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Your First Deal. Release the Kraken!

Congratulations! You’re workin’ your first deal, and that means you’re really doing it! You’re doing more than 90% of all supposed real estate investors out there! That’s awesome, really it is. But my guess is (if you’re like most of us), you’re probably feeling the first time deal jitters along with sinking feelings of doubt and confusion. The good news is, that’s normal and frankly, it never goes away. The even better news is, there’s a way to diminish that dreadful doubt.

RISK MITIGATION

Put on your hard hat, because you’re undoubtedly going to run into two major roadblocks while you’re working your first deal:

  • Risk – At some point early on, you’re going to ask yourself if the risk is worth the anxiety you’re feeling, which will make you second guess the deal altogether. You need to learn how to identify all the risk variables – then reduce them to a “move-forward” level.
  • Rookie Questions – You’re new to this game, so you’re going to have questions like “how do I know if a deal is a good one, what kind of insurance do I need, how do I find the money, how do I manage contractors, what’s a scope of work? … all of which will (unfortunately) fuel your anxiety.

Your first plan of attack is to ask for help. Look, if you’re going this game alone, I don’t care how good the deal is or how much money you have – you are on a one way bus ride to Failure-ville without the help of someone like me who has been at this for 8 years. Swallow your pride, put the Macho-Man attitude aside, Randy Savage, and talk to someone who’s experienced and knowledgeable. Doing so will help you reduce your “deal risk”, so you can move forward with confidence.

Here are six tried and true techniques for you to put to the test.

 

EDUCATION: ITS ALL ABOUT RISK REDUCTION

6 Tips for Success:

1. EDUCATION: Do I need to slap you upside the head, or do you get that a thorough education is your best defense and the BEST tool to make you feel most at ease with the deal process, especially when it comes to the rules, laws, and daily struggles of real estate investing. So get smart…and fast.

2. FINANCIAL ANALYSIS: This is a no-brainer; you must know your profit BEFORE you make an offer. How the heck else can you feel confident in investing if you don’t know where you stand financially. Always remember, you make money when you buy the deal not when you sell it!

3. DUE DILLIGENCE: Do the due, baby. By that I mean, cross those “t’s” and dot those “i’s”, and in short…cover your ass. Know the neighborhood, know the comps, know your precise rehab costs. If you’re a landlord, speak with other nearby landlords to see how much they are getting for rents. Find out how long it takes them to fill vacancies. Find out if the area is subsidy-friendly, or if vouchered tenants avoid the neighborhood like the plague. Know what your competition is doing in the area!

4. START SMALL: Lemme put it to you this way – if you’re a 40 year old virgin, do you set your sights on a Carmen Electra type for your first time? Hell no!  She’d laugh in your face, and walk away feeling less than satisfied muttering to herself “even my dismal acting career lasted longer than that!” Not a good plan. Moral of the story is – start small, and make sure your first experience is gonna be a winner. I can not tell you how many investors start out with marginal deals, lose money – then never invest again because they are soured by their first deal. Newbies are eager buyers. This ain’t Monopoly money we’re playing with so make sure you’re never an eager buyer.

5. CONTINGENCY PLANNING: Bottom line – always have a plan “B”. Be proactive, and ask experienced wheelers and dealers what potential problems to expect. Prepare for the worst, and you’ll be pleasantly surprised if things go according to plan (but don’t hold your breath). As a rehabber, I have never gone into a property and said, “if I can’t sell this house, I’ll just rent it.” That’s not a contingency plan. My contingency plan is the FAT FAT cushion of NET profit I have in the deal. So, if I have trouble selling the house or if I bust the budget in my rehab, my contingency plan is – I make $30,000 instead of $50,000. Yeah – its a pretty good life.

6. CONTRACTS & AGREEMENTS: This ties into the “cover you ass” plan mentioned above. Get letters of intent, document everything, and establish contracts between you and all the people you work with. Make a written plan for your success – and that plan must include the blueprint or rules of the road between you and your contractors. This is crucial for any business, especially real estate. Having contracts and agreements that use those rules to your advantage is a great way to manage your risk. Keep in mind, however, that even if a contract is signed, it’s absolutely not written in stone. But if you keep the contract contents within the boundaries of the law (and you strive to always do what’s right), you can feel good about using these as a stress reduction tool.

These six tips should give you a solid jumping off point to help reduce your first time deal risk and anxiety. Now you’re ready to be unleashed into the real estate deal makin’ biz as an educated, experienced, and fearless real estate professional. And with that, I say…RELEASE THE KRAKEN! (I’ve always wanted to write that.)

C’MON….let me hear your comments!

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