Getting Started as a New Investor

I have been meeting with several brand new real estate investors, and a common question they ask is "How do I get started?"

To which I will usually ask "Do you own your own home?" If the answer is no, then that is where I have them start. They should go through the house-buying process with the goal of homeownership. Why?

First and foremost, the best reason is that they need to understand the home buying process. This is difficult to do if you have never been through it. Buying (or selling) a home, a primary residence, is an emotional decision. It is important to understand some of the elements that go into making a home-buying decision.

Ultimately, as a real estate investor, you will be working with buyers - as well as tenants, sellers, contractors, inspectors, brokers, lenders, insurance agents, designers, builders, architects, and others - often all on the same project. Buying your own house gives you a quick education on the issues and complexities that surround such a major purchase. You will be better able to anticipate - and respond to - the needs of your future buyers, if you have been there, done that yourself.

Secondly, you buy to build equity, cash flow and future capital by investing in an income-producing asset. There are various tax benefits to owning your own property. And you have to start somewhere. You may not be able to afford your dream house at first, but using many of the best qualities of real estate - leverage, appreciation, cash flow (get some renters), tax deductions - you will be able to sell and move on to a better house. Or perhaps keep your starter house and rent it out, while you move on to a better home and more desirable neighborhood.

Third, you get to practice using your real estate investment techniques. There is nothing wrong with using conventional financing for your own primary residence. But as your arsenal of investment techniques grows, you will be able to purchase, remodel, and sell properties using less conventional and more lucrative methods. The education you get from actually buying your own property will teach you more than you can ever get just sitting in a classroom.

And if you understand home-buying, you will be more convincing and believable to future buyers and sellers with whom you will be working as an investor.

Use the expertise of real estate professionals to get started and learn all you can from them as you start your real estate investing career. Seek out investor-friendly real estate brokers to purchase your first house - as you are not a typical first-time homebuyer. Resale value and location in an emerging market will be more important factors for you than they might be for other homebuyers (who might prefer a move-in ready house in an established neighborhood with a good school district for their kids).

Your real estate broker will be able to refer you to the best lenders, escrow and title agents, home inspectors, contractors and other professionals. Hire the best, and learn from them. Add them to your database as future team members.

Meanwhile, keep learning. Participate actively and regularly in your local real estate investor association. Read all the books you can on real estate, financial literacy, investing, marketing and entrepreneurship. Network with other investors. And one thing I found very valuable while I was learning to become a real estate investor: lend money to other investors you know and trust.

Why lend money? Because now you have entree to that investor's network, knowledge, numbers, marketing, decision-making criteria, team members, experience and expertise. You can guarantee they will keep you in the loop on future opportunities, so you will continue to learn from them beyond your initial investment.

Most investors are looking for private money - and it doesn't need to be a lot. Many of my private investors have loaned as little as $25,000 - $35,000 to help with a down payment. You as the investor get a great rate of return as you get a great education. With the caveat, that you should research your investment and the investor carefully before you part with your funds. Do your own deal analysis, and make sure the deal looks like a good deal to you - otherwise, don't do it.

So get started looking for your own primary residence. There may be other real estate deals you do along the way, but set that as your initial goal, and get going!

Happy Investing!

Doing Your First Deal

If you have not already done so, you may pick up a FREE copy of my e-Book "Doing Your First Deal," targeted to novice real estate investors, this weekend. You may download it from Amazon, and do not need a Kindle reader. It may be downloaded to a tablet or to a pc computer.

It is FREE on Amazon.com this Saturday and Sunday only! Check it out!

Happy Investing!

The Easiest Way to Get Started in Real Estate Investing

The easiest way to get started in real estate investment is by finding properties that more experienced buyers want to buy. Experienced investors are able to handle more complex aspects of the real estate investment, from negotiating with sellers, writing up offers, hiring contractors to rehab the property, doing property management, to marketing the property for sale. Much of the complexity of real estate investing can be overwhelming to the new investor. But by focusing on the first step of the process – that is, by finding a good deal – the new investor can get great practice and even coaching from more experienced investors. Finding a good deal is a time-consuming process. Yet it is critical to a successful deal. If it were easy to find good deals everyone would do it. But often good deals are not the easiest ones to find. They are typically not retail listings found on the Multiple List Service. The best deals are those that have a motivated seller, a distressed property, and/or that of which the competition is unaware. How to find these deals? All investors have heard “it’s a numbers game. “ And it is. Most investors have to look at a hundred or more properties to find one that is suitable for a purchase. Because the process is so time-consuming, most investors will pay “bird dogs” or wholesalers to send them leads. To become a “bird dog,” simply find an investor looking for properties to buy, whether these are residential or commercial. Find out what it is that they are looking to buy, what kind of investing they do. If they answer, “a good deal anywhere in King, Snohomish, Kitsap or Pierce counties,” move on. This response is much too general to provide good direction for a new investor. Look for something more specific. For example, I specialize in Seattle properties. I am looking for 3 bedroom, 2 bath homes in the City of Seattle, below median home price (in Seattle, this is typically under $450K), in any condition, preferably with a garage and not located on a busy arterial. I am looking for motivated sellers, who either have no equity (meaning they probably bought their house between 2004 and 2008), or they own it free and clear (meaning they have probably owned it for more than twenty years). For every qualified lead that a bird dog sends me, I will pay a finder’s fee. The finder does not have to get the property under contract. If the finder is able to negotiate a contract – and has done a good job of negotiating a contract – then I may pay an assignment fee to purchase the contract. I may also purchase a property from a wholesale seller who bought the property at a discount and is selling it to me at a discount. This is known as selling a property wholesale. I often encourage my bird dogs to check “for sale by owner” (FSBO) ads on Craigslist or other FSBO sites. They can search for terms such as “must sell,” “motivated seller,” “medical issues force sale,” “downsizing,” “major fixer,” etc. Bird dogs can then email or call the seller directly to find out how long the seller has owned the house, why they are selling, and most importantly, if we were to pay cash, what is the least amount of money they would accept for their property? Good responses here may signify a possible deal, and I will pay for leads if the investor does not know how to analyze the deal beyond this information.

Not only can a new investor get paid to find good deals, but in the process they are learning about the value of properties in their market. They are learning, with the help of the more experienced investor, what makes a good deal or good value in investing. They get good coaching from the buyer, and see how that investor makes money on a deal. Being a “bird dog” or wholesaling a property is a great way for a new investor to get started in real estate investment.