First time acquisition

[Elvon Bowman]

Hi everyone,

I'm a new real estate investor, and over the past 8 months, I've immersed myself in learning about CRE. I'm reaching out to you, the seasoned investors, for guidance as I work toward making my first acquisition.

So far, I've analyzed over 100 deals to assess their viability and profitability, and I understand the law of percentages in CRE. From my research, I know that for every 100 deals I analyze, I'll likely send out 10 LOIs, and one of those will eventually get accepted. Although I haven't received an acceptance yet, I've been actively sending out LOIs to property owners.

I'm aiming high with my first acquisition because I've heard many investors wish they had gone larger at the start. I'm particularly interested in properties with 100+ units. My most recent LOI was for a 168-unit property, and I'm also working on LOIs for properties with 200+ units.

I’ve had conversations with brokers and, in some cases, even the sellers directly. All the videos I’ve watched and the books I’ve read have helped me expand my mindset and approach. While I haven’t closed on a deal yet, I’m confident this process is completely learnable. It’s just a matter of diving in and taking the steps.

That said, I have a couple of questions:

1. 1. Do you think aiming for larger properties (100-200+ units) on my first deal is too ambitious? Or is it a reasonable approach given I have an experienced PM on my team ready to look things over, plus the knowledge of what I have learned from other investors?
2. 2. If I push my offer and resume over to a seller, would they consider my LOI even if it's my first acquisition and my net worth/POF (proof of funds) hasn't been provided? I've addressed this by stating that I'll provide POF within X days of getting the property under contract. I understand that as long as I have the deal, I'll be able to source the funds from financial institutions, private money investors, and the liquid amount I have to meet all financial obligations.

Looking forward to hearing your thoughts and advice!

Elvon

[Joshua Christensen]

@Elvon Bowman, Congratulations on taking such a jump.  

I agree with @Charles Seaman and I'll add a bit.

1. You didn't say whether you're doing this on your own, with partners, or as a syndication.  Advice will be different on each path.

2. Are there going to be banks involved, creative seller financing or all cash?  That makes a big difference in the answer to what Charles eloquently referenced regarding confidence in your ability to close.  Sellers and Brokers need to know you can close.  They often refer to it as 'certainty of close' when reviewing offers.

3. Bigger deals can be a good angle to attack AND that being said there is a greater deal of risk involved.  Especially with newer investors.  You don't know what you don't know.  Trustin your PM partner is important and they will follow your lead, so don't expect them to provide you with your business plan.  PM's are there to follow YOUR plan.  You need to know what to look for, what to address, and have solid buisiness acumen to run a MF operation of that magnitude. Smaller deals may sound "small" and yet they can provide a great deal of experience.

4. If there are banks involved on a multi-million dollar deal, you will need a partner with experience for the banks to consider it.  Unless you're working with Private Money that is going to carry the risk of your lack of experience, banks want to see experience, Net Worth and liquidity after close to consider the terms.

I started with single family, four plexes, and remodel flips for a lot of years before getting into larger deals. Our first accepted offer was a 320 unit deal that we contracted, put up non-refundable (yeah, I know) earnest money, and thought we had our financing and money in place to do the deal. 2 weeks before closing a major (several million) partner pulled out leaving us short of the funds needed to close. We lost multiple 6 figures in EMD$. It hurt, a lot. It was like paying for multiple Master's degrees to get our "real world" experience.

I backed up, regrouped and went smaller to gain more experience.  Today we have 540 units in a few states and things are not without challenges.  We've had a lot of good experiences and some not so good ones.  Each deal comes with a different set of surprises even for the most experienced operators.

Take your time and don't rush it.  Your best teacher will be experience and that can't come from books and formulas.  You get out there and put deals together with your eyes wide open to avoid as much as you can.  Also be open to knowing that you are acquiring a series of problems.

You're in the solution business.  The seller is selling because of problems they may be facing.  You're inheriting those (some known and some unknown).  Your PM will create new challenges for you that you will have to face.  Your contractors, staff, and the financial markets will create challenges.  You'll have tenants that don't pay, damages made, and potentially other disasterous situations occur on your properties.  (I'm currently dealing with a lawsuit for wrongful death on one of my properties - fun right?)

The point is that most of the books and gurus out there will sell you the dream and get you hooked on buying into their programs without giving you all the nitty gritty details.

You're running a business and must treat it that way.  If you think you'll hand it off to your PM to run and take the great amount of passive income as your great reward, there is so much more to it.  

Caution.  Slow down to go faster.

Many blessings to you!  Happy New Year.