Beginning Investors --What do I do?

[Mike C]

Beginner RE Investing

As an investor, especially in this market, people are always asking to be shown the ropes or for some advice. As most of you know, most of them are time wasters but I still try and at least point them in the right direction. This is what I tell them. Now this is just my opinion. I stick mostly with single-family homes but most will apply to multis as well. I am not an attorney or CPA but I did stay at a Holiday Inn Express last night so…

RE is a relatively simple business (I did not say easy necessarily) that many complicate and take themselves out of the game before they even get started. There are only 3 things you need to know about any property when getting started in real estate investing. They are: 1. What can I get the property for? 2. What are the repairs needed if any? 3. What is it worth?

People let fear and indecision stop them from taking action so lets take a quick look at these 3 as some may want to see more than the broad strokes. In reverse order “3. What is it worth?†This one is pretty easy if you do a little work. Assuming you don’t know your areas (as you should and has been suggested all over this forum) the first thing you do is call two or three realtors in the area of the property you are looking at buying and tell them you are looking at buying or selling a home in that area. Find out days on the market, their opinion of market value, etc. You are asking 2 or 3 in case one doesn’t know what they are doing. If they all say the near the same thing, then you have a pretty good idea of value in a few phone calls. Next, drive around and see what houses are listed for and go to some open houses in that area. Get a feel for the neighborhood. Look online if possible and see what the property has sold for in the past. Between these methods, you can arrive at a pretty good representative of value.

Next is “2. What are the repairs?†Hire a contractor to walk through and have them tell you what they are thinking and why. If you are really new, have a couple of contractors go through. You will learn a ton. PAY them for their time. The $50-60 dollars for an hour of their time is worth ten times that in knowledge. A good one will come if you PAY them and tell them why you need them. Of course then that $60 is now a business write-off too.

Last is “1. What can I get the property for?†This is where you actually talk to sellers or realtors (if you use them). This is where you make your money and is the most important point and probably the hardest to someone new. Remember, you make your money when you buy, not when you sell. Learn how to negotiate as that has the biggest impact on your success. The rest is just a little research. You don’t have to know everything to talk to sellers. Just talk to a lot of them and in time it will be second nature. Don’t fear rejection. They are not rejecting you personally, only your offer. Think of it this way. Say it takes you 100 sellers to get one deal (not at all unreasonable in the beginning). You make $10,000 from that deal. And yes, that is a bad deal most wouldn’t touch unless it was a wholesale deal. This means for every seller you talk to, whether they sell or not, you make $100. Now how many people do you want to talk to for $100 each in future income today? I tell them if you won’t talk to 100 or 200 sellers, knowing you are being paid for it, then this is not the business for you. Now with multis bought from a realtor you will probably run the 50% rule or your screening criteria before wasting too much time. This is more toward FSBO buying, dealing directly with a seller.

The bottom line, as others have suggested, is you need to get out there and talk to a lot of people to be successful. They then look at you and start thinking, “Wow, this is actually going to be work†and then they lose interest. Yep, another one bites the dust.

One last point. I won’t lift a finger on a deal until I have it UNDER CONTRACT. Because until that point I am only wasting time hoping it works out. In very little time, you will know something about your area and have some idea whether you have a deal or not. If you waste time going back and forth looking at a property, talking to others about whether it is a good deal, driving over “to take another look†and then trying to get it under contract, someone else will already have it under contract and you have wasted a lot of time. I use a simple one-page contract with a seller for all deals to get it in writing. Then I do my complete due diligence and then I have a closing at an attorney’s office or title company with the appropriate paperwork, depending on the deal. You don’t need a big contract and one will scare some sellers off in the beginning. Keep it simple. One clause saying I have 3 days (or whatever you want) to check title, have an inspection, verify all of what you have told me, etc. is all I need and you need. I won’t waste a seller’s time or mine. If you can’t make a business decision in 2-4 days, you should not be in this business. Also I am very honest with people that I am an investor. My contract says at the bottom something like “I am a real estate investor. I buy and sell for ridiculous profit. I do not represent you or your interests. ETC.†Make offers with conservative numbers and you will be ok. Get out there.

I hope some newbies find this helpful. Get out there and talk to a lot of people and the deals will come, eventually. If you can talk to 20 sellers a week you can’t help but buy something in the next couple months. Times cannot get any better in real estate investing than now. Remember KISS.

Mike