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I have been getting a lot of calls, emails, etc from a lot of new investors looking to get started in the investment world. I am always happy to work with new investors! The biggest question I get is "What do I need to do first"? Well that is actually pretty simple... Start by asking questions! Whether it is through internet surfing or by speaking with other investors. Just start asking questions and finding the answers.
The first question you need to ask is... What type of investment do I want? Do you want to Fix & Flip or Buy & Hold? If you are looking to F&F, you will typically need money for the Fixing part. Whether it is money you have saved or you borrow from a Hard Money Lender. Obviously money you have saved is cheaper than getting a loan, but for a short term renovation it is a great alternative. I don't recommend Hard Money loans for a long term like a B&H scenario, but I have run across people that have done that for 3+ years by adding the cost of the loan into their numbers.
The second question is... Do I have enough money for a CASH offer or do I need financing? If you have $20K stashed away you are definitely not looking for a huge purchase with either CASH offers or even financed offers might be scarce, depending on where you are looking. Cash is always King when it comes to making offers. I cannot tell you how many times that I have had offers accepted, because it was the highest CASH offer that a seller has received. They may have even had full price financed offers, but for whatever their reason, sellers just like Cash offers. However, I have also had a lot of financed offers accepted and the investor makes the money by buying it at the right price to cover expenses until they sell it a couple years down the road. Something that some investors overlook is that you need some money in reserves for the "What Ifs" that may come along. Whether you are F&F or B&H thought process, don't put all of your money into the initial down or use every dime towards a renovation. There are usually surprises in rehabbing a property that you didn't count on or you have a tenant that moves out and leaves the property a wreck. Reserves are always necessary to maintain a property through anything that you might encounter along the way.
The next question is... Where do you want to invest? There are many places all over the US and abroad that investors get into. Some make great money and others go broke trying it. Focus on what your comfort level is and not what others are doing. Doesn't mean stay within a block of your home so you can keep an eye on it. What I mean is don't go past your means. If the property generates you $500/mo income and that works for you, don't settle for a property that only gets you $100/mo. If you are buying a property with cash and want a 15% ROI, then hold on until you find it, wherever it may be...
Along with where you also need to know what size. If you are trying to stay in the residential, then you can stay in the Single Family or the 2-4 unit multifamily category. Once you get into 5 units or more you are into commercial property and that takes on a whole other aspect and I don't recommend your first deal being a commercial property. The advantage of 2-4 units is that when you have a tenant move out you will still have someone else paying rent. Unlike the single family where you only have one tenant at a time and when they move out you immediately lose the income until they are replaced. The disadvantage to the 2-4 units are there are not as many out there for purchase, but with a little patience one will come along that the numbers work and it is a good purchase.
That leads me into the next thing you need to look at... How do I calculate the numbers and make sure I am making money. BP has some great tools for that! A good investor friendly Realtor will also have the same type of tools, but will also be able to know the market and correctly calculate the numbers for you, so you don't have to do it. Your decision is do you want to do the work yourself, or have someone else do the work and you just look it over before making a purchase decision? If the numbers are done right, they will never lie to you! Investing is not an emotional decision, but more of a financial decision. It really doesn't matter what the neighborhood is like, where it is, or who lives there... if the numbers work for you... then take the leap and put in the offer!
I hope this is helpful for anyone that is looking into becoming an investor! It is both rewarding and at times frustrating, but in the end if you do it right... You will come out on the other end with extra money in your pocket! If you have specific questions please feel free to contact me... I will be happy to help!
Thanks for reading!
Doug
