Many quotes are floating around that go about the same way:
"I'd rather regret not-doing a deal than regret doing a deal."
"I'd rather miss out on 10 good deals than do one bad deal."
And this is true. There will always be another deal. It's tempting to "just get in the game" and buy that first property. And I will admit that most people have analysis paralysis and should just do something.
But I'm torn on this subject.
If you aren't well-capitalized and you need to make your cash last, doing the right deal first is critical. But if you think too long, look too hard, and have too many second thoughts, you'll never do a deal.
There are thousands of reasons not to do a deal. It's very easy to get caught up in the long-tail of possible outcomes or factors and get hung up in the weeds. How much weight should each factor have?
This is where I do have an opinion.
Generally, there are 2 or 3 main factors that impact a deal and its likelihood of success. Those few factors correlate to 90% of the success/failure rate. What do I mean?
Look at all the folks who did bad deals between 2015 and 2020 and got bailed out by a hot market. The market was all that mattered. You could have purchased ANY piece of commercial real estate in Boston, MA, and you would have made money because of ONE factor: the market trends.
With self-storage acquisitions (my world), there are hundreds of factors to consider when analyzing a new deal:
- 10-year industry trends
- Square feet per capita
- Market rent
- Renters vs. homeowners
- Median income
- Population growth / decline
- Basements per capita
- Average square feet of home space per capita
- Road traffic
- Price per square foot at acquisition
- Going in cap rate
It is really easy to get totally lost in the weeds. To overthink the small stuff. To overwhelm you spreadsheet with inputs and start to incorrectly weight the factors. You end up with analysis paralysis or talking yourself into a bad deal.
So you keep it simple. Very simple.
Simply put, I've chosen to focus on a few main metrics, and I'm confident the others will take care of themselves. For me, the main metrics are 10-year trends, market rent, and occupancy. If occupancy and market rent in a market are both high, I trust that economics and supply/demand won't lie to me. If the 10-year winds are at my back, I'm likely to win.
I do consider the other factors, but they don't make or break a deal for me. I try to hit a home run where it matters, the economics and trends.
Have you ever heard the saying "location, location, location"?
That's because when it comes to retail, the location makes up 50%+ of the success. The rest of the factors don't have as much impact as you think they do.
My advice to you:
Figure out the big question marks on your deal.
What main factors do you think dictate 50%+ of your likelihood of success? Make sure you hit those out of the park and then make it happen.
Onward and upwards,
P.S. The folks at RE Cost Seg let me know the schedule for this fall and spring tax season is filling up and they're about to raise their prices. Get a free proposal and get on the schedule sooner rather than later if you need a cost segregation study done on a property you bought this year or last.