
Used HELOC and HML to leverage the purchase.
HML gives 90% of purchase price and 100% of rehab.
Lowers your exposure from using your own money from HELOC.