November 19, 2013 by Dymphna 9 Comments

How To NOT Get Stuck On Your First Deal(s)

I always tell my students to get their first deal in such a way as to set up their second deal, the second deal positions them for the third, and so on…

This strategy is the surest way of building your portfolio with passive income and solid equity growth.

But lately I’ve heard stories of blossoming real estate investing careers getting off track after only the first or second deal…

Since the first deal needs to position you for the second and so forth… The question is, “Why or how is the first or second deal becoming your the sticking point?”

When this happens, a strategy review is in order.

Starting out with little investment capital?

If you’re like most of my students, you may not have much investment capital in your pocket…

No worries, though; it’s the way I started out, as well.

Now, with not a lot of money to work with, your first deal is likely to be a small deal, with just a bit of a down payment or perhaps even no down payment at all.

Sometimes it will be a chunk deal, other times it will be a cash cow. It all depends upon the opportunity you find, doesn’t it?

Naturally, when you’re in a spot where you don’t have much capital, a chunk deal is a great opportunity…

That’s where you have several options that will get you to your second deal and beyond.

Leveraging the chunk deal

One option is to use the equity in the chunk deal property to add on more living space or a granny flat. This way, you manufacture even more value in the property as well as income, setting you up for your next purchase.

Or, you can simply pull some equity out of the property to make the down payment on your next deal.

Or you can re-sell the chunk deal property you’ve just purchased and use the profits from it to buy two more properties.

In all cases, it’s a good idea to have your next properties already in mind, with down payment amounts identified and financing in place before you sell the chunk deal property.

Letting the cash cow work for you 

But what if you’ve just gotten into a cash cow deal where you’ve got some positive cash flow and a bit of equity? It’s certainly not a bad start, either…

Problems can come, however, with trying to put together the next deal, can’t they?

Most likely, the problem lies in the details of your first deal as a cash cow. There are a couple of areas that come to mind…

First, if you have too little equity in the property, you have two or three options open to you. You can either wait for the overall real estate market in the area to improve…

Or you can create equity in the property by making improvements. It might be something as simple as a coat of paint to the exterior and a bit of landscaping. Or, it might involve some renovations in the interior, which might be paint, flooring, appliances and such.

A third option to creating more value is to add another living space to the property, whether it is a bedroom or a granny flat.

This last strategy may likely mean you have to wait for that second deal.

You may have to wait several months to allow the passive income to pay for the renovations over a period of several months.

Or you may simply let the passive income flow into your “down payment account” that will enable you to acquire your next property.

But that’s perfectly fine!

Your next deal doesn’t have to be right away!

You see, the first property you buy can and will set you up for the next one, but in some cases, the “set up” isn’t yet completed just because you’ve acquired the property…

You need to identify the best way to utilize that first property so you can get to your next deal.

Understand that you need get just as good of a deal on your next property as you did on your first…

Or maybe even better.

Think about it this way…

The more capital you can build up from your first deal, the better you will be able to position yourself for you second deal.

When you have less money, you will need more time to get to that second deal… But you will.

Make your second deal the right deal

The second deal can also leave you stuck if it’s not the right deal. Too often, when you taste a little success on your first deal, you want to climb up that ladder to a bigger deal, don’t you?

Bigger deals are where you should want to go, but don’t be in too big of a rush to get there…

It’s just as important to make your second deal the right deal. What’s the right second deal?

It’s the one that will make you money, either from a chunk or a cash cow, and one that you know you can do successfully.

That’s why in for many of my most successful students, their second deal was usually similar to their first one. They have a successful formula that they know will work and they build their portfolio from there!

One thing to remember is to NOT use one property as collateral to acquire another. That puts both properties at risk.

It is better to wait until you have the necessary capital and financing in place to buy your next property without risking another to do it.

Your first property will indeed set you up for your next deal and so on…

If you just let it do so!