Your Investing Parameters
When I sit down with investors or talk with them by phone, occasionally one says they are looking for a great deal.
“Jeff, I need to find a great deal. Can you help me?”
“Well, what are you looking for?”
“I don’t know. I’m looking for a great deal.”
“What do you mean by a ‘great deal’?”
After a little give and take, I come to realize they are looking for the once-in-a-lifetime grand slam, the deal where a few thousand dollars become tens of thousands of dollars. Those aren’t “great” deals. Those are once-in-a-lifetime-granddaddy-monster-awesome deals. Those deals don’t just happen. Those deals are designed.
The first step in designing those types of deals is to determine what your investing parameters are. What are you looking for? What do you have to work with? What capital, talent, skills and knowledge do you have? What investments are you comfortable with? What do you understand? Those last two are important. If it’s a deal you do not understand and are not comfortable with, then do not do it.
Once you know what your tools are and what you understand and are comfortable with, you can get your calculator and begin to figure out what you are looking for in a rate of return. By that I mean, what are you looking to earn with the amount of cash you have to work with? Are you looking for 12%, 15%, 18%? How certain do you have to be on the return of principle? Some investors I work with need to make sure that every single dime of principle comes back right away. Others are willing to risk principle on long-shot opportunities. What do you need, and how are you making it happen?
The next thing is to develop a system whereby you are able to consistently add to your pool of available capital. What monthly contributions are you making to your self-directed Roth account, savings account or investment account? If you are not consistently putting aside more money to work deals, then you are going to have fewer opportunities to work on. Deals will come to those who are ready to work on them. You have to be in a position to work on those deals when they present themselves.
Knowing what you have, growing what capital you have, building your knowledge base, increasing your experience and confidence level, and knowing what your investment parameters are as to rates of return, types of deals, and length of term, are all essentials in getting into the game and getting good deals to come to you rather than chasing bad deals.
1. Good deals can be crafted into great deals.
2. Bad deals can rarely be crafted into good deals.
3. Great deals are designed by smart investors.