5 Ways To Ensure Your First Real Estate Deal Is A Success
By JD Esajian on October 18, 2018
There are generally two types of first time investors. The first is the impatient kind that wants to build a real estate empire in their first 30 days of investing. They make offers on every new listing without much regard to the numbers or the bottom line. The other type evaluates and tears into every aspect of the deal before making a decision. They subscribe to the paralysis by analysis way of thinking, which often restricts them from acting in a timely manner. Neither of these is a great way to get started in the real estate business. You need to make quick decisions while still knowing exactly what you are walking into. As scary as the business can seem at times, if you want in you have to take a leap of faith and get started. Here are five ways to make your first real estate deal a successful one.
- Constant education. The most successful investors constantly spend time learning and understanding the business. When a new deal comes along they react without having to learn the process. Without question the biggest reason first time investors are either overzealous or anxious to make an offer is because of education. They either don’t know enough to make good decisions or they have the wrong information and are afraid to act. Every deal in the world of real estate is unique. Something a fellow investor went through may not apply to you at all. You must spend time learning and studying every aspect of the business. The more you know the more confident you will be when a new deal presents itself. There should be nothing about a property or the numbers that is over your head. With the right education you can be confident you are making the right decision.
- Due diligence system. The biggest reason the apprehensive investor is nervous to get started is because they don’t want to lose money. As understandable as this is, it is far more the exception than the norm. Losing money on real estate often requires a major oversight or a dramatic unexpected event. This doesn’t mean that every deal you are part of will be a home run, but if you know what you are walking into you should make a profit. It is a good idea to come up with a due diligence system to help evaluate new leads and deals as they come in. Have a property checklist, a formula to help determine maximum offer price and an estimated after repair value. The more you use your system the easier the process will be. With your system you should feel confident that there is nothing you have missed. The key is to keep up with the system on every deal regardless of past results or how basic the property looks on the surface. All it takes is one oversight to set your business for a loop.
- State risk/reward tolerance. Every investor is individual when it comes to personal risk tolerance. Regardless of how clean and easy a deal may seem there is risk attached on every property. Only you can answer how much risk you are willing to accept. Prior to looking at any deal or evaluating a property it is a good idea to determine how much risk you are comfortable with. The risk has to be commiserate with the reward or it is not worth your time and effort. Risk to you may be completely different than risk to a fellow investor. You need to be comfortable with the downside, whatever that may be. Once you know what you are walking into and are ok with the potential results you will be much more inclined to act when a deal presents itself.
- Lean on your team. As much education as you may have, nothing replaces real world experience. When you are just getting going it is important to lean on the team around you for guidance and expertise. This doesn’t mean you have to blindly follow everything they say, but you should listen to as much information as you can before acting. The two most important members of your team will be your real estate agent and your contractor. Your real estate agent will help evaluate the property and let you know if your after-repair value is realistic. It is easy to pencil in numbers based on hope, but a good agent will let you know if they are real. The same is the case with your contractor. They will give you options, prices and timeframes that are real and not based on a best-case scenario. It is ok to lean on the team around you until you are established, and especially for your first deal.
- Understand worst case scenario. All new investors have visions of real estate dominance. It is only when they face some adversity when reality starts to set in. On every deal you are part of you always need to at least consider the worst-case scenario. This doesn’t mean you have to act in fear of it, but you do need to acknowledge it. Once you acknowledge you need to assess just how realistic it is of happening. As much as you may try to prevent it, bad things happen on properties from time to time. If you are ok with the downside you should be ready to dive in full steam ahead.
A successful first deal will help springboard your business to the next level. Use these five tips to give you every possible chance of getting off to a good start.