You Don’t Have to Hit a Home Run on Your First Deal, or on any Deal for That Matter

19 Dec You Don’t Have to Hit a Home Run on Your First Deal, or on any Deal for That Matter

For many investors, the first deal is the toughest. I was consumed with fear on my first deal. There was added pressure because I had no other source of income and was operating purely on savings. I made numerous mistakes, big and small, on that first investment property. I built confidence, learned what not to do, and established relationships. I went on to the next deal, making more mistakes. Then I went on to the next one, and the next one. I failed forward. Today, with over 200 deals behind me, I can quickly analyze future deals and advise others because of what I learned from my thousands of mistakes. In a weird way, I’m glad I made a lot of those mistakes.

Using a baseball batter metaphor, my strategy has been to get on base through singles and walks. I wasn’t swinging for home runs at the risk of striking out. I figured that to score the most runs, I needed to get on base over and over. For example, a home run on a rental house might be to receive $600 per month in positive cash flow in year one. A single or walk might be to receive only $200 per month in positive cash flow in year one from a rental. In the case of a flip project, a home run might be to make $60,000 in profit. A single or walk could be earning only $20,000 in profit.

Through the years, I have been approached by dozens of aspiring investors who wanted to hit the proverbial home run on their first deal. Many of them never never ended up buying a property because they wanted to get the lowest price on the best property in the perfect location while also having weeks to analyze the deal. They did not want to make a mistake, and they wanted the maximum income or profit.

There is nothing wrong with protecting your money and seeking to avoid colossal mistakes (like some of the ones I’ve made). Yet if someone wants to build wealth through real estate investing, they need to take some calculated risks and realize that they won’t have all the answers up front. They need to know that many times the best deals have a short window of opportunity before someone else snatches up the property. Especially in the Seller’s Market of today, there is not enough time to ponder for weeks whether to pursue a particular deal. Sometimes when a property comes on the market, the investor has to view it that day and make a strong offer the same day. To wait even one day might cost them the deal.

What is important is what you learn and who you become along the way. The better an investor you become, the more doubles, triples, home runs, and grand slams you will create for yourself over time.

I have also been approached by aspiring investors who see real estate investing as a journey of personal and professional growth. They are not trying to hit a home run on the first deal. Rather, they wish to acquire multiple properties over time. They are willing to buy a rental that only cash flows $200 a month in year one. They are willing to get involved in a flip project that might only make them $20,000 in profit. They seek to build long term business relationships with people like contractors, real estate agents, insurance agents, fellow investors, and property managers. They trust the advice of the people they hire to help them. They know that some mistakes may be made along the way, yet they feel reassured with the competence of their team. This type of aspiring investor is willing to be more decisive even when they don’t have all the information at hand.

If a new investor purchases their first investment property, they will learn from the experience and be more well equipped to do future deals. Over time, the rentals a landlord buys should increase in value and in cash flow. In other words, a single or walk can turn into a triple or home run. My wife and I have bought rental properties with seemingly low cash flow in year one, yet with a mix of rental rate increases, low interest rate refinances, and cost controls, we’ve increased the cash flow to home run status in year two. So we’ve turned singles into home runs over the course or one or two years. Had we not even bought the deal, then we would not have enjoyed the benefits that came later.

The same concept works with house flippers. Over time, a flipper finds ways to save money and add value. Each deal makes them more capable of handling the next deal. Their bigger network of people means that more people are feeding them lucrative deals to consider. In other words, their baseball swing gets better. Eventually, they may hit some home runs when simply trying to hit singles.

If you are an aspiring investor and you’re seeking to do that first or second deal, here are some basic tips:

• Work with an experienced person like a Realtor who invests in real estate. They can guide you and also introduce you to their trusted network. If someone else has the knowledge and has made mistakes, then you become the beneficiary of that knowledge and don’t need to pay the price for those mistakes.
• Learn basic investor calculations so you can estimate the potential income and expenses quickly, and with confidence.
• Search consistently for deals. I recommend a daily ritual of searching, even if it is as little as five minutes.
• Have your financing lined up in advance so you can make a quick offer.
• Be willing to make the offer. You will learn so much, especially if the offer is accepted. I hope it is.

Tai DeSa is a graduate of The Wharton School of the University of Pennsylvania.  He became a full-time real estate investor in 2004 after serving in the U.S. Navy.  Tai has made colossal mistakes in investing (and learned some things along the way).  He has helped hundreds of homeowners avoid foreclosure through successful short sales. Check out Tai’s books on Amazon.com. Tai may be available for coaching and speaking engagements on a variety of real estate topics.  Send an email to tai@investandtransform.com.