Analysis Paralysis- How to take the first step financially?

Question

I would love to take the first step. I’ve done a lot of research. I am recognizing that I’m falling into the paralysis stage of the process. I would love some stories about taking that first step financially.

What kind of financial institutions did you use?

What are the pros and cons to some of the differences?

How much did you have to put down?

Any information would help!

Thanks BP Community!

Jody Sperling · Answer

Don't have enough information about your situation, but I'll share mine, for what it's worth:

Moved from Spokane, Washington back to Omaha in 2015 after grad school. Had two sons and a wife. Bought a house sight-unseen because it was the cheapest home in the school district we wanted. Lived in cheap 3/2 house for five years paying off 70k school loans. (Regret the debt paydown in retrospect.) Accumulated one additional mouth to feed.

Knew I wanted financial independence, but unsure how to do it. Had 30k in savings only paper debt for primary mortgage. Decided to buy a new primary so my downpayment would only be 5%. This was June 2020. Budgeted to rehab the cheap-first-primary and rent: $7500. Spent $6000 on rehab, completed work in 1month, rented it for $1275 with a $682 mortgage.

Discovered Velocity Banking. Found a local bank to give me a first position HELOC on my rental. Appraised at $120k,$30k higher than original purchase price, given 75% Loan To Value ($90k). Had $63k mortgage left. Attacked that debt down to $44k and have $45k available to purchase new investment property, which I plan to buy this coming spring.

The most important lesson: buy the first investment property. Once that's done, you'll keep moving forward. Best of luck, wherever your journey takes you!

Neil Henderson · Answer

First of all, recognize that you are NEVER going to know everything that you need to proceed. Trying to know everything before you take action will lead to months or years of inaction.

Second, if you are still looking at more than one real estate investing strategy, STOP! Pick one and focus on it.

Third, find a strategy that you can get into for not a huge amount of money, with limited chances of failure. Don't expect to get rich, expect to learn and diminish the fear of making a mistake. The goal with these first deals is to learn without making a catastrophic mistake. You WILL make mistakes! The point is to not have them hurt so bad that you stop investing, or find yourself unable to invest anymore.

Finally:

Follow the three immutable laws of real estate investing (tm @Joe Fairless)

1. Invest for cash flow- If you buy an asset that isn't able to cash flow from near day one, walk away. Later, if you have dozens of turn around deals under your belt, sure, take a chance on an asset that isn't cash flowing.

2. Invest with long-term, low-leverage debt- Real estate moves in cycles and time is the investor's best friend. Don't get caught with high-leverage debt with terms that might come due during a down market.

3. Have sufficient cash reserves- Most lenders aren't going to let you proceed if you don't have at least six months of PITI (Principle, Interest, Taxes, and Insurance) in the bank. This is for your (and their) protection.

Henry Clark · Answer

My first deal didn't have all of the facts, didn't have all of the questions, didn't, didn't, etc.  I'm a Controller/CFO by trade, thus a data driven and "critical thinker".  Probably only got to about 65% of the info I needed to make my first investment.

Thought would I ever "get there" with the info and questions and decided I would never "get there" just researching and reading.

Asked myself the following questions:

a.  For this investment what does failure look like or mean $????????  My situation, is self storage.  Even if we only got to 50% full, I would be losing about $1,000 per month or about $100,000 in total.

b.  If this failed, what would be the impact on me or my family or future?  The impact of losing $1,000 per month or $100,000 would have no impact.  My son would still go to college.  Would still have my house.  Would still grill a steak on Saturday.  Etc. Etc.

c.  If I did not make this investment or a similar one, would I ever move to a passive investment strategy or just keep working for a paycheck?  At this point I probably would never get a passive source of income and keep working for a paycheck.  Praying our company didn't get sold and downsized.  Or they didn't move to another state.  Or go overseas.

Good luck.  Make the jump.  Just do the numbers and make sure you can take it.  Plus it is never a loss.  This experience makes you better for the next one.  I have yet do do a project without making a mistake.  I just make sure I have 90% of all issues covered.  If I fail on one of the 5%, it won't hurt me.

Make a list of all of the things you can't take a big hit on.  Example for a SFH:

a.  foundation,

b. Roof

c. windows

d.  facade

e.  plumbing

f.  electrical/HVAC

g.  abestos or mould

h.  ???????

Make sure you nail these.

The fact you got your interest rate wrong  4% versus 5%; downpayment or collateral $20,000 versus $30,000; rental market rate $700 versus $800.  These might make the project a "failure", but it doesn't knock you out and you learn to sharpen your pencil.

We can tell you all of our stories, you need to define your story up front and what failure looks like.  You got it.

Christopher Lassiter · Answer

@Jody Sperling thank you so much for sharing your story. I really appreciate your prospective. This is exactly what I needed. I need to take step 1.

Analysis Paralysis- How to take the first step financially?

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