As a new investor, you have to decide exactly WHAT KIND of investment makes the most sense for you?
Single family or multi-family? Residential or commercial? Land development? Fix and Flips? Long-term rentals? Discounted notes or mortgages? Tax liens? Foreclosures? Lease Options? Etc.
There are so many ways to make money in real estate that it can be overwhelming to the new investor. A common mistake by new investors is to attempt doing EVERYTHING rather than narrowing their investment focus. If you can’t tell someone your investment focus in 30 seconds or less, you probably don’t have one.
Find something you like and stick with it! We have many successful investors among the local real estate association members that use any number of real estate strategies to achieve their goals. Why do they choose a particular investment path over another?
Here are some examples:
Former Real Estate of Puget Sound (REAPS) President Mark Schmale learned from a national guru about retailing homes. “ …As I took more courses I added other creative methods, such as Lease with Option, Deed Subject to and creative Owner Financing, so that I could purchase different types of property than just junkers. Currently, most of my income is derived from wholesaling, which is the process of putting a property under contract to purchase at a bargain price, and then assigning my rights and obligations as the buyer under that contract to a new, usually cash buyer.”
Ballard Partners broker and REAPS member Joe Beyer read many books on various types of investment techniques. “My first house was purchased on a seller contract in 1988,” explains Joe. “Since then, I've continued to invest in multi-family real estate focusing on seller financing. I now own six buildings of 2-6 units, four of which I have obtained with seller financing at favorable terms.”
REAPS member David Tamburello had a disastrous first week investing in foreclosures when he started five years ago, because “…we didn't know how to approach the homeowners and [we were] saying all the wrong things. Eventually I bought a package from Dwan Bent Twyford and Sharon Restrepo at a REAPS seminar. After 3 months we closed our first deal and made $20,000 without a penny out of our pocket.” They would continue to focus on foreclosures for the next year and a half before the state of Washington changed laws related to distressed homeowners.
Because of the uncertainty, David decided to focus on commercial real estate in Kansas City. “This past year we closed on 9 houses,” admits David.
REAPS Board member Paul Galasso got tired of corporate America and longed to get back to his entrepreneurial roots. “I got into investing with the express reason to replace my job. I started buying single family properties using Subject To and Lease Option tactics. Within 14 months I was able to replace not only the income from my dot com job but my wife’s as well. Since then I have churned out enough properties to enable me and my wife to live well and to do things that I had only dreamed of. We switched over to multi-family properties in the beginning of 2008.”
REAPS President and new mother Katherine Swanberg began investing in rentals as part of her future retirement plan. “Also, I always imagined being able to teach my kids to work on my properties…. The payoff would be to use the property to fund their college when tuition comes due. This makes more sense to me than giving my kids an allowance.”
As for me, I also jumped into rentals with an eye towards retirement. My first two investment properties were in the Oklahoma city where my daughter went to school. I still own them, because they cash flow. Now I am focused on purchasing residential properties in Seattle, using seller financing, to wholesale, fix and flip, or buy and hold.
What are your personal strengths that you bring to investing? What are your likes and dislikes? Are you great at construction, and can’t wait to remodel (another) building? Or do you want to stay as far away from a hammer as possible? Are you a great community organizer? Do you thrive on building partnerships and teams? Do you love negotiating and dealmaking? Are you intrigued by finance and economics? Are you proficient at recordkeeping systems, accounting, or financial analysis? Do you have financial resources to invest? Make a list. Your strengths will help you narrow your investment focus to dovetail with your skill set.
No one is good at everything. Where are you lacking? If you are working full-time, then you may lack time to search out good deals. If you are new, you may lack experience or knowledge in your chosen area of expertise. Don’t forget to make a list of areas where you may need help—and then list steps to take to address those needs. Perhaps you will want to partner with someone who has the strengths you lack, but for whom you can offer something they need in return. Perhaps you can apprentice with someone more experienced? As far as building your knowledge, don't forget to join your local real estate association, and network, network, network!