So you have no Money or you're just starting ...

First off you shouldn’t be concerned if you don’t have any money because most rich real estate investors I know started with very little or no money at all.  It was instead the continuous effort and education that got them to where they are now.  Since I mentioned education please don’t think I am talking about some expensive seminar series or the need for a college degree.

 

Quite the contrary what I am talking about is far more valuable than that. I am talking about learning your market and reading everything you can about real estate and other successful investors.  It took me a year of heavy review before I had a solid understanding of my market.  Lets assume you are twice as smart as I am (very likely) and that you spend twice as much time reading and researching (unlikely I love this stuff) I don’t see how you can know your market well enough in under 4-6 months.  It just doesn’t happen in a weekend or a month, it takes time!

 

You need to understand rental rates, values, high level repair costs, after repair value, etc before you should invest one single dollar on buying a piece of real estate.

 

For example one of my agents called a few weeks back and this is how the conversation went (I included my internal monologue to show how fast this can go once you know your market).

 

Agent: I found a 2/1 House that has a detached garage (needs work) but has the potential to be converted to a 3/1 asking 59K (just fell out of escrow)

 

Internal Monologue: 2/1 house with garage in that area could get us $750-$795 rent but a 3/1 could get us $950 –$995.

 

Question to agent: What is required to create the third bedroom?

 

Agent: Simply wall off the current step down family room and add a closet and you have a nice master bedroom with a fire place.

 

Internal Monologue: Ok so for under $1,000 we can create third bedroom, we are interested

 

Question to Agent: What other repair items should we budget for with the house?

 

Agent: Needs new carpet through out, new tile in kitchen, new paint inside, the garage needs a new door and springs, the rear fence needs work and you have a couple of large trees that should be trimmed back

 

Internal Monologue: Ok so for around 10K-12K we could have a completely repaired house renting as a 3/1

 

Question to Agent: How is the roof and heating and cooling

 

Internal Monologue: These are big one time expense items that sometime gets missed by agents

 

Agent: Roof is fine looks under 5 years old, AC is very new but Wall heater may need to be replaced as it looks like it has been played with

 

Internal Monologue; Good news, new wall heaters are cheap at under $1,000 - $1,500 installed

 

Comment to agent: Given it just fell out of escrow I want to write up a 38K offer with 10 day close, purchase as-is.  The only thing I want is the write to do a walk through prior to close to insure scope of work

 

Agent: That is really low even for you but I will write it up and send over the offer in 10 minutes

 

Internal Monologue: You better believe that price is low, I am hoping to catch a asset manager in a rush to sell a home they thought they already had sold.  I want our price but I will give them a quick close.  Be careful with offers like this as you need to know the market very well to pull this off or you will just miss the deal.

 

Comment to agent: Thanks, I’ll sign it and have the offer back in your hands 10 minutes after we get it.  We want to make sure we submit it today

 

Agent: I will drive and drop it off as soon as I get it back

 

To put the finishing touches on this story I received a counter the next day (guess the asset manager wanted to sell it) at 41K which I accepted and I closed on it two weeks later.  It took 15 days to execute our repair plans and I spent just over 11K on repairs and the unit is renting for $995.  I thought about going back at 40K but thought better of it because I clearly caught an asset manager that wanted it sold and I felt if we gave them another 24-48 hours they would just accept another offer that came in behind mine. I had to get this property locked up at 41K or loose a great deal.  In my mind the chances of losing the deal by going back at 40K were 80%-90% so it just wasn’t worth it. 

 

The conversation I shared above took about 5 minutes to complete and because I knew our market, the rents, repairs, etc. I was able to lock up a transaction that will prove to be a money maker every month regardless of what the market does.  Even if housing goes down another 50% I have a rental producing $995 a month with a mortgage payment of $200. 

 

A new investor would need to go see the property, get repair bid (probably multiple), get rent comps and probably need to see the house multiple times.  If you do this a more experienced investor might come by and snatch your great buy away from you.  In any market I suspect that only 3-5% of all the listings will ever meet my investment criteria so when I see a deal I will pounce.

 

So before you worry about spending money you don’t have do your homework and pay your dues.  After you have spent the time investing in your own market education you will have created value that you can leverage.  Before this investment all you have is energy and excitement which often wares out or gets redirected at the first sign of stress or failure.  Do your homework and get comfortable with your market!!!

 

However if you create value and you can start to speak in detail about an investment and why it is a great deal, you can start to share this with folks who have money but no time or interest in learning the market.  So go create value with your education that you can leverage by partnering with someone who has access to some capital or find a way to create your own pile of money for the initial down payment.

 

You have to start some where so go get comfortable with your market and get in the game.  Focus all your energy on getting educated on your market, this will create value that can be shared with others.

 

Good Investing