Not sure where to start in Real Estate Investing? Need some guidance on what steps to take? Check out this video with Bryan and Suzanne on How to Get Started in Real Estate in 5 Steps!
Five Steps to a Good Start in Real Estate Investing
Want to invest in real estate but don’t know where to begin? Time to stop spinning your wheels. Slow down, focus, and follow the five steps below, one by one. Soon you’ll be seeing your first project through to completion, and you’ll be off to a great start as a real estate investor.
Step 1: Educate Yourself
Watch Podcasts and Videos. An amazing education is available for free online if you want to gain the knowledge and mindset you’ll need to invest successfully in real estate. You’ll discover experts in every possible area, from finding a deal, to financing it, to managing the rehab. BiggerPockets is very popular, as is our own local favorite, Sam Primm of FasterFreedom.
Attend Local REIAs. Find out when the real estate investors associations meet in your area and start attending! These are great places to meet fellow investors, wholesalers, lenders, contractors, and real estate agents. In the St. Louis area, Buyers Club meets the third Thursday of each month. About 200 people attend and would be happy to have you in their network.
Find Your Community and Find Mentors. You could even join multiple real estate investors’ clubs in town, as well as FaceBook groups. Find people you feel comfortable with and learn from them. Ask questions of the most experienced and most successful, and you may find a mentor.
Step 2: Set Short-Term Reasonable Goals
Set Reasonable Goals. If you’re a beginner and you’ve set a goal to buy 100 rental doors over the next 2-3 years, you may want to scale that back. Maybe try 2-3 flips in the first year just to get the whole process down, gain confidence, and even build up some cash – before you build a rental portfolio.
Set SMART Goals. S-M-A-R-T goals are Specific – Measurable – Attainable – Realistic – Timely. A good mentor can help you set goals you can actually reach.
Step 3: Line Up Financing (but Not a Conventional Mortgage!)
Hard Money Loan. Designed exclusively for real estate investors, a hard money loan is the easy-button and the favorite option for most investors. Rehab funds can often be included. Rates are higher, but the interest-only monthly payments are low, making it easy to afford the property – or multiple properties at a time! Keep the loan for about six months – just until the rehab is finished and you refi or flip it for a nice profit. (See more on hard money at the end of this section.)
Commercial Loan. This is offered by a commercial bank; however not every commercial bank understands real estate investing. They typically ask for 10-30% down. The loan sometimes covers the rehab, sometimes not. Commercial banks are often a better choice for the refi after the project is finished.
Private Money. Family, friends, or business partners can be a lending source. Usually these funds are limited, but they could be used alongside a hard money loan or other loan.
Conventional Mortgage. Not recommended for buying investment properties, but many people don’t know any better when they’re getting started. Because of low appraisals and no available guidance, it’s probably the worst place to go to finance an investment project.
BEST OPTION: For new investors or those who want to scale their business, go with a hard money loan. A local St. Louis hard money lender, for example, will know the area well and be aware of the smaller markets within it. They will walk the property with you and make sure you don’t make a bad deal. If you communicate with them, they will advise you along the way, especially if you run into trouble. Hard money lenders are usually experienced investors themselves – take advantage of it!
How to Find a Deal
Buy from a Wholesaler. When new at investing, the easiest way is to buy from a wholesaler. The wholesaler’s only job is to find deals, and they make money on the spread. They always have their eyes open for deals and they have lots of contacts to draw on – they’re doing the hard work for you. You’ll want to work with several of them to get a large number of options for your first property. Walk a lot of deals and set eyes on the properties.
Develop relationships with 3 to 5 wholesalers. Good wholesalers are always putting themselves out there, so they are easy to find. Look online, or watch for “we buy houses” signs in neighborhoods. Buyers Club is a great place to meet wholesalers!
Once you have a list of wholesalers you want to work with, call them. Let them know you know what you’re looking for, and where you want to buy. Let them know you have financing lined up, that you know your numbers, and you’re ready to buy. You may even want to take them for coffee or lunch to get the relationship started.
You want the wholesalers to remember you, so call them every 2-3 weeks at least. But don’t be a nuisance, either! There’s a fine line between being a pest and being forgotten.
Work with a Real Estate Agent. Tell them you’re looking for a distressed property. Most clients are looking for move-in ready, so the agent will be glad to call you when they have a not so pretty listing.
Use Your Own Sphere of Influence. Let everyone you know you are looking for a house to rehab. Let them know what you’re willing to offer.
Direct Mail. Not recommended for beginning investors. It’s expensive, and you won’t have the experience to know what to offer anyway. Leave direct mail to the wholesalers until you become more experienced.
BEST OPTION: Wholesalers. But remember, wholesalers are selling you something, so don’t trust their numbers! You need to verify those numbers for yourself. Your hard money lender is an excellent resource for that. They will walk the property with you and help you verify the value before you make an offer. Do likewise with a real estate agent you may already have a relationship with.
Step 5: Take Action!
Go look at houses.
Put numbers together.
Make offers! You may be off on one deal, but the seller may think of you for another deal.
Be ready to get insurance.
Have a title company lined up.
Just do the steps. You’ll never know until you actually do it. You will figure it out by working through the process. Keep in mind the importance of a local St Louis hard money lender is the advice you’ll get along the way to help figure it out. If you just break even on the first deal, it’s worth it for the education. But maybe you’ll make a good profit on the deal anyway!