DEALS: Bad until proven otherwise OR Good until proven otherwise

[Kellon Parkinson]

I’m spending quite a bit of time every day analyzing deals. It’s been a lot of fun, and great practice for me.

Some days I have a hard time deciding which deals to spend time analyzing, versus just skipping over it and looking for a better “first glance” deal.

When you’re analyzing deals, which is a better approach:

1) If a deal seems bad at first, analyze it to see if it can be proved otherwise (maybe the fact that it looks bad means other investors have skipped over it).

or

2) If a deal seems good at first, analyze it to see if it can be proved otherwise (maybe it’s been made to look better than it really is and you’ll end up with a lot of competition).

I’d love some input! What has helped you pick which deals to spend time analyzing?

[Ujwal Velagapudi]

That's a tough one. I'm not sure which I would pick over the other to save time, but can share what goes on in my mind when I come across your two scenarios. 

I do like exploring the deals that seem "good" at first glance, just to see if it seems legitimate or it was just neatly packaged into a pretty listing. This sometimes will take more due diligence and research though. I try to break this deal down, find the negatives, and try to write it off as a bad deal...unless it passes and then you can continue further in the research process. 

If it is a "bad" deal at first glance, it sometimes makes me even more excited because now I have leverage to negotiate more and so I go to find ways that this could turn out to be a better deal than how it appears. Again, this will take some more research too, but there are just poorly presented opportunities that with some extra digging around you can find some information that is valuable to your personal investment criteria. Like you said, I think some investors do tend to walk away from some of these (I'm sure I have as well), but a couple of my best pickups have been taking a second and third look at what initially had seemed to be a "bad" deal, finding little pieces that added value in my book, or finding a way to negotiate to a level that makes the deal "good".