In the beginning of my journey as a real estate investor, I grasped at whatever opportunities presented themselves. My natural instinct was to try and find success in any way I could at the time so almost every opportunity that presented itself to me was something worth at least looking into. Later on along my journey, the reverse of this has become true. My team and I uncover a massive amount of opportunities, so much so that we don’t have time to pursue them all. The shift from then to now is more about analyzing the opportunities presented to me in terms of their potential return for the time I put into it. This shift is crucial to making good on the best opportunities that become available to you as you scale.
Getting narrow
Narrowing your focus is a theme on our blog. The more narrow you can get, the more success you will likely have in your niche. The same goes for the opportunities that are presented to you. As you grow and scale, your time becomes more and more valuable. You’ll need to be able to quickly identify things that are worth pursuing and separate them from what is not. My opportunities come in the form of potential real estate deals. Over time, I needed to develop a filter to make sure the deals I look at are worth pursuing over others. My process for this is multifaceted. I start by asking myself a series of questions.
- Do I have the resources handy to be able to tackle this opportunity, or will I be starting from scratch?
- How much time do I foresee committing to the opportunity?
- What would be a ballpark figure for monetary compensation for my time?
- Is there another opportunity or opportunities right now that offer a higher ROI?
These four questions help me come to a better decision about where my time and energy is best spent in order to yield the best results possible. The more narrow and clear I get on the deals I look at, the more I am able to quickly identify which ones are worth a deeper dive and which ones are not. Opportunities become more clear and time wasters filter themselves out.
My analysis of an opportunity question by question
For the sake of clarity, let’s go through a hypothetical deal. Let’s say that my team and I are intending to wholesale a deal (sell the rights to the contract for a fee), and I am going through my analysis accordingly. I would start by answering the questions presented above in order to figure out whether this is a deal that is worth my time or not.
- Do I have the resources handy to be able to tackle this opportunity, or will I be starting from scratch?
This question largely is in regard to my list of buyers that I know and have worked with in the area where the deal is located. Having a strong buyers list in this specific area automatically and quickly makes the deal more appealing to me because I know I have a higher likelihood to produce income from it and work with people I know like a trust to perform. I’ll also take into consideration what kind of knowledge I have of the area where the deal is located. Having a good understanding of the area will help me be able to decipher more opportunities to pitch to potential buyers. Furthermore, having a knowledge of the area will help me understand whether or not this is an area that is desirable for investment.
- How much time do I foresee committing to the opportunity?
The answer to this question depends on my answer to the first. If I know the area well and have active buyers there, I shouldn’t have to spend a whole lot of time on the deal. If I don’t, then I know I’ll have to commit more time to relationship building in order to sell it. I’ll have to gauge whether or not that is worth my time. Factors that impact this are desirability of the market and how sought after it is by investors and/or retail buyers. If I see an area as high potential, I might consider doing a single deal in the market as a feeler to see what kind of response I get and how difficult it is to move.
- What would be a ballpark figure for monetary compensation for my time?
My knowledge of the market and the deal itself will be heavy determinants of what I think I can charge for a fee. I have a rule of thumb that the total amount of money an investor brings to the table to close a deal should be between 10%-15% of the total purchase price. I usually use this benchmark as my figure to determine a reasonable fee. If there is enough meat on the bone for me to make around a 10K-20K spread, this is a big plus for me especially if the answers to the other questions are favorable as well.
- Is there another opportunity or opportunities right now that offer a higher ROI?
This one is self-explanatory. If this deal will keep me from pursuing other more worthwhile opportunities due to time constraints or something else, it’ll kill the deal for me. I do my best to focus my time and energy on the best opportunities possible because my time is limited. I try not to compromise here.
A quick deal analysis
EXAMPLE DEAL: 123 Main Street, Tampa, FL 12345
- I know I have a list of great buyers in Tampa and this type of house is something they’d be looking for. It presents multiple strategies for them to make money on it.
- Given my list of buyers here, the time I will have to spend is likely limited in order to produce a return.
- There is around a $10,000 spread I anticipate being able to profit here.
- Because of how little energy and effort this will take me to sell, it is definitely worth my time and energy.
An easy process
The purpose of this workflow is to disqualify opportunities quickly so you are spending your time on the best ones possible. This is translatable and applicable to anything you do and my examples above are just my use cases for this type of formula. It is so vitally important as you begin to scale to focus on the highest revenue producing activities. This type of filter will help you stay on track to do just that and crush your day to day in the best way possible!