So, You Want to Invest in Real Estate in 2021?

Welcome! We're excited to hear that you're ready to take the first (or next) steps on the path to financial security & freedom through real estate investing. Our decision to begin investing in real estate in 2016 has led to big returns with even bigger dreams for the future - so we’re firm believers.

If you're here, you've probably read a few books, listened to podcasts, spent time on Bigger Pockets - you've mastered the basics and are ready to find your first deal. It's an incredible time to be investing in real estate (we’d argue there’s no “wrong” time), but you'll want to understand the landscape and set the right expectations.

Wherever you are (perhaps excluding Manhattan, San Francisco, and Los Angeles), historically low interest rates and urban flight have led to a scorching market. With rates available under 3%, a 30-year mortgage is more affordable than ever - and buyers are flooding the market. Prepare yourself for fierce competition as you prepare to purchase your first property.

To be clear, we're not suggesting you wait. There's never a perfect time to invest (though yesterday was ideal, and today is great). Many investors sit waiting for “the bottom” during a crash, typically missing it along with great deals during the decline. Even if you find the trough, financing will be tight, and economic conditions might make you feel more risk-averse.

Successful real estate investors hold for the long-term, and they win in both up and down markets. In a strong market, you benefit from appreciation - and in a down market, you benefit from increased rental demand (as financing for purchases is tough). It's worth starting now, in today's market, where you can benefit from cheap financing while building your experience in preparation for a downturn.

But where to start?

Nick does about ten calls a week with (primarily) new and early career investors - and the most frequently mentioned strategies are those in David Greene's book on Long‑Distance Real Estate Investing. It's a book we've read, respect, and reference - and it's led to some predictable questions from new investors.

Headed into the new year - we wanted to take some time to answer those questions in a more accessible and sharable format. We hope this blog answers some of your questions, leads to new ones, and puts you one step further on the path to buying your first (or next) property.

Who's Your Core 4? I Need to Build My Core 4.

Many service providers who form the "Core 4" don't have time or energy for prospective investors who have never purchased a property in today's market. Unfortunately, tire-kickers have burned these folks out - and you're competing for their time with proven investors. And a word of caution - those who are willing to make time for newbie investors may not be the most viable service providers in your market.

So what am I supposed to do?

Frankly - you aren't valuable to a PM or Contractor without a deal under contract. You'll want to start by focusing on:

1.  - Finding a Lender
2.  - Finding an Agent
3.  - Finding a Compelling Deal

While an agent and lender will be more willing to partner with early investors ahead of a deal, they have 24 hours each day like the rest of us! There are a few foundational steps you should take to set yourself apart before engaging these partners.

Before You Find a Lender

1.  - Understand your finances and how much you want to invest. Do not risk the roof over your head for the one over someone else's!
2.  - Validate that you have the cash to purchase, rehab, and maintain the property even through periods of vacancy.
3.  - Mentally prepare yourself (and your partner, if applicable) for the downsides of real estate. Every transaction will come with something unexpected.
4.  - Prepare your lending packet, which includes:
   1. Your credit score (know it and be ready to discuss it)
   2. Your last two years of tax returns and W2's
   3. Recent pay stubs/bank statements
   4. Explanations for any significant withdrawals/deposits

Before You Find an Agent

•  - Figure out your budget (you should have engaged lenders already)
•  - Figure out your strategy. Are you flipping? Short-term rentals? Long-term buy & hold?
•  - Determine the persona of the tenant you're seeking, and explore neighborhoods that interest you. Be sure to consider the pros and cons of small multi-family, single-family, etc. Would you live in your rental? If not - why, and what does that mean for your potential tenant population?
•  - Determine your buying criteria. What rent to value and cash-flow are you expecting?  - What degree of rehab are you comfortable managing? What's the IRR you're targeting?
•  - Be sure if a deal meeting your criteria comes across your plate, you're ready to make a serious offer.

✅ Ready to find a lender and agent? Check out our on building your team for some advice!

Getting Under Contract without a PM or Contractor feels risky!

It might feel nerve-wracking to make an offer without a contractor walking the property or a PM ready to place a tenant, - but your agent will be your ally here. When it comes to rehab estimates, leverage The Book on Estimating Rehab Costs to guide your rehab numbers (alongside your agent). You can always negotiate if surprises come back during the inspection, and once you're under contract, you can ask your agent for contractor referrals.

Your agent will also help you with PM contacts, and you can reach out to your investor network for referrals. Admittedly, you'll have a busy 30 days during escrow, but with that first deal done, you can work on developing and refining your team from the position of an established investor.

How Do I Find Deals?

We've shared our strategies for deal sourcing in the past - and not much has changed here!

Should I buy from a wholesaler?

😬 For your first property? In a word - no (with no disrespect to wholesalers). We highly recommend a fiduciary watching your back. Your agent will guide you as you learn the ropes and help connect you to the rest of your team. They earn every cent of their commission.

Suppose you're determined to work with a wholesaler or see a “can't miss” deal. In that case, it's critical to go through all the steps you would on a typical purchase (inspection, contractor walking the property, title insurance on the transaction, etc.). Most listings don't make sense as advertised, and that includes listings from wholesalers - so ask an established investor for their eyes as well.

We do work with wholesalers currently - and are always open to buying deals when the numbers make sense. That said, we're four years into investing in the Indianapolis market and have a very well-established team.

I'm interested in BRRRing!

So are we! It's a great strategy that we implement whenever we can. That said, we also understand that a successful BRRR does not necessarily equate to every dollar coming out of the transaction.

In current market conditions, expecting to withdraw all your capital from a deal is a recipe for failure (especially if that's the only way the property makes sense). While these deals are possible, and we've done them - we never expect that outcome.

When you're first stepping up to the plate, aim for solid singles and the occasional double. Held long enough, a single will become a triple - and you'll gradually build the skills and team you need for home runs with each at-bat.

To be blunt, when you're just starting - you're the dumb money in the transaction. You're not crafting creative deals or sourcing off-market listings. You're not doing the labor (and if you are - be sure that's the right use of your time). You're not bringing established contacts. So - expect to contribute capital to see the return. If you wait for a 100% BRR deal in this market as a new investor, you're unlikely to get on base at all.

Property Management Fees are expensive! Should I self-manage?

Have you ever had a terrible landlord? What made working with them painful? We've had several, and it came down to two problems:

1. They were cheap!
2. They took too long to respond to issues we experienced in the home.

If you're investing from out of state, you're going to be slow. You don't have established maintenance contacts - so you'll be at the back of the line, and you won't benefit from bulk discounts on that work.

Based out of state, you also won't see the property frequently and thus can't conduct preventative maintenance on your home. Don't underrate the value of this service from your PM! Just this week - our PM noticed a dead tree at risk of falling on one of our homes - saving us an expensive work order and a dangerous situation for our tenants.

Unfortunately, work orders are the tip of the headache iceberg. Unless you're a lawyer familiar with local laws, you're going to struggle with compliance around leases, notices of non-payment, evictions, etc. And should you find yourself in the horrible position of evicting a tenant, you won't have a PM to meet the constable at the property for you.

We rely extensively on our PM, and not just to place tenants and maintain the property. Our PM is a Subject Matter Expert who knows the market and can advise us on rents and neighborhoods. If it's in your backyard and you're keen to understand the process - perhaps consider managing the property. Otherwise, pay for the expertise and get more allies on your team. We believe (and hope you'll find) that the time savings outweigh what you pay each month.

Why Can't I Find Deals?

It's a hot market, and we're finding that investors are offering over-asking in many cases. So first - be patient.

Second, how many offers have you made in the last month? As of writing, we've sent 11 LOI's in the past seven days. None are accepted (so far) - but we're continuing to review listings and write offers that make sense with our criteria. It's a blazing market, and we're seeing other investors write offers that (to us) don't make any sense. Know your numbers - and remember - price is negotiable. If you see an exciting listing with high potential - write the offer that makes sense for you!

I want to get in the game - but I don't have the disposable cash!

First - well done! While you'll need cash eventually, that is no reason to wait to start learning. There are a few paths we recommend for getting started without capital.

1. House Hack (we're massive fans)
2. Learn from Established Investors: This is a great time to learn from successful investors you’d like to emulate. Identify your skills and resources (e.g., are you based in a great rental market, experienced with social media) and offer your services in exchange for exposure to their business. We know a prospective investor who walked properties for us when we were out of state, giving us updates on rehabs, and in return - he got an understanding of how we think about deals and rehabs, and we made introductions to our network. Now he's ready to start wholesaling and knowing his worth-ethic, we’re considering kickstarting his marketing budget.
3. Find Deals: Even if you're handing off deals to other investors, most will be willing to pay a finder's fee if the deal closes - and you'll have grateful fellow investors ready to help when you're ready.
4. Save: Unfortunately, the business requires capital at some point. Figure out how to reduce your monthly budget/increase your income, and put some goals in place!
5. Get a W2 role in Real Estate: Passionate about real estate and stuck with a career you don't love? Consider getting your license, apply to work with a wholesaler or PM - the sky is the limit!

And Whatever You Do in 2021, Don't...

•  - Bet on market appreciation to make the deal work.
•  - Expect the same cash flow numbers from books written in 2017 - it's a different market.
•  - Let a bidding war break your fundamentals.
•  - Wait until 2022 to get started!