How to know when you are ready to invest

Question

Hi BP community,

I recently turned 40 and my mid-life crisis seems to be manifesting as a desire to start investing in real estate. I have no prior experience in this arena, other than buying my house 6 years ago. For the past couple of weeks, I have been scarfing down as much education as I can and am really enjoying learning about real estate.

My question is: when do you consider someone 'ready' to invest in their first property? I think I would be foolish to just jump in now because there is so much that I don't know, and more importantly, I don't know what I don't know.  But the flip side is that I could see myself easily getting trapped in a long/endless loop of more and more education and analysis paralysis. I know some things can only be learned with real-world experience and at some point, I will need to take a leap of faith and purchase while venturing outside of my comfort zone.

I'm sure this will depend on many factors, but what concepts do you think are critical for a new investor to understand. The strategy and niche that resonate with me are buy-and-hold of small multifamily rental properties (at least to start).

Thanks in advance!

Alex

Tony Angelos · Answer

Hi @Alex Keedy, you're definitely making the right move by turning to Bigger Pockets to start your education. There are plenty of resources on this blog to get started like the Ultimate Real Estate Investing Guide and this article about the BRRR method.

You'll want to get a sense of what your motivation for this is; a desire to invest in real estate is a great first step that plenty have, but follow through falls short once people realize they actually need an executable plan. Your best bet is to start with those articles and listen to some podcast episodes from BP.

Tyler Jahnke · Answer

Hey @Alex Keedy - it's tough to get over the hump and feel completely comfortable/feel like you're ready to invest. The truth is, at a certain point, if you feel that real estate is a strategy that can impact your life positively, you'll have to jump in without being 100% confident.

I will say, there will be some factors that can at least help you feel more comfortable and confident in taking the leap:

-Soak up as much information and education as much as you can. Listen to podcasts, read books, etc.

-Define a strategy (buy and hold, flip, BRRRR, note investing, wholesaling, etc)

-Pick a market

-Build connections in that market + build connections in the industry in general. Message people on BP, talk with people in Facebook groups, follow blogs, use social media to connect

-Embracing the fact that you will make mistakes and it won't go smooth. But, you HAVE to learn from every challenge.

-See this as a long-term game. Start now, so in 10 years you'll reach success.

And shout out to you Alex, a fellow Bay Area native!

Best of luck!

-Tyler

Nicholas L. · Answer

@Alex Keedy do you have a down payment, savings, and cash reserves?

Nicholas L. · Answer

@Alex Keedy I don't think you need to be trained as an appraiser, an experienced real estate agent can help you with comps.

Darius Ogloza · Answer

@Alex Keedy I was in a very similar position as you appear to be at age 40 (albeit on the other end of the Bay and practicing law rather than medicine).

For my 40th birthday, I bought myself a bass guitar.

As to real estate, you have already gathered 90% of the information you need by buying and owning a house.  Understanding fully the cost side of the ledger in owning real property is something that is difficult to do except by "doing."  You should now understand what the costs of ownership are and thereby be able to analyze investment deals that come your way.

Our first move after purchasing my home was to partner with another couple to purchase a rental here in Marin back in 1999.  A lot was learned through this experience (about landlording, maintenance, partnerships, real estate finance, etc.)  and I recommend it highly as splitting the risk can help ease you into the stream of investment (sorry for the trite metaphor).  We went our separate ways with our partners in 2008, and my wife and I put our gains along with some additional equity into a SFR foreclosure in San Rafael through a 1031 exchange.  We flipped that property and bought another nearby that, today, we own free and clear and that cash flows about $4,000/month.

James De Leon · Answer

Hi Alex,

I believe that there are only some the things you need to be at least proficient in before you take the plunge and that is learning how to analyze a deal/knowing what numbers work you and being able to vet agents,lenders, etc. If you believe you are proficient in analyzing a deal and created a good team then you I personally believe you are ready because there are a lot of things that you will learn while doing. On the other hand if you find an investor-friendly agent/lender who you trust then they’ll help you analyze the deals too so I would find your team first then go for it.

Abe McLaurin · Answer

Hi Alex, another recommendation is to find a great place to invest. This can entail looking at economic drivers of an area, population growth, job growth, home prices, rental prices, etc. I recommend taking a look at Columbus, Ohio! Its combination of population and job growth, not to mention its awesome priced MF opportunities, makes it stand out!

Nicholas L. · Answer

@Alex Keedy this is just my own way of thinking about it, but cash reserves are an amount specifically earmarked for, say, when the HVAC on a rental goes out; savings is living expenses.  A lot of first time posters on BP say "I have $5k to invest, what do I do?" and what they mean is, that's ALL THE MONEY THEY HAVE.  This is clearly not your situation, and I agree with not using your entire $300K at once.

Have you listened to the latest BP podcast?  It's Brandon and David talking about picking a market, picking a neighborhood, etc.  I thought it was really good.  That's one way to get started - are there any markets where you used to live, have family, have contacts, etc.?  I see you're in San Jose - are there any markets you find interesting within a 2-hour drive?

Here are some things you can do for free: find an investor friendly agent and start looking at properties.  Call a lender and get pre-approved for financing.  Find and attend a REIA.  Check out Sean Pan's awesome podcast.

David Richter · Answer

Hi @Alex Keedy,

It really depends on if you have more time than money or money than time. If you have more money than time, then investing in a mentor can turbocharge your investing career with the right person. (I am not a coach so this is not a plug for me).

If you have more time than money, read The Millionaire Real Estate Investor by Gary Keller and read Profit First by Mike Michalowicz and then go out and start making offers. Good luck on your journey!

Nicholas L. · Answer

@Greg Koszkul great question.  I think it's actually less about finding the "right" calculator and more about knowing your market.  For example, your best repair estimates would be actual quotes from actual contractors. The best rental estimates will come from actual comps from real live real estate agents.  Etc.  The online calculators should really be used as quick screening tools to rule properties out.  Then, once you've ruled a few properties in, you really need to do much more due diligence.  I put a property under contract last month knowing I would need to do a detailed inspection to get a better repair estimate.  It turned out to be too high to make the deal work, so I canceled the contract.  I was out the $400 for the inspection - but that's money well spent to avoid a bad deal.  Hope this helps.

How to know when you are ready to invest

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