Buy Your First Deal

Getting started with real estate all starts with that first deal. Before acquiring the first property, you will want to know enough to make an informed decision. The best way to understand what kind of property to buy and where to buy is to talk to people, read books, and perform initial research on your own. That being said, many people over analyze deals and work themselves into a corner of analysis paralysis which results in waiting too long to buy a deal or even worse, never buying a deal at all. There is a balance that needs to be achieved in order to reduce risk while at the same time, opening yourself up out of your comfort zone and creating an opportunity for which you can be successful.

Here are some key considerations to think about when buying any house:

1. Location, location, location
2. How long will you hold the property for
3. Use the multi-exit strategy to de-risk
4. Analyzing all of the facts and figures to paint a clear financial picture

When purchasing any property, we will want to consider its location in determining whether or not it will reach our long term goals. For a residential property where you or tenants may be residing, proximity to jobs, grocery stores, public transportation, schools and other conveniences is desired. The easier the access to such places, the more valuable the property may be both for the home cost and for how much tenants would pay to rent there.

We will want to consider the location for determining whether or not a property will reach our long term goals. For a residential property where you or tenants may be residing, proximity to jobs, grocery stores, public transportation, schools and other conveniences is desired. The easier the access to such places, the more valuable the property may be both for the home cost and for how much tenants would pay to rent there. Something else to consider is that these areas tend to weather economic storms better when there is uncertainty in the market.

Landlord and tenant laws can vary depending on the town and state where the property is located. The way taxes and utilities are calculated can also vary significantly. Because of these variations, it is crucial to familiarize yourself with the laws and regulations where you intend to buy a property. Just because some strategy or plan works in one area doesn’t necessarily mean it will work in another.

When analyzing deals, you will notice that some locations make better investments than others. Sometimes, the rent is significantly higher when compared to the home price. Other times, the appreciation of properties is stronger in certain areas. Just because properties are priced lower doesn’t necessarily mean they will make a better investment. Cheap properties tend to be cheap for a reason and can come with additional headaches and challenges that can hurt your expenses and be harder to manage long term.

You will think differently about purchasing a forever home vs. a starter home and similarly, you will think differently about a long term buy and hold property vs. a flip. Sometimes, part of the investment strategy is holding a property for a set amount of time, be it a year, 5 year, or 20 years. Buying a property should be a part of a greater life plan. Here are some examples:

1. I will purchase a condo to live in when I relocate to a new city where I have a work contract for 3 years. The condo monthly payment will be less than paying rent. This city is growing fast so maybe I will gain some sweat equity and appreciation when I go to sell it at the 3 year mark. At minimum, I am building equity with every monthly payment.
2. I will purchase a 4 unit multifamily with two partners in the deal. After fixing up the property and stabilizing the rent, we will sell it at year 7 to disperse funds for other opportunities.
3. I will buy a two family home to house hack with my wife before our family grows. Once the property cash flows $500 per month after all expenses, we will purchase a new primary residence and keep the two-family as an investment property.