It's been 10 years since my first deal!

As of this month, it's officially been ten years since I closed on my first deal.

This was a three-unit property located in the small town of Chester, NH. I found it on Craigslist, back when you could actually find legitimate for-sale-by-owner deals on Craigslist. The seller was an older landlord who was looking to retire and slowly sell off his buildings.

He was asking $195,000, which felt reasonable at the time. There were numerous comps indicating the property had an as-is value of $275,000 or more, and it didn't need significant renovations.

So I put it under contract.

Now, while I've posted about this building before, it's a great reminder that the first deal you do doesn't have to be a home run. Because this one certainly wasn't.

I made a few mistakes on this first deal. Mistakes that taught me lessons I still carry with me today. And if you're a new investor or you're thinking about doing your first deal, these lessons might save you some headaches down the road.

The biggest mistake I made on this deal was not doing enough physical due diligence. More importantly, I didn't contextualize the findings I did discover.

The building was constructed using methods that aren't remotely close to modern building standards. This is fairly common in 100-plus-year-old buildings throughout NH and New England, so it didn't raise immediate red flags for me at the time.

Additionally, the property was on a private well and septic. Specifically, it had a dug well versus a drilled well, which is not ideal. And the septic tank was a little too small to service all three units, so it had to be pumped far more regularly than a normal-sized septic tank.

At the time of purchase, none of this seemed like a dealbreaker, as the building still operated “fine”.

But here's where it became a problem: when it came time to sell the property, the dug well, the undersized septic tank, and the outdated construction made it very challenging for buyers to secure conventional financing. Worse, the property didn't qualify for FHA financing, the most commonly used loan for first-time homebuyers.

This significantly reduced my buyer pool and lowered my sales price.

The lesson here is, when you're buying a property, you need to be extremely mindful of who you're going to sell it to down the road and how a lender is going to view it when it’s time to refinance or sell. If the property will be difficult to finance or sell, you need to price it accordingly when you buy it. Because at some point, you're going to sell it, and you need to make sure your buyer has no issues sourcing financing and paying the right price.

I self-managed this property. At 21 years old, without any experience dealing with contractors, tenants, or vendors, I was in a bit over my head.

I was too trusting. I had challenges pushing back on renovation quotes and ridiculous tenant requests. Overall, I found myself winging it far more than I should have.

If I had hired a professional property management company, I would have saved myself considerable money on mistakes, unnecessary tenant accommodations, and overpaying for renovations.

Here's the broader lesson: if you're truly new to an industry (in this case, real estate), it's extremely easy to be taken advantage of. Especially if you're a younger, more naive-looking investor. Contractors, vendors, and tenants will mark you as someone they can exploit.

And at that time, I was absolutely that person.

What I should have done was hire a management company far sooner. Even if I were paying them a bit more, it would have been worth it just to observe how an experienced professional works through the management process, negotiates with contractors, and handles tenant issues. At least then, I would have been shown the ropes before trying to do it myself.

About 18 months after buying the property, I listed it and sold it for just over $200,000…not much more than I paid for it.

The issues from lesson #1 made it extremely difficult to find a buyer. I ended up selling to someone who paid cash, which gave them significant leverage in the negotiation.

Luckily, I had gotten my real estate license during this time and represented myself on the sale. The buyer didn't have an agent either, so my closing costs were minimal.

All in all, I probably lost around $5,000 on the deal.

Now, here's the thing: I think most new investors are absolutely petrified of doing a deal early on that doesn't go extremely well. And obviously, this deal didn't go well.

But that $5,000 I lost was the best education I could have gotten for that money.

It taught me that learning by doing is the best education you can receive; far better than learning by observing, reading, or listening. No lesson is better learned than what you learn in real time, in live action.

And assuming your downside is capped and we're not talking about financial ruin, exchanging a small amount of money to learn by hiring the wrong contractor, working with the wrong property manager, or slightly overpaying for a property is capital extremely well spent.

Because it makes it significantly easier to do that second deal. And then deals three through ten. Which is where your life actually changes.

Going through the exercise of buying that first deal was extremely eye-opening. Working through the transaction process. Securing financing. Onboarding new tenants. Renovating and leasing units. All of that cannot be learned as effectively by reading about it as it can by doing it.

Long story short…

While this deal was not a home run, it gave me the confidence I needed to do deal number two. And deal number two went very well. That deal catapulted me into doing the next two, five, twenty-five, fifty deals over the last ten years.

So if you're sitting on the sidelines waiting for the perfect deal or the perfect conditions, don't. Your first deal doesn't have to be perfect. It just has to teach you something.

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Talk soon,

Axel