One of the messages I am constantly sharing with my students is the need to get out there and do whatever it takes to get that first property under their belts. It is scary and intimidating, but it is also a magical threshold.
Once you get that first deal done you will find a liberating courage that will make you many times more effective in every aspect of your investing. It is all based on the power of belief. After your first deal you will have a growing sense of belief in your ability to put these deals together. Because of this belief you will be more persuasive with both motivated sellers and hungry buyers.
I'd like to share with you the story of one of our coaches, Gary. It comes from his first purchase option deal. As my students who work with Gary know, he's quite a sharp investor. But believe it or not he made lots of mistakes on his first deals too! And because he survived them and went on to be quite successful you know that you can do the exact same thing. Here, in Gary's own words, is the story of his first deal:
A while back Continental Airlines was moving its base out of the city I was living in. This meant a lot of employees of the airline had to relocate. I had a friend who worked for Continental at the time. He helped me get flyers into all the flight attendant's mail boxes. Basically all the flyer said was that if they needed to sell their home I could help them do it quickly and easily.
I got this one call from one of the flight attendants who was being transferred to another base city. She needed to sell her property. She had tried to get a property management company to rent out the place but they were going to charge her 10 percent of the rents collected PLUS maintenance on top of that. Besides, do you think some big property anagement company with hundreds of units to rent out really cares about a single house?
By putting myself in the sellers position I realized that she just wanted out. She didn't care about making a profit, only that she came out even. We went back and forth for a little while and finally agreed on a price of $41,000 –$4,000 BELOW the value of the home.
I also gave her $800 option money to lock in the right to buy the condo at anytime over the next 6 years (this is called a “lease purchase”.) Now I know better than paying any up-front option money if I can work it out that way. But I learned so much from this deal that it was OK that I made that mistake.
I was renting the place from the seller for $550 a month and I got a $50 a month credit. (That little $50 a month gave me an extra $1,800 at closing which was a nice little treat.) I found a tenant who also wanted to buy the property on a 3 year purchase option contract. He paid me $1,500 up-front option money (meaning after I subtracted the $800 I paid up-front gave me an immediate $700 profit.) He also agreed to buy the condo for $49,000. He paid $650 a month in rent. That gave me a $100 a month positive cashflow on the property.
He moved out after a year (he decided they didn't want the place) so I found another tenant-buyer and collected another $1,500 option payment. Again this person left after a year. So I found my third tenant-buyer and collected my third $1,500 option payment, and this buyer ended up buying the place. (By this time I was charging $725 a month in rent which gave me a positive cash-flow of $175 a month.)
The bottom line was I made $12,000 from a tiny deal on a $45,000 property over three years. The seller loved me. The buyer loved me (she actually cried at closing! She thought she would never be able to own her own home.) And I learned so many valuable lessons just by getting out there and doing my first deal. It only took me a few hours to sign the deal up, and several more to find a tenant-buyer each year. I had to spend less then five minutes time keeping the deal going each year after I had my tenant-buyers. I collected and deposited one check each month from the tenant-buyer, and wrote out a separate check to the seller each month. It was just so easy. That's why I love purchase option real estate so much.
So get out there and do whatever it takes to get that first deal done. It will give you the confidence and the skills to go on and make a ton more money.