Thread by @atnissly

I recommend that you do your 1st real estate deal using your own capital - FHA route, house hack, etc.

HOWEVER, this is not the path I took. I raised outside capital for my 1st deal, which was a ~$1mm 4Plex.

Below on why & how + the results 👇

Why?

1. I didn't have the $$. I found a very profitable niche in LA & I live here; but even small deals here require significant upfront capital.
2. My entrepreneurship itch was too strong, I simply couldn't wait any longer.
3. I had enough confidence given I had worked in RE.

How?

1. For several years, I socialized the idea of buying an investment property with dozens of my close contacts. Some were intrigued. Others not as much. I remembered the 1st group.

2. I spent a couple years finding a market, analyzing risk vs. opportunity, tracking deals.

3. Over time, I created a bullet-proof investment presentation on the opportunity.

4. I set up in-person meetings with my pitch, zeroing in on close contacts who I had been socializing with about this for years and had shown initial interest.

5. I under-promised. I did not pitch this as a get rich quick scheme. It was more like:

"Hey, let's own a good property in a good market together. My projected returns are x%, but this is my 1st deal, this won't be a sure thing."

6. I did not take any fees or promote. Just reimbursement for expenses to set everything up. This is what I felt it would take me to raise outside capital without a track record. It was also a side project. I had a full time job.

7. I worked at a RE PE shop as well as RE IB before that, so I was able to use that training to help compensate for my nonexistent track record. As a teenager, I helped my Dad with some small deals in Pittsburgh, which was also critical for me.

8. Going in, I had thousands of hours of direct sales experience, which I credit for being able to pitch my thesis without a track record. If you haven't done a deal before, it's nearly impossible to come across confidently in an investor pitch.

The Results?

I threw all of my energy into this 1st little deal. It was an extremely scary time in my life. I was managing money for the 1st time and didn't know what I was doing. I double & triple checked everything and overcommunicated with investors.

Fortunately, my thesis was correct, and we made a 30% profit in 8 months.

Given I had a fairly large pool of small investors come into this 1st deal who saw step-by-step exactly how we did it, I had no problem raising again and again. Rinsing & repeating ever since.

** my mistake on the 1st deal was selling too early.

It could have been a 70% return on a 5-YR hold instead of 30% in 8 months. Today, we capture the initial value-pop via a cash-out refi and then sell after at least 5 years depending on market conditions.

Doing your 1st deal with outside capital is extremely difficult & stressful & not the typical route, but it is possible with a combination of luck & by being very calculated. The more typical route is to make mistakes w/ your own capital 1st, & is what I recommend to most people.