12 Expert Tips on How to Get Started in Real Estate Investing
Are you new to real estate investing?
Are you looking for advice on how to get started in real estate investing?
In this article, you will learn what you need to know about this business straight from real estate experts who have been in the business for years.
1. Educate Yourself
A number of real estate experts agree that it is important that you educate yourself. Some confessed that if there’s one thing they wished they knew earlier that it’s the importance of educating themselves about the business.
"The new investors should immerse themselves in real estate education to determine which strategy is the best fit for them, based on their current financial situation, time commitment and unique skill sets and interest," says Joe Fairless, host of "Best Real Estate Investing Advice Ever Show".
For newbies, Brady Hanna, President of Mill Creek Home Buyers, suggests that you learn from real estate podcasts, books and websites. If you find something interesting, feel free to reach out to that person.
Also, even if you’ve been in the business for quite a while now, you should not be complacent. According to Matthew Miller, from Stockpile Property Ventures, real estate constantly changes and evolves, so you should keep up with the trends. You have to continue the learning process as you progress in the business.
“As brokers or agents, we have to adapt to our new environment so we can continue to provide value to home sellers and home buyers, or we will find ourselves outdated or obsolete," Miller said.
2. Find a Mentor
There are a lot of sources to learn about real investment. You can buy books and listen to podcasts. However, learning it straight from someone with experience is more effective. So experts suggest that you find a mentor, especially, if you are a beginner.
"I wish someone would have told me to get a mentor," says Cindy Browning of Mac Home Development. "Someone who has been in the business for years and has sustainable profits year after year. The best advice someone could have given me looking back would be to work for your mentor for free and learn what they are doing day in and day out instead of trying to figure it out yourself."
3. Establish a Goal
Before investing in something, be clear about what you want from it. Different individuals invest in real estate for different reasons.
For instance, according to Eric Johnson, a content and video specialist at FeedbackWrench, who do PR for Scott and Drew Hoefler, twin brothers and real estate investors, there are people who purchase a property to subsidize their mortgage.
This works best for those who purchased a duplex or triplex. For those people, having one property is already an end goal. However, for others, they are willing to invest in more property and gain more.
Once you have the goal, James Roberts of Touchstone Premiere Group suggests that you build a system and strategies to reach that goal. After that, take massive action and be consistent.
4. Find a Partner with More Experience
It's common for beginners to seek out a partner who has more experience. Aaron Bowman of Mazz Real Estate used this strategy when he started with real estate investment and he recommended that newbies to do the same.
“They should be finding a mentor to teach them and to partner on deals with. I started with my partner doing a 60/40 split. He came in with the funds and I ran everything on the ground,” Aaron said.
Also, another advantage of getting a partner is dividing work. If there’s something you find too difficult to do, find someone who enjoys doing it and you can earn together.
"I love doing my daily podcast and I really enjoy having conversations with my investors. On the other hand, I do not enjoy underwriting deals. Therefore, instead of trying to underwrite the deals myself, I partnered up with someone who enjoys crunching the numbers," Joe Fairless said.
5. Focus on Marketing and Sales
When you are new in the business, a lot of things will keep you occupied. However, according to the experts, you should only focus on marketing and sales. Afterall, you are investing to make money.
Here are some of the things you can do for this:
Study the market. It is important that you determine what works best for your target market. Do not simply follow what other investors do without seeing the whole picture. If flipping and wholesaling works for others, do not jump on the wagon immediately. Take time to check if this type of real estate investment will also work for you.
Connect with real estate investment groups on social media. According to Brady Hanna, in Kansas City alone there are 5 local real estate investment groups on Facebook. A number of investors are generous in sharing great tips on this channel. Some even recommend contractors and offer fantastic off-market deals.
In fact, he bought four properties in the last 12 months through local groups on Facebook. By having this circle, you will also be able to contribute and build authority and relationships with other people who are also doing deals in your market.
Learn the different ways to source deals. Lucas Machado, the founder of House Heroes, suggests that beginners should learn the different ways to find profitable investments. He shares three ways - work with a buyer's real estate agent, direct-mail marketing, and online marketing.
Real estate agents have access to the Multiple Listing Service. They also have access to the most detailed local sales information that is essential for proper analysis.
Direct-mail marketing is a traditional approach. You can send mailers to homeowners to directly connect with potential sellers and negotiate a purchase. The advantage with this is that it has no realtor commission and there is less competition for off-market transactions.
Online marketing is another technique, so you should build your online presence. Lucas, suggests that you build a website because home sellers often search for terms related to selling houses online. If they find your website, you can likely make an off-market deal.
Generate leads and fill the funnel. You should focus on how to generate leads and fill the funnel to have a consistent revenue throughout the year. For this, Ron Lennox suggests that you create a system where you can automate follow-ups to ensure that no lead is left behind.
6. Double Your Estimates
It's given that you will need to set aside a budget when it comes to real estate investment. You already know what renovations cost, but experts recommend that you double your estimate.
According to Allison Bethell, real estate investor analyst of FitSmallBusiness.com, things may go wrong when renovating a house and you will need extra money to address those problems. For instance, you may need extra cash for additional permits, to fix a pipe or remedy a mold issue.
Alex Romanov of iwillbuyhouse.com agrees with the principle of doubling estimates. In fact, he takes it further by doubling everything!
"A simple rule that I could have used that would have saved me lots of time and stress is to double your estimates. If you budget X amount for your first rehab, double the amount to 2X. If you think X number of mailers will get you the first deal, double the number of mailers to 2X and you'll be closer to the actual number," he said.
7. Build Relationships
It is imperative that you build a social circle within your business. So, you have to learn to build relationships with other investors and realtors because they are the ones who will give you deals.
For instance, if you are a wholesaler you should meet people who are flipping or holding and renting. Also, private money lenders need both to meet the right people to lend to. It's impossible to do business on your own, so you have to spend time in building relationships.
Mike Kaeding of Norhart also believes that your connection will help with your credibility. If you haven’t built a reputation in the business yet, but you know someone who has, your connection with that person can advantageous.
"If you are new, people will look at you with suspicion. This will make it difficult to get projects approved. Work against that by building the right relationships before you need to rely on those relationships," Kaeding said.
To make building relationships easier, Andrew Read, a real estate investor from Custom Select Realty, suggests that you be good to other people. In fact, he believes that this is very important for your success.
“I would just like to say, be good to other people and be a likable person. This will make you more successful than anything else. If you are likable and help others, then people will want to work with you and help you in return. You will see a huge ROI from this,” Andrew said.
8. Use Private Money
Most people do not have the money to invest, so they turn to banks for a loan. However, banks are only one of the several options available to you. So, you have to open your mind to see the other options.
Nancy Wallace-Laab of KBN Homes confessed that banks used to be her go-to lender. However, after the 2008 crash, she found it more difficult to acquire investment properties through banks because they limit your number of mortgages at a given time. So, she looked for other lenders and found a better way.
Nancy is now using private money lenders. According to her, “it is so much quicker, easier and accessible to purchase investment properties using private money lenders.”
Don Wede, president of Heartland Funding Inc., has the same suggestion. In fact, he has not used bank financing for over a decade.
"Use private investors’ money as opposed to conventional bank financing. I have not used bank financing now for close to fifteen years,” he said. “Any funding I need I have used private investors. With private investors, you can sit down and craft a deal that fits both party’s needs. You can also pull the trigger fast and without the red tape. My suggestion is to cultivate relationships with investors and use them as your sole source of funding."
9. Always Consider Your Cash Flow
Cash flow is the pattern of your income and expenditures. It is very important that as beginners, you keep track of this because this is a major factor in determining how you are doing in the business.
According to Steven Edward of Berkshire Hathaway, if your property is “cash flowing”, then it is producing a solid 10+% return and it's a great deal. However, if it's not, then you should reconsider your investment in that property.
"You can mess up a lot of things but if your month-to-month income is more than your outgoing, you can weather changes in the market and mistakes won't be fatal to your investing success."
10. Implement a System, Don’t Be Emotional
When it comes to real estate investment, it is very important that you create and implement a system- especially for those who have tenants. It is understandable that you care about them, but you have to set a schedule when it comes to your availability to your business. It's not wise for you to entertain your tenants' calls at any time of the day because it will eventually disturb your personal life.
According to Danielle Pennington of BestWay Mortgage, she wished that she was less emotionally involved in her business from the start. However, she learned this the hard way. She used to entertain her tenants' calls even at late hours of the night and it came to a point when she found it draining. So she learned to set schedules and only interact with her tenants during business hours from then on. This made her life much less stressful.
“First-time investors should focus on systems. It’s important to work smarter not harder,” Danielle said. She encouraged beginners to do the same and improve your system as you go. According to her “having systems will save you time, keep you organized and help you identify potential weak spots in your business.”
11. Be Business-Focused and Patient
Just like any other business, real estate investing takes time. Don’t expect to invest money and grow it overnight because it may take months or even years. You can try different marketing strategies like PPC, Facebook ads or doorknocking to buy and sell property or get a tenant but you have to be patient because while these approaches work, they take time.
For Andrew, a deal is something that you buy today and profit from tomorrow, so you must learn to wait. He also noted that the most successful investors are those who are business-focused and patient.
The good thing about real estate investing is that - it’s worth it!
12. Build a Powerful Team
Investors have different strategies in the market, but whatever your approach is, make sure to have a reliable team that you can work with including a rock star realtor, property manager, and rehab crew. According to Brady, it took him four years to realize this- the hard way. The good thing is, when he found the right people to work with, things immediately improved.
His realtor looks for properties for him and gives him the estimates of rehab cost and projected rent without him needing to actually visit the place. The realtor also helps him decide if the property is worth it or not. If he does purchase the house, his rehab crew renovates the property without him visiting the site every day. In addition, he has a property manager who takes over the project from there.
“Having the right people in place is key,” Brady said.
We hope that you will find the above tips helpful as you begin your journey in real estate investing. Remember- start with educating yourself and getting really good at expanding your network, and watch your business blossom from there. Happy investing!