Is the 1st Deal a Myth?

[Scott Kimberly]

I'm curious to see how much of a myth the 1st Deal actually is.

The Myth I'm referring to is "get your first deal and it's off to the races". As a new investor, I the more I listen to podcasts (and not just BP's) the more it seems like "if you do your 1st deal, the doors will open up and you'll be able to acquire as many properties as you like, as quickly as you like".

Obviously, this sounds ridiculous and I'm also exaggerating a little bit. But, assuming it isn't ridiculous, at what point do you just do a good deal, regardless of size, just to say you've done one?

I want to be in the small-multi space to start. Anything from 2 to 20 units. However, there is a huge difference between 2 and 20. There's a pretty good difference between 4 and 6, to be honest. Is it worth it to just acquire the most affordable good deal I can in order to build that reputation, rather than try for something a little more expensive for more cash flow?

[Michael Garofalo]

Scott,

There is some truth, but also some exaggeration involved. Doing one deal does not mean you are automatically going to start picking up tons of properties. You're ability to grow and scale will depend on your access to capital and the professionals you surround yourself with. After you've done one transaction and can speak intelligently about your successes and failures, you will start to earn the trust of others and expand your network. Generally speaking, things do get easier after you have done your first but it's not 100% black and white.

My personal recommendation is to start off on something smaller (2-4 units) to get your feet wet and to build up your track record. The first deal is not going to let you quit your job, but it will allow you to make and learn from mistakes, and hopefully also give you more financial flexibility. 

I think of acquisitions in terms of "what will this unit cover for me?" I don't take the conventional route of "i need x number of doors producing $100/month so I can replace all of my income." In my case, each property has a purpose. I live in DC and my primary residence is in an A+ neighborhood, so the cash flow will not be as great once I move out and start renting it, but i will benefit from long term appreciation, which I view as something to cash out for say a child's college education fund, or supplementing retirement. I also have another unit in a lower income neighborhood where the cash flow is high; for this one I have ear marked it as my "vacation fund." I'm currently working towards closing a deal out of state with a business partner, where cash flow opportunities are higher and acquisition prices much lower compared to where I live. Will look to that income to help cover simple living costs (say my cell phone and internet bills).

Hope this helps, I'm sure others will have different opinions but that is the beauty of BP, lots of diverse and interesting perspectives!