At Nighthawk Equity, we have meetings every week where we talk about what’s in the pipeline. How did we get here? How do we select our markets? 

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Finding and funding great deals

When you do your first deal, it triggers the law of the first deal, but you’re never going to do that deal again. In fact, when you look back at your first year, you sometimes wonder, “Why did I do that dumb deal?”

You can’t beat yourself up, because that deal is what got you where are today, but even at Nighthawk, we had to get some clarity around what we wanted.

Early on, we built our portfolio because people brought deals to us, which served us really well. The problem with that is we were all over the place, buying this size, buying that size. We noticed that over time, as we built our portfolio, it became very difficult to manage these portfolios consistently.

In the beginning, it doesn't matter as much, but as you build, you have to start dialing in and focus.

Deal progression

What is your next deal going to look like? What's your capacity on the equity raise? What is your capacity on the debt?

Let’s say on your last deal you did $5 million, and you think you could do $6 million on the next deal. You need to look for deals that are somewhere in the 12 to $15 million range. It's a progression based on what you are confident that you can do. You don't want to jump up and do a $35 million deal when your last deal was five.

We look at your last deal, the capital stack side, the debt side, and ask ourselves what we feel confident we could achieve on our next deal.

Next, we find something that fits the strategy of adding value to existing properties – the interior renovations and exterior renovations, and the size. What was our last size? Do we want to push it a little bit? Do we want to stay the same? What does that range look like?

Those two things allowed us to arrive at our next progressive deal.

How to select markets

The other thing we discovered was that going deep in one area has its inherent benefits. We found that being spread out geographically, with one property here one property there, made it very difficult to manage. We learned early on that if you have multiple deals in one market, somehow those deals perform better because you can share resources

You want to make sure that you’re selecting a market you like that has enough resources to be able to operate once you get into it.

Let’s take Dallas, for example. If you want to buy in Dallas, you're dealing with a lot of people that have been there forever, and they're getting a lot of that deal flow. You have a quite an uphill battle, if you're just entering into Dallas to begin.

A solution is to look at a market that’s not quite Dallas, where there is a lot of inventory, but it's not as overheated. You go check that out, and you look at the population growth, and the job growth, and overall economic growth of that market. You have a tailwind behind you, versus a headwind. You can make money in any market with the right strategy, but it's a lot easier if you're in markets where you have good things happening so you can achieve the higher rents you're looking to get.

In our market selection, where we're looking now are more secondary markets, in better locations, or where we can add value to a property. Maybe there's a property with all classic units, that's in the best area of a market with great economics.

When you're looking at markets, you want to do your research, but understand there has to be inventory, enough deal flow, and enough resources. if there's only a handful of managers in the market, when you get in there, they cycle out and and you're stuck.

If you look for those two things, you'll have a good shot.

You need to analyze enough deals and make enough offers, but it's a little bit of a numbers game. One of our markets is Huntsville. It’s a fantastic market growing rapidly, but it's a smaller market.

How do we make up for the fact that it's a smaller market? What do we do to compensate for the lower inventory?

Cultivate friendships with brokers

The only thing you can do in that circumstance is to build deep relationships with the brokers and even owners, who know where the deal flow is.

Take time to meet with the brokers one-on-one, get to know them, so that you get the first deal flow as as it comes out. Invest in people.

If you want to be in a market where there's less inventory, in general, you just have to have all the right relationships in that market to see what's coming out. If you have a reputation on top of that, that helps a lot too.

The answer to, “How do you find deals?” Is always brokers, brokers, brokers.

We don't send out yellow letters, we don't put up bandit signs. Our primary source has been brokers, and more specifically, because of relationships off market or semi off market deal, especially the more recent more recent ones.

The way you build rapport with a broker and get them to take you seriously.

How do you build rapport with that broker? And how do you get them now and take you seriously but then actually call you with off market deals? Well, you need to stand out, and the way you stand out is, you have to think what most people are doing to them.

Most people are tire kickers, they see a lead, they hit the button to get the info, and then they never respond, once they figure out the numbers don't work. So the first thing that you can do to stand out is to just give them an answer back.

If you like the deal, or if you don't like the deal, get back to them quickly. Call them up and let them know either way. Let them know you’re going to make an offer or that you’d like to be on their list.

Becoming friends with them, relate to them in some way. If you’re in town, take a moment to meet them for coffee or lunch. That goes a long way.

Repetition

You just need one deal to change your life.

You have to remind yourself that there are things that are out of your control. As long as you're doing the process over and over again, it will work. You have to play a mental game. There's nothing that beats repetition.

You need to lose. You need to get in there and lose then take that hurt and channel it into your next quest. Use what you've learned, get back out there, and try again.

Whether you win or lose, you have to give it your best shot. You do this enough, eventually you're going to get one fish, and all you need is one.