Getting Started With Real Estate Investing
One of the biggest questions I think people have when it comes to real estate investing is how to get started.
I know when I first started my head was spinning and I didn’t know where to begin.
I ended up buying my first property when I was 20, so don’t worry you can do it too.
There are many unique strategies to investing in real estate so it’s important to not get overwhelmed when you’re first learning about the business.
Step 1: Decide Your Goals
Before you even think about acquiring property, flipping, etc; you first need to lay out your goals!
Create short term goals that you want to accomplish within the first year. Create medium term goals that you’ll complete between years 1-5, and then come up with long term goals for after your first 5 years in real estate investing.
My Short Term Goals: One Year or Less
- Create my real estate investing team
- Set up a website
- Acquire my first property
- Lease out my property so it begins cash flowing
Update: All 4 short term goals have been completed. I can now focus on my medium term goals and shift certain goals into the short term timeline to knock out again.
My Medium Term Goals:
- Acquire 2 new properties in Year 2
- Acquire 3 new properties in Year 3
- Acquire 5 new properties in Year 4
- Acquire 9 new properties in Year 5
- Buy, Rehab, & Flip my first property
- Fix & Flip 5 properties
- Earn gross revenue of $500,000 by year 5
My Long Term Goals:
- Acquire 1,000+ units
- Eventually outright own 1,000+ units
- My business is automated to where I’m hands off earning passive income
- I get to retire in my 30’s and collect my passive income from real estate business
- My business is grossing $1,000,000+ annually
In order to know where to start in real estate investing you need to know your goals.
You can see mine broken down into three different periods so that I can focus on year 1 goals first to lay the foundation then mid term goals to build the foundation and then finally my long term goals once I’ve gotten my business rolling in years 1-5.
Here are some questions to ask yourself that may help you in deciding your goals:
- How much time do you want to dedicate to building your investing business?
- How much money does your business need to gross & how much to net for you to retire from your job and earn a living from real estate instead?
- How much money do you want your business to gross in revenue per year 5 years from now?
- How much money do you want your business to net in revenue per year 5 years from now?
- Do you want to be heavily involved in your business or allocate most of the work?
Once you have created your goals then you can calculate how many units you need to acquire to reach your goal.
For example, if you want to gross $100,000 per year and you expect to average $800 per month in rent per unit you can then calculate how many units will be needed which in this case is 11:
- $800 x 12 months = $9,600 per unit
- $100,000/$9,600 = 10.41 units
Setting revenue goals will give you a clear perception of how many properties you need to acquire if you are renting and how many flips you need to do if you are a rehab investor. That leads us to step two where you decide your strategy.
Step 2: Choosing Your Strategy
If you are going to be a real estate investor you need to have a strategy. There are 3 basic strategies to choose from but then countless variations and specializations of them that you’ll learn about from future posts.
The basic 3 strategies are:
- Buy, Rehab, and Sell (Fix & Flip)
- Buy, Rehab, and Lease
Notice how wholesaling doesn’t say “buy” like the other two. That’s because you don’t need any money to make money with this strategy as you never actually buy the property. I cover wholesaling more in depth in this post here.
The last two strategies should be pretty self-explanatory but for those who may not know I’ll briefly explain.
Fixing and Flipping is when you acquire a property at below market value and see its potential if fixed up.
If you get a house for $50,000 and put $15,000 in rehab work into it and then sell it for market value of $100,000 you’ll gross $35,000 before subtracting some minor costs.
This strategy should be well known from all the house flipping shows on HGTV and others.
Buying and Leasing is when you find a property in a decent neighborhood that people would want to live in and you purchase it to rent out to tenants.
Your tenants pay a monthly rent which ranges based on the property, location, and market value but 1% of the property value is generally a decent rule of thumb.
If you get a house for $70,000 then you could expect to rent it for about $700 but again it depends on a few factors.
Buying to rehab and rent is a wealth building strategy where as flipping is an income strategy.
What I mean is once you buy and flip a house that’s it. You get the one time income and it’s moving on to the next property.
With buying and renting you receive income every month from a tenant.
Your tenant is paying off the mortgage or loan on the home for you ultimately building your equity which is a component of the net worth calculation.
People do a combination of all 3 strategies to build their business and wealth. The first two can supply income that the investor can use to continue acquiring more properties to lease to tenants.
Overall, decide on your strengths and weaknesses and choose the strategy or strategies that will work best for you. If you don’t have much capital as a beginner then I would try wholesaling. Here’s the links to my posts on wholesaling:
- What is Wholesaling?
- First Step of a Wholesaler
- Building Your Wholesaling Real Estate Team
- An Example Wholesale Deal
Step 3: Build Your Real Estate Investing Team
Now that you have set your goals and decided on a strategy to reach your goals it is important to build a team that can assist you.
Real estate transactions deal with many industry professionals so it will benefit you to have relationships with all the players in the game.
Your core team should consist of the following:
- Real Estate Agent
- Accountant/Tax Specialist
- Contractors/Maintenance Services
- Property Manager
- Title Company
If you don’t have the capital to acquire properties cash then you’ll want to build a relationship with local banks and lenders.
On that note, if your credit score or income won’t qualify you for a loan then seek out private and hard money lenders in the real estate community.
The interest rates will be a little higher but you should be able to get a loan from them easier than a bank.
Step 4: Set Up A Website
You’ll want to create a website for your real estate investing business because it will make you seem more professional and it will be important for capturing leads. Here’s my resource page on website building!
For example, let’s say you are at a networking meeting for a local real estate club and you get talking with some local investors.
It would be smart to have a website you can reference them to so they can learn more about your business and make them feel better about doing business with you whether it’s lending you money or partnering for a rehab project.
It’s also crucial for capturing leads from both sellers and buyers. I personally have two websites, one for capturing seller leads and one for capturing buyer leads.
What are seller leads you may be asking?
If you are searching for properties you’ll usually be looking for motivated sellers who can sell you their property at a discount price compared to market value.
Craigslist is commonly a location that motivated sellers can be found posting ads about their house for sale as they desperately want to sell it.
By having a website you can click on their post and send them a message linking your website for them to visit and fill out your motivated seller form which I’ll get into in a future post soon.
You can also post ads to craigslist that motivated sellers will see and click on and ultimately be funneled to your website form that they fill out describing their home and reason for selling.
These leads are then analyzed by you to see if there are any good deals worth pursuing.
On the buyer side I would have a website that captures contact info from buyers and fellow investors in your local area.
Your buyer website is where you can send people you network with, craigslist investors, etc so that you have their info for future properties you acquire that maybe you are wholesaling or that maybe you need funding for.
You can turn to your buyers list and take the necessary actions to get a deal done with their help.
So how do you set up a website?
I’ve written a detailed blog post that will walk you through the steps and also contains a video if you learn better visually. I’ll also put the video here for you to watch if you’d like.
Click Here: How To Create A Website For My Business
You can also finds lots of helpful video lessons and tips on my YouTube Channel.
Step 5: Find Deals
You have your goals, strategy, team, and a website so now it’s time to search through properties and find your first deal.
Read: How To Find Your First Deal
Expect to sift through hundreds of deals before finding a good one that is profitable. It takes practice looking through deals to get a feel for if it is good or not.
I would recommend setting a goal of 20 properties or more per day to look through so that you can build your experience and skills at analyzing deals.
Also, I would show it to your realtor or a mentor who has experience in the industry and get their opinion before pursuing it just to be safe.
Step 6: Complete the Deal
Once you’ve found your first deal and the financials work out for you to profit it’s time to turn to your network and complete the deal.
If you are wholesaling you want to find an end buyer to assign your contract to.
If you are buying the property for yourself to keep then access your team so that your realtor can help you acquire it and your investors can fund you the loan or money to purchase it.
Your title company will hold the closing where you and the seller will show up to sign paper work and officially transfer ownership of the home.
An escrow account is set up at the title company where your funds are wired to in order to pay the seller for the property.
You would now own your first property and can begin rehabbing it so that it is live-able and then decide to rent it or sell it based on your strategy.