Are You Stuck on the Fence? How to Get Started in Real Estate Investing
April 17, 2007 by David Cowgill
I received an inspiring email this week from somebody we’ll just call Jack. Jack is a senior in college and already reading up on real estate investing (very nice) and has the passion and motivation to take the next step. He’s asked me for help and doesn’t quite know where to start so I’m going to answer his questions within this blog post.
His email goes as follows:
Hello Mr. Cowgill,
I was looking up some articles this morning and found your’s at American Chronicle, as well as your blog. I answered those questions, and figured out that I was lacking the motivation to get started.
A little about myself: I am graduating senior, set to walk the stage in mid June. I will be getting my BS in business administration, and for the last year and a half, I have been reading up a lot on real estate investing.
I have read a lot of the Donald Trump books (I love his philosophy on life and real estate), and recently I just finished Napoleon Hills “Think and Grow Rich.” I read articles on CRE Online (just found that site to), dealmakerscafe.com (thats how I figured out I was a “fence sitter”), and other websites.
At this point I want to get started, but do not know where to go. I am interested in wholesaling and short sales, but for the last week I have been itching do start, but do not know what step to take first.
Real estate investing is somethings that I am certain I will be passionate about, and somethings that I do desire to accomplish. I would appreciate any and every bite of knowledge and wisdom that you would be willing to give to me.
Now Jack reached out to me since I’m an expert in the field. He’s someone I’d like to help get started and here is my response:
Jack, Thanks for the email. I’m glad you’re getting involved in real estate investing at such a young age. Most of the friends I graduated with didn’t see the big picture or reward of investing in real estate and rightfully so. It doesn’t pay the bills right out the gate and how does one come up with money to buy property?
So with saying that, I will agree — the most difficult hurdle to jump over especially coming straight out of college, is finding a source of financing. I of course don’t know your financial situation nor do you need to tell me but let’s just assume you’re either paying off student loans or have less than $1,000 in the bank (that’s what my situation looked like).
I’m going to give you three answers I think can help you best ranked by difficulty. All of them are correct and work, it’s just up to you to pick one.
Simplest Way (easiest to follow through with but takes longer)
Become more knowledgeable and learn the tricks of using other people’s money to finance your deals. Books such as “Investing in Real Estate with Other People’s Money” by Jack Cummings provide 43 tricks (not all which I agree are for most investors)
Intermediate Way (a little more difficult to accomplish but more powerful)
Find a mentor who’s willing to take you under their wing. This can be a real estate agent, investor, Donald Trump, etc. Someone who’s gone down this road before and knows how to get started. You can find people like this online or in the newspaper advertising “We Buy Houses”. Chances are you won’t be paid at first but there’s no better way to learn.
Aggressive Way (more risky but a quick way to get some financing)
Go directly to your local bank and apply for a business loan. Tell them you’re a real estate investor looking for some capital to start you business. That’s exactly what you’re doing. Starting a business of buying property. Another alternative for a short-term high interest loan is to contact a hard money lender. These guys are great if you want to get a loan for a wholesaling deal or a flip it property.
Jack I hope my answers helped you and I’m interested to hear your feedback. Feel free to ask any further questions since you’re not the only one having trouble getting started. Keep up the hard work and you’ll have your first property in no time!
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Jack,
Unquestionably and absolutely the most important way to get started
is to learn how to identify a real deal from a real dud.
That’s it.
Don’t play around with getting bank loans before you have this skill down. Otherwise having money from bank loans will be just fool’s gold.
And you’ll blow that money faster than a New England nor’ easter
When you identify deals the money will come to you.
Just remember that.
Also unquestionably finding a mentor is the most aggressive way to move you along and get you to where you want to be much faster.
Garth Gibson
Are You Making These Financial Blunders?
http://www.prweb.com/releases/2005/1/prweb169764.htm
Garth, thanks for the comment. I have to agree with you….education or at least a mentor is the way to go. Even if you do get cash, you want to make sure you spend it efficiently.
What and where are resources to find mentors?
Hi Pete, the best way to find a mentor is to look for a local real estate investing group or club. Google something like “San Francisco Real Estate Club” or better yet, just go to the CRE online site and select your state.
http://www.creonline.com/clubs.htm
Another suggestion is to look at FSBO websites. We are Canada’s largest fsbo website and we have lots of people who use our website to buy and sell investment properties. You can see us online at http://www.bytheowner.com
I’d say the best, and easiest way to get started yourself is to buy an undervalued property as your primary residence. It will be the easiest way to get a 100% loan, and the interest rate is a lot less risky.
My best advice would be to start with your projected sales price of a property, deduct the profit you desire to make, all possible expenses plus a 5% contingency fund. Once you have that number, use it when making an offer on the property and stick to it. Money can be made in this tight market if you are smart when purchasing the property. You just have to stick to that number, even if it is somewhat low, to be relatively certain you can make a profit.
Is flipping houses really the best way to get started In real estate investing ….?!
Flipping houses isn’t the best way to get started in real estate but finding a friend or experienced investor who could take you under their wing would be best. The hardest part is finding someone to do that but like I mentioned above, it’s a good idea to attend local real estate group meetings and network with others. Everyone is trying to do the same thing but coming up with enough capital is always a struggle. That’s why having multiple people working together helps solve that problem.
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Great post. We used the intermediate method. My partner found the ideal mentor (Brian Urbanski) from a bandit sign, then we put everything we had into it. We started with a lot of the sweat marketing, posting so many bandit signs we were known as the “king bandits” in our local market.
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So, flipping may not be the best way to get started in the real estate market, but what about renting, to get your feet wet? It would be a wonderful idea to buy a duplex or some other similar unit and rent out half of it while you live in the other half. All the while, you’ll be earning income from the renter and from your job (if you have one), plus you’ll have lots of time to learn more about investing and/or get more involved, which in turn allows you to transition into investing full time, if after some time that is what you want to do.
I read on another post on this site that the author was checking out homes in Oregon, and planning to rent a property to someone while he lives primarily in CA. Great idea! Such a wonderful idea to get started. I found some other tips here: http://www.investmentpropertiesinfo.com/starting_out_small.html
Yes Chris, that is a great way to get started. Ideally buy a duplex and rent out half while living in the other one. It also depends where you live b/c trying that in the San Francisco bay area is a little harder to do (entry price is higher).
I did purchase a four-plex in Albuquerque, New Mexico for under $200k and wanted to live in a unit while fixing up the others. The only problem for me was NM isn’t a desirable place for me to live.
If you can find an affordable duplex close to you, then it could be worth buying. It’s a great way to learn about real estate investing as well as landlord duties. Just make sure you get a good tenant b/c not only will they be your tenant, they will also be your neighbor!
Investing in or developing real estate takes work. No one is going to hand you anything. No one gives away easy money. There is a lot to learn, but it can be both very fulfilling and profitable.
I recently started a blog at http://www.myactualprofits.com that describes my experiences investing and developing real estate. It walks through the steps I took, the lessons learned and the actual profits I made. I couldn’t find this info on the web when I started. Thankfully, I was able to follow some of the advice given in this post. I found some people willing to help.
There are great sources of information out there. This blog being one of them. But please get your act together and understand what you are getting into prior to putting any money at risk or embarrassing yourself in your close knit local market.
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