Clueless Newbie from Seattle, Washington

[Jason Lam]

Hey, My name is Jason Lam, and I literally just out of the blue decided to take an online course in fundamentals of real estate. I am clueless about real estate and hope I can get some of these questions answered. My biggest question is, after taking the courses, getting my licenses, How does one get the money to start acquiring properties to start a career as a realtor. Also how do you make a living when you first start out after getting the first property.

I was watching youtube videos when one of the goals that were presented to me was

- Obtain 6 properties, and have the tenants pay off the mortgages for you.

Is this what all realtors do or are their hidden cost to doing that?

What he says to do is, get a home and mortgage it for 20 years, and have the tenants pay off the mortgage for you. pretty straightfoward but I cant help that he left something crucial out.

[Jon Holdman]

Jason Lam you're confusing being an agent with being an investor.

Agents broker transactions. They find buyers and sellers, facilitate the transaction and get paid a commission. Most agents focus on one side or the other. That is, they focus on finding sellers and getting listings. Or, they focus on working with buyers and helping them find a property.

Investors (meaning folks who own rentals, since that term is used broadly), buy properties and rent them out. Their focus is buying houses and then finding tenants to rent them.

Some agents are also investors. Just like folks of many walks of life are investors. Sometimes investors also get a real estate agent license because that gives them access to the MLS and lets them collect part of the commission on their purchases and sales.

Having a tenant that doesn't pay for three months is a self inflicted wound. This is business. For me (based on CO law), rent is due on the first and late after the fourth. I have a late fee. If we chat and there's some reason you can't pay right on time, we can work something out. But you will pay the late fees. OTOH, if I can't get in touch with you or you don't want to work out an arrangement, you get a "pay or quit" notice on your door on the morning of the fifth. If you're still there three days later, and we still haven't come to an arrangement, I file for eviction.

Some tenant damage seems to be inevitable. New investors are sometimes told "this cash flows" when the speaker means "rent - PITI" is a positive number. A better formula is:

cash flow = (rent * 50%) - P&I

This is the "50% rule" and is discussed at length in sticky threads in the Landlording and Rental Property forum.

I think a good base for your cash reserves is six months PITI. Even better is six months rent. Once you have a portfolio of properties, you probably don't need this for all properties. Unlikely you'll have major expenses for all of them at once.