Walking through your first deal can be very exciting and a process that shows that your prior hard work is beginning to pay off. However, it can also be intimidating and overwhelming. It may not take the same amount of time to prepare for every investor, and not every real estate transaction is smooth sailing. From the background research that may include reading books, sorting through different real estate professional podcasts or videos, or even utilizing a mentor that can give you first hand advice, it takes time to get to your first deal. The preparation before your first deal may depend on your investing goals. Are you strictly wanting a multi-family unit that you could house hack and generate certain cash flow numbers? Or maybe you are looking more into single family homes that could become a flip opportunity. There are plenty of recommendations or guides that can offer you twenty or more steps to preparing for your first deal. But we want to give you two pieces of advice that could help you prepare for when that first deal comes through.
- Run through Deal Analysis
This often can be the most intimidating part of the process. What numbers should you look at? How long should it take me to complete an analysis of a property? Where do I even start? The key is repeat, repeat, repeat… Whether your deal analysis is an Excel Sheet with your own formulas, on paper, or done through another system, you have to just practice. There is value in going through examples or fake deals so you can understand what numbers influence the overall deal evaluation. Behind every deal analysis, there is a story and that story can be looked at through different lenses.
Do not make the example deals unrealistic. You must have an idea of some parts of the analysis like your purchase price range, what return you are wanting, or even the amount of rehab you are comfortable with. It is not monopoly money so going through an example deal that does fit your criteria could help you learn.
- Read over a Purchase/Sales Agreement:
Yes, it can be boring reading through a multiple page contract that has legal verbiage that you have never heard of. But what if those important terms could influence your investment property? This is not saying you should google every word in the Purchase Agreement, but having general knowledge of certain sections could help speed up a deal when it comes to you or even lead to better negotiating.
There may be a certain part of the agreement that could make your offer stand out compared to other ones. A couple examples would be if you did not include an inspection contingency, or if you are a buyer and see that the purchase agreement includes a low Earnest Money deposit or an expiration date to respond to the seller. There are often great resources like your agent or others that can help explain certain parts of the agreement to you, but having background knowledge about what makes up a purchase agreement is never a bad thing.
Don’t believe me? Check out this podcast that highlights the importance of mentorship for first time investors and crucial steps to get your foot in the door to investing. The guest speaker, Bryce Steward, talks about how he first gave his mentee a copy of a purchase agreement to read over and ask questions about. BiggerPockets Podcast 442: Taking “Bite-Sized Steps” to Go from Broke to $20,000/Month with Bryce Stewart
It may seem like you don’t have the necessary tools to go through with your first deal and that there are too many moving parts. But guess what? Every single well-known investor had to start by building the foundation to get to their first deal. Reading, listening to podcasts, networking, etc. Running through example deal analysis and reading over purchase agreements may not seem like the most exhilarating activity, but those two steps could lead to the feeling of excitement when you close on your first deal!
If you have any questions about this blog post, or you have any questions about real estate, don’t hesitate to reach out out via the chat on our website.