J Scott's Starting Out FAQ

[J Scott]

In another thread, Josh suggested creating FAQs of topics that are often discussed/asked by newer investors on the site. While this isn't inclusive of the awesome contributions by hundreds of other contributors here (I'll try to compile something bigger when I have the time), here are some of the topics that I've discussed in the past -- both blog posts I've written and forum posts I've started -- that seem to get brought up over and over.

Don't know if this will be helpful or not, but thought I'd post it just in case...

How do I determine if a property would make a good flip deal?
http://www.biggerpockets.com/renewsblog/2010/03/10/determining-maximum-purchase-price-mpp/

Can someone provide an overview of how to analyze a buy-and-hold investment deal?
http://www.biggerpockets.com/forums/88/topics/51836-the-basics-of-real-estate-investment-deal-analysis

Does someone have an example Rehab Analysis Spreadsheet?
http://www.biggerpockets.com/forums/67/topics/51045-basic-rehab-analysis-spreadsheet

Does someone have an example Rental Analysis Spreadsheet?
http://www.biggerpockets.com/forums/88/topics/51334-sfh-rental-analysis-spreadsheet-

How do I estimate ARV?
http://www.biggerpockets.com/forums/311/topics/73160-primer---estimating-arv

Does someone have a video tutorial for explaining "The 50% Rule"?
http://www.biggerpockets.com/forums/311/topics/72246-the-50-rule-video-tutorial

Any suggestions on making sure I do well on my upcoming appraisal?
http://www.biggerpockets.com/renewsblog/2011/01/19/controlling-and-conquering-your-appraisals/

http://www.biggerpockets.com/forums/312/topics/55307-controlling-your-appraisals

Should I get my real estate license?
http://www.biggerpockets.com/renewsblog/2010/02/24/should-you-get-your-real-estate-license-investors/

What should I look for in a real estate agent?
http://www.biggerpockets.com/renewsblog/2010/03/03/traits-of-a-great-real-estate-agent/

http://www.biggerpockets.com/renewsblog/2010/08/11/is-your-agent-a-great-agent/

Anyone have a sample contract for their contractors?
http://www.biggerpockets.com/renewsblog/2010/02/17/whats-in-a-contract-contractors-rehabbing-real-estate/

Any advice on managing contractors?
http://www.biggerpockets.com/renewsblog/2010/04/14/6-rules-for-managing-your-contractors/

What is Internal Rate of Return (IRR) and how do I calculate it?
http://www.biggerpockets.com/renewsblog/2010/09/02/introduction-to-internal-rate-of-return-irr/

[J Scott]

How do I find a mentor?

How do you define "mentor"?

To me, a mentor is someone you have a personal as well as a business relationship with, someone who wants to see you succeed independent of what they get out of the deal, and is willing to take you under his/her wing to help you gain experience, knowledge and success. You find these people by building relationships over long periods of time.

Or are you looking for someone who you don't have a personal or professional relationship with to teach you how to succeed in this business?

If so, what specifically do you have to offer someone who is willing to teach you in that capacity (no relationship and free of charge)?
Remember, some who is willing to teach you is offering their time, energy and even some risk (you may become their competition one day). All for your benefit. In my mind, someone who teaches you may as well be handing you a bunch of cash with no strings attached.

By asking, "Will someone please teach me?" you might as well be asking, "Will someone please hand me a bunch of cash?"

So, just like if you were to ask for cash, you need to be willing to provide something in return -- services, collateral, promise of future returns, etc. I've seen people willing to volunteer their services to a teacher; I've seen people willing to scout deals in return for teaching; I've seen people willing to barter other services in return for teaching; etc.

What are you willing to offer?

Lastly, perhaps you're looking for a coach, someone who you can pay in return for teaching you. They can be found at local REIA meetings, here on BP, and pretty much everywhere that newbie investors tend to hang out. Many of them aren't worth what they charge, but I'm sure there are plenty of good ones out there -- just make sure you do your due diligence and trust your gut.

So, which one of these things are you looking for?

[J Scott]

I'm a new wholesaler...where do I start?

My recommendation would be to get your real estate license.

Here is why:

- You'll learn a decent amount about the process of a real estate transaction;

- You'll get access to the MLS;

- You'll learn how to comp properties;

- You'll see how serious you are about real estate (the process of getting your license is tedious);

- You'll have something to fall back on (being an agent) if the wholesaling doesn't work out, which statistically it probably won't.
Now, if you can find a mentor, that's another great way to go, but given that there are so few successful wholesalers, I'm guessing your pool of potential mentors is very small.

[J Scott]

What level of rehab do you do on entry level houses?

You need to find the "sweet spot" of rehabbing, where the properties will sell very quickly (and you'll get a great reputation) but where you won't be spending extra money. There's no one right answer, and as the guys above said, it will depend on your market.

In my market (we do entry-level houses in this price range), we want everything to be new and completely safe, but not necessarily upgraded. So, we'll do all new flooring, paint, cabinets, countertops, lighting fixtures, plumbing fixtures, appliances, etc. But, we won't do granite, we won't do hardwoods, we won't do recessed lighting, etc.

As for exterior, we'll replace any bad (rotted, worn, etc) siding to match the rest of the house, and then paint, so the buyers won't even be able to tell what siding was replaced. We won't do anything with concrete/asphalt unless it's a safety concern or such an eyesore that it will impact the sale of the house. We'll replace any doors/windows that need it, but if they are in good shape, a coat of paint will make them look new.

Again, for my market, everything new, nothing upgraded -- and our properties fly off the shelves at that price point.

[Brandon Turner]

This is great J, thanks for putting this together! I think I may have to do the same on my blog!

[Joshua Dorkin]

AWESOME stuff, J Scott! Thanks . . . stickified.

[Account Closed]

A great start. I'm sure that these are common questions.

[Joel Warner]

Thanks for the easy reference, this is a good place to direct beginner queries. I'm starting at the top!

[Luis A.]

Awesome resource, thanks for putting it together.

I don't know if you plan on adding to the list but I thought of a few common questions I have seen and get asked:

- How do you find the money to invest?
- What is the best way to get started if you have a full time job?
- How can you make a full time living at real estate investing?
- How do you find properties?

I don't know if you already have answers here for these. I would gladly look them up.

[James H.]

Originally posted by J Scott:
What level of rehab do you do on entry level houses?

In my market (we do entry-level houses in this price range), we want everything to be new and completely safe, but not necessarily upgraded. So, we'll do all new flooring, paint, cabinets, countertops, lighting fixtures, plumbing fixtures, appliances, etc. But, we won't do granite, we won't do hardwoods, we won't do recessed lighting, etc.

As for exterior, we'll replace any bad (rotted, worn, etc) siding to match the rest of the house, and then paint, so the buyers won't even be able to tell what siding was replaced. We won't do anything with concrete/asphalt unless it's a safety concern or such an eyesore that it will impact the sale of the house. We'll replace any doors/windows that need it, but if they are in good shape, a coat of paint will make them look new.

This is a great description of what to specifically look for. In a house that doesn't need structural/mechanical work, I can't imagine this not fixing everything that needs to be fixed. Since you are systemized, do you have a list of products (brand names, model numbers) that you can share? That would take a lot of guess work out of rehabbing for someone looking to get into it (maybe me, maybe not, lol).

[Pat Tompkins]

As a total noob, this post is going to be very helpful, thanks for putting it all together.

[Tracey Williams]

J Scott, Thanks for putting all this information together.
It's going to keep me up all night !
Tracey

[Byron K.]

This is a great topic for a newb like myself and experienced folks as well. Thanks for posting!

[Aaron G.]

I appreciate the info on how to find a mentor. I am going to start to hang around REI groups, meetups, and seminars.

[Koel Gaylord]

@ J Scott, so I'm primarily in buy and hold multi and sfr. My dad is a contractor and I need to fund more buy and hold properties so I decided to do my first flip with my dad in order to finance money down for more buy and holds. So I need to buy, rehab and sell. If I get an RE license I can do all of this on my own right? That would be great. I'm sorry if i asked a question that has already been asked. I am combing BP for more data that i need for my answer. Than you in advance. - Koel

[James Vermillion]

Originally posted by Koel Gaylord:
@ J Scott, so I'm primarily in buy and hold multi and sfr. My dad is a contractor and I need to fund more buy and hold properties so I decided to do my first flip with my dad in order to finance money down for more buy and holds. So I need to buy, rehab and sell. If I get an RE license I can do all of this on my own right? That would be great. I'm sorry if i asked a question that has already been asked. I am combing BP for more data that i need for my answer. Than you in advance. - Koel

Koel Gaylord, it is not quite that simple. First, the main thing that getting a real estate license will do is save you on commissions and give you access to the MLS. However, to get your license you will need to take the classes and pass the test. To use your license you will need to hang it with a real estate brokerage. Of course getting license costs money (for the classes and the test fees), plus there are MLS fees and other fees. You are likely looking at a couple thousand dollars per year. You need to figure out if the benefits will make sense for you (this will depend on how many transactions you plan on having per year).

Additionally, most states have continuing education requirements to maintain a license. Are you simply looking to avoid paying commissions to an agent? Why is it you want to get your license? Also, do a forum search (top right of the site) to find many more threads about the pros and cons of getting a real estate sales license.

[Koel Gaylord]

Thank you James, I wanted to do it all under one entity, buy/sell but i will keep searching the pros and cons, thank you for your input! I appreciate it. Koel

[J Scott]

Koel -

Having your real estate license helps you represent people who buy and sell real estate. It's not necessary to have your license in order to buy and sell yourself, though as James said, if you have your license, you can represent yourself and save on the commissions.

But, to flip houses, you don't NEED a real estate license. It sounds like you might be under the impression that you do.

[Koel Gaylord]

Thanks J Scott,

I guess I could save money from the purchase and sale but ill have to weigh those costs depending on if it's worth it per amount of flips we decide to do per year. Thanks again. -Koel

[Taylor Forconi]

Thank you for the great post it has definitely answered some of the questuons that I have. It is a great starting point for me as I scour BP for info.

[Jerome Adams]

This post has definitely got me a good starting point. I especially liked the advice on the mentor because that is specifically what I'm looking for because I'm more of a hands on learner

[Jane George]

Originally posted by J Scott:
"I'm a new wholesaler...where do I start?"
My recommendation would be to get your real estate license.

Here is why:

- You'll have something to fall back on (being an agent) if the wholesaling doesn't work out, which statistically it probably won't. Now, if you can find a mentor, that's another great way to go, but given that there are so few successful wholesalers, I'm guessing your pool of potential mentors is very small.

I have to say I am disheartened by the above statement (that statistically wholesaling won't work out.) I was hoping to build my business over the next few years part time doing wholesaling while working my full-time job and eventually replace my income, before I get into rehabbing on a full time basis. I do plan on getting my RE license, but is wholesaling really a bad way to invest my energy??

[J Scott]

Originally posted by Jane George:

I have to say I am disheartened by the above statement (that statistically wholesaling won't work out.) I was hoping to build my business over the next few years part time doing wholesaling while working my full-time job and eventually replace my income, before I get into rehabbing on a full time basis. I do plan on getting my RE license, but is wholesaling really a bad way to invest my energy??

Wholesaling is the hardest work you'll ever do in real estate, and wholesaling while you're new and inexperienced will make it 10x as hard. It could be months before you're educated enough to start doing deals, months more before you get an viable leads, and months more before you actually cash a check. To be a good wholesaler, you need to understand financing, landlording, rehabbing/flipping, etc. The best wholesalers start out with landlording or rehabbing and "graduate" to wholesaling.

All that said, if you work your butt off, have patience, are realistic, are honest and ethical, have great people skills and negotiation skills, and have more persistence than 99% of people out there, you can make a good living wholesaling -- even part time.

If the above didn't scare you, I highly recommend getting started!

[Jane George]

Originally posted by J Scott:

Wholesaling is the hardest work you'll ever do in real estate, and wholesaling while you're new and inexperienced will make it 10x as hard. It could be months before you're educated enough to start doing deals, months more before you get an viable leads, and months more before you actually cash a check. To be a good wholesaler, you need to understand financing, landlording, rehabbing/flipping, etc. The best wholesalers start out with landlording or rehabbing and "graduate" to wholesaling.

All that said, if you work your butt off, have patience, are realistic, are honest and ethical, have great people skills and negotiation skills, and have more persistence than 99% of people out there, you can make a good living wholesaling -- even part time.

If the above didn't scare you, I highly recommend getting started!

Ha! That's great, @J Scott .... I am probably the most realistic, pragmatic person on the planet. I know it will take a lot of education and a few years to get there. But I have never been afraid of hard work! Thanks for your quick reply. :)

[Lamar Cannon]

@J Scott awesome info!!

Thanks!!!!

[Mark Houghton]

@J Scott thanks for the great info. I also enjoyed your podcast and thought there was so much invaluable information there. If I'm remembering correctly you maxed all your cards out on your first flip. Yikes. Glad to hear you used that as a learning experience and we can all now use that as a learning experience as well.

@Koel Gaylord I recently received my NJ real estate license. Currently not investing in real estate but preparing to dive in. One additional benefit of having your Real estate license other than MLS access is the fact that you can work on your own schedule when looking for houses to buy. You won't have to wait for a realtor to show you the properties, you will be able to check them out yourself.