The 5 Things I Should Have Done Differently on my First Deal

Most first time Real Estate investors are really excited and terrified at the onset of their first deal.  Usually, either emotion affects the outcome of the deal slightly.

For me, it was the excitement that taught me five lessons I will always remember:

I should have...

Slowed Down

I was so excited to ‘find’ my first Rent-To-Own tenants so quickly after only learning about this strategy a few months before.  I thought ‘this isn’t that bad, tenants are easy to find for this’…boy was I wrong. I didn't even advertise and see what else was out there, I took the very first couple who agreed to everything on a handshake.

Screen Tenants Properly

Moving too fast led me to ignore many red flags when I was ‘screening’ my tenant/buyers. Things such as

• No NOA (notice of assessment)
• One wanted to be left off all paperwork and refused to have credit pulled
• The other had extremely poor credit and no job
• The other, self-employed with fluctuating income…VERY fluctuating
• just to name the top four...

Kept My Emotions Out

I was already hesitant on the deal and the tenant buyers, but I felt compassion for these people because I’ve been self-employed too - I knew what it felt like.  When the wife cried many times in front of me because it was her ‘dream home’, my heart broke, so I let things slide.

Analyze Better

I was strictly looking at this deal from only one angle; the Rent-To-Own which meant large over market rent  and I saw dollar signs. If it would have played out, I would have been very happy with a great return and cash flow, but it didn’t.  Therefore when the RTO failed, the property would not cash flow as a straight rental which leads to….

Have my ‘stuff’ in order

A major reason the property would not cash flow is the mortgage interest rate.  I did not have my proper documentation completed and had to ‘squeeze’ this deal through other channels, resulting in higher interest rates.  On top of that, I could only ‘break’ the mortgage and pay huge penalties if I SOLD the property, nothing else…I could not even re-finance!!

My Tuition Fee

At the end of the day, this property purchase taught me many lessons about sophisticated investing –I like to call it “my tuition”.  I quickly learned how to properly analyze WITH stress tests and conservative numbers;  I learned why it’s important  to choose a tenant profile and follow the guidelines to secure great people that fit that profile and to have a plan on what, where, why and how I’m going to buy property.

All of the above had nothing to do with the market, rent-to-own, or even the tenants.  I am the only one to blame for it all.  If you look at blaming others for your mistakes, you will get nowhere in business.  Most would tend to look at the above failed RTO as the tenants fault.  But really, it was my call and my mistake to put these people in this position in the first place.

This is why today when I look at doing a deal whether it's rent-to-own or a straight rental, not only do I screen tenants carefully, I ensure they FIT my property.  Just because they say they can afford something doesn't mean they can...and even so, if they are stressed trying to make ends meet, that stress is passed on to me sooner or later so I'd rather pass them up.

Today, I’m grateful for this huge mistake happening, but through the latter half of 2009 and early 2010 before I sold it, I thought it would never end.  It was vacant for six months while I scrambled to do whatever I could to stop losing money… I was unprepared for the outcome of choosing poorly two years earlier.