Real Estate Investing for beginners – 7 Steps on How to Get Started
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In this post, we’re going to cover the 7 basic steps involved when getting started in real estate investing. My hope is that I can share some of that with you today and you can benefit from all of the information I’ve absorbed throughout my real-estate investing journey and ongoing education process.
I know all of us are super busy and often only have time to read the summary or highlights, so I’ll give you the secret sauce right here at the beginning then we will dive deeper into the details below:
1. Get over the fear!
2. Start setting money aside to invest while you focus on educating yourself.
3. Choose a real estate market and investing style to pursue.
4. Analyze deals.
5. Start to build your team and network.
6. Make offers and close deals.
6. Schedule your time
Now let’s take a deeper dive into each of the 7 sections and understand what they are and how to implement them.
Step 1 – Get over the Fear
First and Foremost, get over the fear! Fear of not having experience is one of the main things that keeps individuals from all of the benefits of real estate investing. Of course, everyone has to start somewhere. But by educating yourself, leveraging other people’s experience, learning the lingo and building a team, you can jump your way into doing a deal in just 30-90 days, with confidence. One of the first things I did to get over fear was read books and attend seminars. My all time favorite finance real-estate book is Rich Dad, Poor Dad.
To this day, I think that may have been one of the most influential and defining moments in my real estate endeavors. If you haven’t read it yet, I highly recommend it. It helped me by framing my mindset around money and wealth and how both are created.
In case you have no intention of ever reading Rich Dad, Poor Dad, here are the main takeaways:
Buy assets, i.e. real estate.
Do not subscribe to typical consumerism, i.e. don’t allow lifestyle creep to eat away at your income.
Do not buy liabilities.
Unless it puts money in your pocket every month, it is not an asset.
Poor people work for their money; rich people make their money work for them.
Poor people work IN businesses, rich people start and work ON businesses.
After I read Rich Dad, Poor Dad, I continued to gobble up as much information about real estate investing as I possibly could. I continued to read other real-estate books, blogs, forums … everything I could get my hands on to educate myself on what it would take to be successful. These actions helped me get over the fear of getting started with real estate investing. Hopefully it will do the same for you.
Step 2 -Start Setting Money Aside to Invest
Many people think that you need hundreds of thousands or even millions to invest in real estate. Spoiler Alert: you don’t. While it does take some money to get started, it may not take as much as you may think.
What is the down payment on a $100,000 investment property? Probably around $20,000 because 20% (a typical down payment ) of $100,000 = $20,000.
However, there are many other strategies you can use to put down as little as 3% but we will save that for another future post. So, could you save $20,000 over the course of a year? What about over the course of two or three years?
I spent about a year getting educated and stockpiling cash to be able to invest and I’m so glad I did. In 1990, I moved back home with my parents for 10 months , saved up the down payment and went into full steam ahead.
Step 3 -Choose a Real Estate Market and Investing Style to Pursue
Now that you’ve started to save money to put towards a real estate investment, it’s time to pick a market (or several) and a style of investing to pursue.
The five main styles of real estate investing include:
Sole proprietorship - you own the home alone
Partnership - you own the home with others
Syndication - Your money goes into a pool with other investors to purchase a building/property. You are likely a passive investor, i.e. you are not making decisions.
REITs (Real Estate Investment Trust) - this is like a stock or an ETF which owns multiple properties and sells shares that investors can buy into.
Crowdfunding - You invest in an online platform which is like a syndication.
An additional note for investors who choose the sole proprietorship or partnership route:
While there are plenty of investors who choose a single property type and go deep there, some investors will inevitably have several different property types mixed into their portfolio.
For example, a lot of investors get their start by investing in single-family rentals (SFRs) because that’s the easiest way to learn the basics. Once you understand the principles of investing, you can apply that knowledge to bigger and more expensive deals. It’s better to make mistakes with a $100,000 SFR than with a $1,000,000, 20-unit building.
Some will venture out to invest in small multi-family deals like duplexes, triplexes and quadplexes. Then some of those investors will move to larger, multi-family deals that cross into the commercial realm at 5+ units. At that point, many experienced investors decide to start investing in funds and syndications after they understand what they’re truly investing in.
Once you’ve chosen a style that makes sense for you, you need to choose a market that you believe in which appears to have potential.
There are so many different market factors and data points that it can feel overwhelming to sort through them all. When I look at investing in a new market, I look for the following four characteristics:
Population growth
Job growth
Wage/salary growth
Employment Diversity
A simple Google search can reveal many of the key data points in a given market. Here is a good resource to help in pinpointing a market:
Step 4 -Analyze Deals / Do the numbers
Once you’ve identified a target market, you’ll want to start doing deal analysis in that market.
What does “deal analysis” actually mean? It’s a fancy term that investors use meaning to run the numbers. When you run the numbers, you’re looking for a few things:
Does it cash flow? i.e. Is there money left over at the end of each month from the rental income after you’ve paid all of the expenses, including a mortgage (if you have one).
What do the expenses look like and is there a way to improve/reduce them?
Is this an area with a strong rental demand and is this a property you would consider investing in?
Nobody is immune to the pitfalls of deal analysis. To help you avoid some of the common pitfalls that many first time investors make when analyzing properties, we are creating a video on our You Tube channel: How to avoid common pitfalls when investing in Real Estate. Available August 2021.
Step 5 - Start to Build your Team/Network
When it comes to building a real estate team, you must perform thorough due diligence. Conduct interviews with potential team members, gather references, and interview their previous employers and clients. Ask for recommendations from friends and fellow investors, but don’t always take their word for it. You don’t want to get stuck with someone who’s not credible—costing you time and money.
Before you start hiring team members make sure you have, determined your niche, market, and strategy. It won’t matter if you’re working with the smartest people in your city—if you’re not focused and clear on your plan and strategy, then no genius can help.
With that being said, this list is a catch-all, so depending on what type of investing you’re doing (flipping, wholesaling, buy and hold), make sure you’re hiring relevant team members.
Here is your list of possible team members, from A-Z. Also, get to know the people who will help and be involved in the transaction. These people include the following:
Real estate agent/broker
Property manager
Lender
Insurance agent
CPA/Accountant
Real estate attorney
You will likely interface with all of these people directly. Remember, real estate is a people-based, relationship business. It’s nearly impossible to be a successful investor on your own. Networking and getting to know some of your key team members will help you grow as a real estate investor.
The best way I know to build my team is through referrals. If you’re JUST starting out and have never met anyone who has done a real estate deal, you may not know anyone who could give you referrals.
In that case, you’ve got to be a little more resourceful. It’s a good thing that Google is always happy to lend a helping hand. A great place to start is to simply do an online search for “the best investor friendly real estate agent” in your market.
You’ll get a laundry list of people who claim to be “the best” in that market, so the next step is to actually pick up the phone and start calling people.
I’ve found that calling is the most effective form of communication when forming and developing a new relationship. Attitude, tone, and emotion are much easier to convey over the phone, as opposed to through text or email.
Also, many people remember those with whom they’ve spoken over the phone. It’s much easier to forget someone who has only sent you an email. You want to be the person that agent thinks about when they come across a listing.
You should call several different agents to find the one that you like working with. Once you’ve found your rockstar agent, they will likely be able to recommend some lenders, property management, and insurance agents/companies.
They may also be able to recommend some other team members. However, just because someone comes highly recommended from another member of your team doesn’t mean that you don’t need to do your own due diligence.
It’s critical to remember that it’s still your job to vet and draft a great team. Recommendations are helpful, but there is no substitute for a live interview.
Step 6 - Make Offers and Close on Deals
One of the biggest lessons I’ve learned in real estate is that it’s free to make offers. Why not shoot for the moon and land on the stars? When I first got started in real estate investing, I would spend weeks doing due diligence on a rental property before I ever made an offer.
By the time I felt ready to make an offer, I had dissected the property every which way and was confident that I couldn’t lose. The only problem was that the property was no longer on the market! It had been picked up two weeks prior by an investor who was much better at deal analysis than I was.
I realized I needed to start honing my skills and learning what a good deal looked like. If I saw something that looked like a potential good deal, I would make an offer on it. Once I had it under contract, I could get into the weeds and find out if it was truly a good deal. That’s what the due diligence period is for … I was just previously doing things out of order.
Once you can analyze deals, start making offers. Again, take input and advice from your team, but you are the ultimate decision maker about whether something is a good deal or not.
It’s also important to be cognizant of who is giving you advice and recommendations. Realtors and brokers get paid when they close on a property. Property managers get paid when they manage a property.
Please don’t misread that as me knocking agents and property managers. I work with a great team and have nothing but amazing things to say about them all. The point I’m making is that you are ultimately responsible for calling the shots, as you’re the one footing the bills.
Step 7 - Schedule your time
You know your life and your schedule better than I do. But I assume like most people you’re busy. And if you have a full time, you will need to invests some late hours including weekends to build and expand your real-estate portfolio. So, here is an important question for you:
How much time can you and/or your spouse or business partner carve out each week to work on your real estate investing business?
So, how much time can you carve out? Based on my experience, you need at least 5-10 hours per week in order to give yourself a minimal chance of success. But the more time you can commit, like 10-20 hours, the more you will increase your chances.
Now look at your calendar and block out specific times to work on real estate each week. For example, if you plan to do real estate before your job each day and on Saturday mornings, schedule it so that nothing else gets in the way. This is like a work or doctor appointment. It must be scheduled in order to be a priority. Once you have the time blocked, you can focus on the actions you’ll take during that time.
But be realistic and if getting started with real estate investing is important to you, also be ruthless with your priorities. This isn’t a forever project. You’ll spend more time for the next few months to a year, but later as you gain momentum, buy properties, and build systems it will consume much less time.
Conclusion
Whew!! We’ve made it to the end of Real Estate Investing for beginners – 7 Steps on How to Get Started! As I shared in the beginning, my goal was to help you get over the fear and provide resource information to get you started.
As you may know, too much information can sometimes work against you as a newbie. So, I hope the action steps in this article will give you a framework to get started quickly. And if you get started and keep moving, you can avoid overwhelm and move past those other pesky beginner challenges like fear or analysis paralysis.
I cant say it enough, that there are so many resources, a lot of them are free and available to help educate people. There are countless books, podcasts, forums, meetups, seminars, and training programs that are readily accessible. Any and all are great places to start. So, don’t feel like you’re on this journey alone. Find what works best for you and absorb as much knowledge as you can.
But as you know, these steps are only the beginning. Real life is fluid, and the best plans you make will be tested and challenged in the forge of reality.
In any event, take your time with each of these steps and don’t be afraid to ask for help along the way. So, stay flexible, keep learning, and let me know if I can help by making comments below.
Were my 7 steps above helpful for you? What are your next real estate investing projects? What are your next actions? Do you have any questions or challenges?
I’d love to hear from you in the comments below.
Wishing you good luck and great fortune!
Teresa