Ever wanted to get started buying rental properties but weren’t sure just what to do? Welcome to the club! We were all there at one point. The bad news is, you do have to learn some new stuff. The good news is, this stuff is not difficult to learn, and there are resources EVERYWHERE to help you. We will talk more about that later in the article, but trust me when I say everything you need is out there for you.
Real estate is a business you can get into several ways. Depending on how creative you want to be, it can require lots of work or not much at all. It’s all up to you. I’m going to focus on the most simple way. The basic formula you need to know to get started, and upon which you can expand on if a certain aspect doesn’t work for you.
The basic ingredients every beginner will need are:
I’ll talk about all four, and how you can substitute effort in each area by hiring others or finding someone to do the work for you.
Why It’s Important:
As the old saying goes, “it takes money to make money”. This is almost always true (though not totally, sometimes you can sacrifice a lack of money for extra creativity, time, or other resources). While this may be true, the fact is when you’re new, its 100 times easier if you have some money.
In all likelihood, you’re going to use money on your first property for the down payment. You’re also going to need money for the work that needs to be done on the property, and reserves in the bank to qualify for the loan. Money makes this easier. When you’re new at something it is always a good idea to make it easier on yourself. There is also something to be said for the confidence that comes from having the discipline to save up a sizable chunk of cash for a goal you set for yourself-in this case buying a rental property. The confidence can transfer, and when you’re new at something, confidence can make it much easier. I recommend saving up money to invest if you want to invest in real estate.
How It Will Help You:
When buying an investment property, the majority of lenders will need you to put 25% down. This is the easier way to get a good loan with a solid interest rate. The more money you put down, the safer you’re likely to feel with the investment. While experienced investors are usually looking for ways to get their money back out of a deal, most newbies like the idea of owing as little as possible against the property. That’s ok, it’s often the natural progression of things. Just know that having more money to put down will make you feel better, and that’s important.
Money will also allow you to pay someone to do the stuff you’re not good at. For most of us, that is the construction work that comes with buying a rental property and getting it ready for rent. It also includes the maintenance that will need to be done as things break down or wear out while you own the property. Now, the rent you collect should be paying for most of that, but sometimes big, unexpected expenses like an HVAC, roof, or plumbing issue occur. When that happens, you’ll be glad to have some extra money saved up. Money=Security. You want to feel secure as much as possible because anytime you’re doing something new, you can trust you’ll feel insecure.
Why It’s Important:
This one is pretty self-explanatory. If you don’t have knowledge, you won’t know what to buy, or how to manage it. Knowledge is the number one thing you can acquire to gain confidence in this whole thing. I recommend getting as much as you can.
But where do you get it? Well, there are oodles of books written about this stuff and you can find them anywhere. But, before you do that, check out www.BiggerPockets.com.
Go to the “education” tab, click “BiggerPockets blog” and prepare to be amazed. Here you will find thousands and thousands of amazing articles written about every topic you can imagine. This is your free, incredibly valuable playground where you will gain the education you need to build a foundation you can grow on. This is where you can research specific topics on the things you’re lacking confidence in. Want to know how to find what a property will rent for? How much to pay? How to get a loan? Who David Greene is?
You’ll find all that, and more, right in that one spot. BiggerPockets blog is an investors paradise. You saw the picture that was the link to this article. That plane is flying into that paradise. You should too.
How It Will Help You:
Knowledge equals power. In real estate, power equals deals. Deals equal money.
You need knowledge to understand what a good deal is, and just as important, what a good deal isn’t. Now here is the cool part about this whole industry. So many people have done this before you that an entire culture has developed. Certain “rules of thumb’ have taken root and they provide wonderful guidelines for you to follow. What’s that? You’d like to know more about what I’m referring to? Well click the link below!
And that’s just the tip of the iceberg. Depending on where you’re investing, you can put several rules of thumb together to establish a system of guidelines that if you follow, you can feel confident you aren’t likely to go wrong.
For instance, when I buy in an area I expect demand to increase in, I look for a 12% return on my money. All I have to do is make sure that after I pay all the costs associated for a property, I am getting at least a 12% return on the money I paid as the down payment. Not sure how to figure that out? There’s an article for that too.
See? Your first article about real estate investing and your already increasing your knowledge. Now just keep doing that a few times a week and you’ll be licking your chops in no time.
Knowledge gives confidence. Confidence is crucial to believing in yourself, your analysis, and your ability to move forward. The more you know, the better you’ll feel. Always be growing in knowledge. And in this information age it’s easier than ever to do just that.
Why It’s Important:
Opportunity is a broad term, but it applies to several aspects of buying a rental property. If you want to start investing, you need to be able to find a good deal. That’s the first way opportunity comes into play. Now, if you read the above link on “Crunching The Numbers”, you know how to figure out if a rental property will make you money. But how do you know if a property will increase in value? After all, that’s where the big money comes from right?
Well, not always. But it certainly does help. If you want to know which areas will appreciate in value the most, start by looking for where other people have opportunity. Where are the job opportunities? The education opportunities? The growth opportunities? Which cities are building the least amount of homes so the opportunity for existing homes to increase in value is the highest? Which cities have the opportunity for the prices to go up the most because homes are still very affordable compares to surrounding areas?
If you follow the opportunities available for others, you’ll know where you want to start investing. Opportunity creates value. Value leads to wealth. Wealth is the goal of investing. Pretty simple right?
These are all simple to understand concepts that everyone can grasp, and that is why real estate makes more millionaires than any other investment vehicle.
How It Will Help You:
Not only should you be looking for where there are opportunities for others to improve their lives, you should also be looking for what opportunities you have available to help make you more successful at this.
Have down time at work where you normally surf the net or talk on the phone? Start reading books or articles about where jobs are moving.
Have money put away in a retirement plan that isn’t making you jack squat? Start looking into what you need to do to take that money out of it’s misery and buy something awesome and powerful (think rental property) with it.
Have a good friend who is doing great as a real estate agent? Ask them what you need to do to get qualified to buy a house.
Have questions about more of this stuff? Check out the rest of GreeneIncome.com and ask me what you’d like to know in the “Ask David” forum.
Have a family member with a ton of cash they are just leaving in the bank? Have an inheritance you don’t know what to do with? Have an in-law who is super handy and talented fixing things? All amazing opportunities to capitalize on.
Stop wasting all the potential you have to build wealth for yourself. So many people have resources available that would make real estate investing a profitable enterprise for them. This is truly the little man’s arena. It’s time to take advantage of that. You don’t know how much you know until you jump in. It starts here.
Why It’s Important:
Persistence cannot be understated. The bad news is, most of us hate it. The good news is, it’s free for everyone.
Persistence is key anytime you start something new. It’s especially important when you are starting something new in an industry with as many emotional highs and lows as real estate can bring. Persistence is going to be what keeps you going back for more when you feel rejected. What helps you keep networking when you feel it’s pointless. What keeps you saving your money when you don’t think you’ll ever be able do this.
Persistence is the vehicle that will drive you down the road to success. It’s that powerful. Those who don’t have it open up opportunities for people like me to take advantage of. THANK GOD more people aren’t more persistent, I’d have too much competition. And so would you!
The person who wins in the long game is the person who never gave up. Who kept learning when they made mistakes, who reached out for help when they felt uncomfortable. Who kept bringing value to others even when they weren’t getting any themselves. Persistence is the number one most important trait in being successful in anything. Real estate is no exception.
How It Will Help You:
Lead you to keep learning when other’s get bored.
Lead you to keep growing when others lose the emotional boost of something new and exciting.
Lead you to keep searching when others give up early.
Lead you to find the right mentors when others decide it’s not worth it.
Lead you to keep saving when others don’t have the discipline to.
Lead you to pay off your debts and improve your credit when others don’t.
Lead you to keep asking questions when others would rather be the ones talking.
Lead you to keep getting better while others shrink back.
Real estate is a numbers game. It doesn’t take too long to realize that. Crunching the numbers to find out if the property makes financial sense. Playing the numbers to put out more offers and analyze more deals to increase your chances of finding the winner. Increasing the numbers of people in your network to increase the chance of having someone bring you that great deal. Growing the numbers to increase your wealth and give you more opportunities to buy more properties. Watching the numbers to know if it’s time to sell, buy, or hold. Checking the numbers to feel confident in your decision.
This is an industry where you have to try, fail, try, fail, try and fail again. 100’s of times before you strike gold. It can be discouraging. But that’s ok! That 1 out of 100 success makes all the other 99 seem like nothing compared the excitement of closing the deal. If you want to succeed in this, you gotta be persistent.
So, there you have it. The four things you’ll need in order to get started investing in real estate. While I hope this article was helpful, it’s really only the tip of the iceberg. There is so much more cool stuff to learn about, master, and enjoy. While it may be tough getting started, remember that every plane ride starts off with a lot of difficulty. The plane needs to build a ton of momentum, requires an incredible amount of force to be generated, isn’t very comfortable to be in, and can even be scary before it takes off.
But, once it’s in the air, it’s usually smooth sailing from there. While turbulence will always occur, and you’ll always need to make minor corrections, the effort it takes to keep the plane moving forward is greatly reduced once it’s cruising. And just like the picture of this article, paradise is waiting for you at the end of that plane ride! The reward is worth the initial struggle. Remember that it’s never as hard as it is in the beginning, and every day gets easier than the day before.
This is your captain speaking-Buy your ticket, board your plane, and lets take off!
Want a more detailed example of what it looks like to do the things described in this article? Check out my blog post below on just that.