I just finished reading The Power of Habit by Charles Duhigg. It’s a fantastic book that I recommend to anyone. And I really do mean anyone. You can be a Fortune 500 CEO or a young 20-something living in your parents’ basement and still get tremendous value out of this book.
Don’t worry. I’m not writing a book review this week. We’re not here for book reviews. The reason I’m jazzed about this book is because an “ah-ha” moment went off after I had a great chat with a real estate developer I respect and admire (paired with finishing this book).
Our chat focused on this developer’s business–mainly how he dealt with uncertainty and grew his company over the years. One thing that struck me was how quickly he analyzes deals and decides if they are worth his time or not. Time (or the lack of) is a HUGE problem in our industry because we’re constantly faced with mountains of data, no data at all, new deals, old deals, and many other opportunities fighting for our attention.
There’s a common understanding on BiggerPockets that one must look at and scrutinize close to 100 potential deals before finding one that works. Given the sheer magnitude of information available (and sometimes lack of information) for potential deals, understanding how to use one’s time is always a priority for anyone starting out, looking to take on more projects, or venturing into a new niche.
Our need to hit home runs while mitigating risk is constantly challenged because of the increasing availability of information and new opportunities on the horizon. How many times have you received an email, phone call, or note about a hot new property or a compelling investment and not known where to start or whether to move on?
Have you ever marveled at how quickly some are able to dismiss opportunities at the drop of a hat while others turn and toil over the smallest details?
These were questions I wanted to uncover in my chat because they are common hurdles I’ve observed for several years now among many in the industry.
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How to Deal With Uncertainty and Speed Up Analysis
So I simply asked my developer friend about his first few deals and how he dealt with the uncertainty and chaos. I then followed up with questions about how he developed his due diligence process to the point where it becomes automatic.
Here’s his answer.
“It’s automatic now because it’s a habit. I looked at my first deal for over a week. I underwrote it, analyzed it, and lifted up as many rocks as I could find before deciding to move forward. It was intimidating and I had no clue if it would work out. Then, after working through the process again and again, I gained new information on what makes a deal work well. After building more projects, I now know have a clearer sense for my cost per square foot range and what products sell at what prices. Over time you start to focus on what really matters in a development and forget about the smaller aspects. They all matter, but not always at the start of a project. This allows me to analyze initial deals in minutes and hours instead of days and weeks. But it all begins with starting the habit and taking your time, but knowing it’ll improve over time.”
We’re going short and sweet this week. The answer above might be old news to some and might help others who are sifting through what seems like chaos. Either way this mentality is one that can help regardless of where you are with your work. Good luck out there and happy deal hunting!
Photo: ros k @ getfunky_paris