I get emails and other correspondence quite often asking me how to begin investing in real estate. When you are trying to find your first real estate deal, real estate investing seems very complicated. It’s not that difficult, but you have to understand that deals are not on every corner, at least not at the sellers price. It takes diligence, looking at many potential deals, in order to find ‘the one’. Then you have to find the next deal. Professional investors are everywhere, and they make a living in every city. You can do it too, but you need patience, persistence and determination. And some seed capital. Here is how to do it…
How to Begin Investing in Real Estate
Are you still struggling to find good deals in your market? What are you waiting for? I hear it all the time: “My market is so overpriced; there are no deals.” “I looked for a deal, but the numbers do not work.” “I am trying to find a deal with no money down and cannot find one.” “All the properties I look at need work.” “My real estate agent can’t find me good deals.” “The ‘Bay area’ has no deals.”
Are There Really Deals Out There?
There are LOTS of deals, everywhere. There are not as many deals as there were, or perhaps will be, but there are deals. When I was starting to look for additional properties, I made some crucial decisions that became a huge success for me. My original plan was to buy properties, even though they did not cash flow, and hope for the best. After all, the market was going up fast, and how could I lose?
No matter where you are, there are divorces, deaths, foreclosures, landlords who do not have a clue and get their rental trashed, people who do not maintain properties, properties that are not eligible for conventional financing, etc. Odds are, some investors are making a killing right in your backyard. That could be you.
Here are some of the steps I went though. They do not have to be done in order — and can be performed simultaneously.
6 Steps to Finding Amazing Deals — Even When They’re Scarce
I got an education. I am not talking about college or trade school. I went to as many free seminars and webinars as I could. I even paid for some. I must have attended at least two or three a month. Some were multiple day events. Of course, there was a sales pitch at the end, but there were always tidbits of advice that I gathered. Most often, there was a common theme between all of the venues.
I ordered several courses and kits from the “Masters,” and some of them were very pricy. I never ordered any that were non-returnable and always charged them on my credit card. After I received the course, I studied it. I went through the materials. I took notes and made sure I got the underlying thoughts. I was too busy, afraid, or not ready to put the plans into action, so I then returned the product and got my money back. After all, what good is a course if I cannot use it immediately, or if it was not my “style” of investing?
If you do not have the time to devote to learning as much as you can, stay out of real estate investing.
I analyzed several deals every day. I went to the local version of the MLS and other sites, such as Loopnet, and took the numbers down. After all, from the courses I already took and my internet research, I knew how to calculate ROI, cap rate, rent multipliers, expense ratios, etc. I knew to account for vacancy, management, maintenance and other expenses that are often conveniently left out of the seller’s equation. I requested more information on properties if it was available.
When you are analyzing properties, no building is too small or too large. You are just practicing the numbers game. Create your own spreadsheet that makes it easy for you. Run the numbers forward, backward and sideways. Figure out a price that you would pay. It may be a 500-unit apartment building, and you may only have $10 to your name, but determine a price and run the numbers. Often you will see the price over inflated, but sometimes you will see a deal.
If you do not have the time to devote to analyzing practice deals, stay out of real estate investing.
Understand the Foreclosure Process
The best deals will be foreclosures and other distressed properties, no ifs, ands or buts. Make sure you know inside and out what happens in a foreclosure. Know what a sheriff’s sale is, how to participate in it, how long the redemption period is, how to redeem a property, how to pay for bank auction deals, how lien seniority works, how to put a lien on a property, how to get a lien off a property, how to buy a lien, how to redeem a lien, how liens get extinguished, etc.
The process of learning foreclosures is not just to educate yourself. It is to help you develop a strategy that 99% of other investors either cannot or will not be able to understand. Some smaller title companies may not even understand the strategy, but a solid real estate attorney will.
Understand where distressed properties are listed and found. It is likely not the MLS, but more likely on a real estate investment club email list, public notices, websites that specialize in foreclosures, etc. Look for distressed properties. Look for properties that indicate a lack of maintenance. Please stay out of the obituary section of the newspaper.
I created a simple hour-long presentation about foreclosures that I would give to people in foreclosure. I gave a couple of presentations a week, all free. While I did not actually get any deals from it, it helped me understand the process in great detail. I knew more about foreclosures than 99.99% of realtors. I sent out 100 letters a week, all first class postage, and received a 1-2% hit rate. There are other ways to create leads, but that is the way I did it.
If you do not have the time to devote to understanding the foreclosure process, stay out of real estate investing.
Do Not Expect a Handout
If you think any real estate agent is going to give you a deal where you can make a quick $50K, you are dreaming. If you think you are going to go to the MLS, buy a property and flip it without any work, you are delusional. If you think that you are going to buy a property on the MLS and rent it out by the closing date and make a great return, you must be on drugs.
There are no free rides in this game. Unless you have a plan for a property that is unusual, many other real estate agents have probably already looked at the property you just found on the MLS. The real estate agent could not make money on it, so they passed. The other agents in that agent’s office could not make money on it, so they passed. All those real estate agents called all the investors that they knew, and those investors could not make money on it, so they passed. Many other investors also ran the numbers from the information on the MLS, so they passed. And somehow you think you will buy the property from the MLS listing and make money?
Prior to the property even getting into an agent’s hands, and on the MLS, no investor scooped it up; understand that was the time for maximum profit. That was the deal you missed out on.
Every property can be a deal — if it is at the right price. You need to determine what that price is and get the property for that price. For maximum profit, you should expect to purchase downtrodden property cheap, fix it up, and either rent it or sell it.
If you are expecting to make millions without hard work, stay out of real estate investing.
After you have analyzed 100+ deals, you will start to see patterns. Some are deals, some are not. Find a property in your price range and a solid real estate agent if you need one, and make an offer. Your offer should be based on your numbers, not the seller’s. You are there to make yourself money, not the seller. If the offer gets accepted, be prepared to follow through.
All offers should have a “get out of jail free” card. The offer needs to be contingent on an inspection, HOA document review, financing, etc. unless you have a 100% solid deal. If you are 100% sure it’s a solid deal, drop any contingencies and just buy it. Nothing greases the skids more than a cash offer, no contingencies.
Do not expect to make a low-ball offer and get it accepted on a property that just hit the market that same day. Even if it is over-priced, most sellers, including a bank, will wait at least two weeks between price changes. After a month, all bets are off. Make the offers. Remember, once the property hits the MLS, you have already missed the prime investment opportunity.
One of my first deals was listed on the MLS at $385K. It was a property that originally sold for $430K a few years prior. I explained to my real estate agent that I was having a hard time finding a number with a “3” in front of it to make the offer. She said, “Then offer $300K,” so I did.
The place sold for $380K. It did not cost me anything but time, but I learned a bit and overcame the fear of submitting an offer.
If you do not have the time to look at properties and make offers, stay out of real estate investing.
Do Not Be Afraid
If you analyzed the numbers and they work for you, make the offer and buy the property. Do not chicken out and get buyer’s remorse while you are waiting for financing. My first 4-plex needed $80K down and about ~$50K in improvements before I could get it rented. It was vacant. It had frozen water pipes that were split and had icicles hanging from them. All the water heaters were frozen. When I looked at it the first time, it was -20 degrees outside, and it was also -20 degrees inside the building. There was no heat, and the property was not winterized.
The mortgage added a $1,700+ a month payment to my expenses. That payment was more than my own house payment. Every day the place was vacant, it cost me ~$75 a day, not including fix up expenses.
I had an advantage — I knew my numbers would work; I just put in the effort to get it rented.
If you do not have the guts to look follow through on a property that works, stay out of real estate investing.
So there you have it. That’s how you get started in real estate investing. There are no free rides in life, or real estate, so do not expect any.
This post was originally posted here
Are you still looking to get into real estate investing? How long have you been trying to ‘get a deal’? What have you been doing to jump start your real estate investments? Have you been doing anything that I just mentioned?