How to Land Your First Real Estate Deal - Part 1

Landing Your First Real Estate Deal

Many new investors get bogged down by the details of what to do in order to get started in real estate. For those who don't know, navigating the plethora of options can be overwhelming – especially when you don't know where to start. When I ask many new investors what they are looking to do in real estate – a lot of them have no real objective other than “ wanting to buy some property to make some money” That's great! Let's make some money – but first, you need to identify how you plan make money.

For example, If you said you wanted to go on a road trip and I were to ask you where to? – the answer “on the road” doesn't tell me a lot. I want to know where we are going, what roads we need to use to get there, and how much gas it’s going to take as well how long it takes to get there.

These are solid goals and objectives to follow and investing in real estate is the same way – you need to have a plan and know what you are going to do to make that plan work.

Determine how you want to invest

Investors have many choices on how they can participate in real estate – for many, “NO Money down” is the first thing that attracts them. What the gurus aren't telling you is that every deal requires money. However, even though all deals need money – it doesn't necessarily need to be your money. If you can locate good deals, then you can usually find someone who is willing to buy them from you. Still, regardless of whether you have a lot of money or not, there are several paths to real estate success that you can choose. Some of your options for investing in real estate include holding for appreciation, adding value and flipping it, wholesaling contracts or investing passively.

Knowing how you plan to invest will help you to understand what steps you need to take. This sets the pace for how you market, who you market to and where you look for real estate. Some of these options are very hands-on and intensive, while others require little if any involvement at all. You should know how involved that you want to be.

If you really like to take hands-on approach and are willing to roll up your sleeves and attack it head on – then you can flip properties, buy and hold, wholesale, or whole-tail. A more hands-off approach would include buying REITS, stocks in real estate companies, or becoming a lender.

Line up your financing

A key step in real estate investing to get your assets in order. How are you buying property? DO you plan to try no money down investing or do you have cash that you want to deploy? Do you have just enough for a down payment and need to borrow the rest? Again – asking these questions will help you to take the right steps to get started. So for example, if you need to borrow money from a bank to buy property, then you are going want to start getting that set up as soon as possible. You need to go to a lender and talk to him or her about getting “Pre-approved” - this means that they have looked at your finances and your credit score and are willing to loan you money. They determine how much they are willing to lend you and how much it will cost you, then they write up a letter that says as much. You will use this letter to submit offers. This is also important because it helps you to understand the limits of what you can borrow and can help you avoid wasting time looking at properties outside of your price range. Also, when making offers, the seller wants to know that you are serious and the letter of pre-approval can help put their mind at ease that you have the financial backing to close the deal.

Even so called “cash only” offers are possible if you use what is called “hard money”. Typically, “cash only” simply means that the property is not financeable by traditional mortgage loans – usually it’s because of the condition of the house. Investors however, have an advantage because hard money lenders will see past that and lend you money based on the potential profit after it's fixed up and sold. Even if your using hard money to fund your project, you will want to have them provide you with a letter of pre-approval so your offer will carry some weight. If you’re being funded privately, by a friend, a family member, or another investor, have them provide proof of funds that you can submit with your offer.

Learn the local market

If I were to tell you that a specific house in town hundreds of miles from your own cost $325,000 – do you know if that is a good deal or not? Of course not - you don't have enough info to make an informed decision yet. What size is the houses? What neighborhood is it in ? Is it in a desirable school district, is there new construction happening ? Is it a high crime area? All of these are questions that need to be answered so that you know how to compare one property to another. You can start learning about you market by looking at web pages like:

• Zillow
• Trulia
• Realtor.com
• Redfin
• Movoto

Start looking up properties in the area or neighborhood that is of interest to you. Take note of how much they are asking for two bedroom and three bedroom houses – see how old they are, what size they are, what is close by and what other similar homes are selling for in the same area, typically within a 1/4 mile if there enough homes to compare. Make sure to take note of how quickly similar houses were sold and how long unsold houses have been sitting on the market - this can help you identify what price points are likely to take longer to sell. See what older homes sell for and see how much remodeled homes are going for also. Look for remodeled homes that sold in less than 2 weeks. This is usually your target price point because if you buy a property and fix it up, you want to know how much you can get for it in its best condition and still sell it quickly.

By learning what other houses in the area sell for, how quickly they sell and what sells the most, you will gain a better understanding of your market and start learning how to differentiate a good deal from a lemon.

Build your team

If you really want to make the best use of your time and energy - you need to have professionals on your team. Some of the key members you need on your team are:

Real estate agent -They can make offers for you , run comps, and help you understand the market. They can get you in the front door of properties that interest you

Lender -To help you run scenarios and what if situations for borrowing money. How much will a $250k property cost you per month compared to a $275k property? Your lender can help you with that kind of information as well as help you determine your closing costs so you can calculate that into your analysis of the deal.

Contractor - You should have a contractor or inspector on standby so you can look at properties and determine what needs to be fixed and how much it will cost and how quickly they can complete the work. You have to look at the cost of each day you are holding on to the property and realize that for every day it is not completed, it is costing you and eroding your profit margin, so the importance of rehabbing it quickly can’t be emphasized enough.

Attorney - It doesn't hurt to know an attorney - especially a real estate or contract attorney that can help you form partnerships and look over documents when needed, help you process evictions, and even draft up contracts.

CPA - They can help you to structure your business properly and help you identify what kind of tax issues you will be dealing with and the effects it will have your finances so that you can make the right choices when putting your deals or partnerships together.

Build your buyers list

Go to meetup groups and meet other investor so that you can start building your buyer and sellers list. You are going to want to know some wholesalers so that you can pick up some properties from them – or you want to meet buyers that will buy properties from you. Either way, you are going to want to have other investors in your Rolodex. There are too many benefits to list right now in regards to networking with other like-minded, experienced investors – they can provide you with great advice, ideas, contacts, software, and a host of other resources that you may never think of, but that other people are using successfully.

Start a marketing campaign

This is very important! In fact, it could be one of the most important steps. Distressed properties are not going to drop out of the sky and land on your front porch. You have to go out and find them. You need to look under rocks, follow-up with your network, and advertise what you’re looking for. Have you ever seen those signs that say “ we buy ugly houses” - those guys are very successful – at least the ones that are consistent. If you want to find the properties before other investors do, you need to proactively seek them out with marketing. There are many forms of marketing - but some of the more popular ones in real estate are “ bandit signs”, yellow letters, and door hangers. Bandit signs are the “ugly house” signs you see on the side of the road - investors put those up all over town hoping to get a phone call from someone who has a house to get rid of – or from other investors that they can connect with to find houses. With yellow letters, you will send out letters in the email to a targeted market for several months at a time, hoping to get a response from a home seller. Door hangers have the same objective, but require a little more footwork as you will or be hanging these off their doorknob instead of sending them in the mail.

Marketing doesn't always work right away – that's just the nature of it. It needs to be consistent so that it stands out in people’s minds, or catches them at the right time. You need to be prepared to do a minimum of a three month marketing campaign and even longer if you expect long term results. Marketing is going to cost you – be prepared for that. There is no magic pill that lets you break into this business without making an investment of time or money. That can be time spent driving for dollars and mailing individual letters to owners, or it can be in the form of paying for a marketing campaign, or both.

Money spent on marketing can pay off in just one deal. If you were to spend $1,000 on a marketing campaign and within 6 months, you landed a deal that netted you $10,000 than you are up $9,000 and have marketing money for your next project. It may seem expensive at first, but consistent marketing is what is going to keep to your phone ringing so that you can keep finding deals to invest in.

To be continued - Check back soon for part 2