When I asked myself that question I found so much information I was overwhelmed, but I read and listened to about as much information as I could find until I got to a point where I realized that until I acted there would be a limit on my education. Articles, books, podcasts, interviews, videos – they’re all good to impart the wisdom of experience and to help build a foundation to understand new terms, ideas, broad thoughts and principles, but there’s nothing that takes the place of doing. That said, we all start with the question “how do I start?!” Here’s how I jumped in – hope it helps!
- Wrote down your why
Knowing why is like having a guiding principle. Whether you realize it or not, your why (if you’re honest about your why), has tremendous power over your decision making, and it helps provide clarity on your thinking when you’re surrounded by too much noise. When all else is equal, your why will provide you the framework to make really grounded, intentional decisions. So, what’s my why?
“I’m investing in real estate to build generational wealth for my family and to provide a path so that we can see and experience the world together as a family.”
My why might not work for you – that’s cool, it’s mine. Yours many sound very, very different. So what does my why say about me? Well, practically, it’s a long-term (buy & hold) strategy that builds wealth over time, but also provides significant enough cash flow to travel as often as we’d like as a family.
- Pick a strategy (and market)
Bill Gates is credited with the idea that most people overestimate what they can do in a year but underestimate what they can do in ten years, and believe the same. The world is filled with successful people who, ten years earlier, were in a much different place. I would argue that many of those people had an above-average drive and near singular focus on a goal. In real estate, like marketing, you can’t do everything and do it well – at least not at first. There’s so much to learn, to know, to understand in various segments, it makes the most sense to pick a strategy and own it – be the best at it. The team at Bigger Pockets talks in terms of strategy and niche – how are you working and what are you working on? For example, fix and flip (strategy) single-family homes (niche). BRRRR (strategy) small multi-family homes (niche). Wholesale (strategy) mixed-use properties (niche).
I look at real estate investing as a long-term game. There are things that I want to do in 10 years that I either can’t or don’t want to today, so I believe that strategies change over time based on where you’re headed. As I start out, here’s my strategy – BRRRR multi-family properties (2-4 units). I’d be lying if I said I wouldn’t consider BRRRR for a single-family, or even a fix and flip on a single-family if the conditions are right, but I’ve set up my business and my processes around my primary strategy of BRRRR for small multi-family.
In terms of picking a market, I eventually want to invest out of state in some up-and-coming markets but my focus in my own backyard – properties that I can visit within 2 hours. Our market (like many right now) has historically low inventory and days on market which is driving competition and costs up – hopefully, that continues!
- Find deal sources – MLS/agent, wholesalers, and off-market referrals
I’ve read about investors who only find deals on the MLS and I’ve read about investors who won’t touch the MLS because they feel like no good deals can be found. I believe too many people read or heard about one approach, accept it as dogma and try to force-fit that approach forevermore. There are about as many ways to be successful as there are stars in the sky – the secret is actually no secret at all – find what works for you! One thing that I do think is true, no matter how you go about your real estate investing journey, is that you have to find deals. If you’re not regularly looking at property, evaluating potential deals, and making offers you’ll never be successful.
In order, here’s what I did when I started:
- Zillow / Redfin / Realtor.com – I created my own searches on all those platforms and looked at them daily to see what was available
- Find a licensed agent – I found a licensed agent to help with my searching and to help evaluate deals, weigh in on things like ARV, and get me access to more detailed information (like lease rates) that are in the MLS but typically not on the sites mentioned above. Read more about my “adventure” finding an agent here.
- Drive for dollars – literally driving around my market looking for properties that fit my criteria. I also invested in software to help keep track of properties I liked and market to their current owners in the hope of creating good off-market deals.
- Browsed forums @ biggerpockets.com for Wholesalers in my area – I started just at BP but also looked on Facebook and craigslist to find wholesalers in my area. A good wholesaler gets paid well for finding and transferring a property – and that’s just fine – just make sure your numbers still work.
- Ask contractors, friends, and family – you wouldn’t think of it first, but it’s pretty amazing how many “friends of friends” (or something close to that) know someone who might be willing to sell their property – or know that someone is about it but it hasn’t been listed yet. Those opportunities can be golden – don’t pass them up. Just because your friends and family aren’t real estate investors doesn’t mean they can’t be great lead generators.
- Evaluate deals – every single day
I have repeatedly read and been told that the vast majority of people who start their journey in real estate investing never even make an offer to buy a property. I recall a webinar I attended when I started this journey. It was a Tuesday evening and there were over 3,000 attendees on the webinar. The host was dropping knowledge and tips that were so good – just amazing stuff. In the wrap-up he said, some of you will make use of this, but sadly most of you won’t. He went on to guess that of the 3,000 attendees on the webinar that night, only about 10% would ever make an offer on an investment property. He further said that of those, about 10% would stop after 1 or 2 properties. That’s about what I’ve seen in my own backyard as well. Most people don’t want to think this way – and that’s okay. In fact, that’s fantastic! This business is such an interesting mix of support and competition – “coopetition” as I’ve heard it called.
So, how to break through to the first important stage – making an offer? You get really really comfortable and confident in your numbers, and you only get there once you begin evaluating deals regularly. When I say regularly I mean daily. My schedule will change for sure, but in the last two months, I’ve spent at least an hour each day on average evaluating properties and running my numbers. (One day not long ago, I looked at 117 properties in a single day – check that out here).
To help get you started (and depending on your strategy) you’ll want to know about a couple of “rules” that get tossed around a bit.
2% rule (which is also the 1% rule – I know that’s confusing but it is what it is) – this is a good one to evaluate whether or not a rental property is likely to produce positive cash flow based on the sale price and rental rates.
50% rule – this rule of thumb helps you determine at a high level how much money you’ll have each month to service your debt and, as a result, how much cash will be leftover.
70% rule – if you’re a fix and flip investor this is a good rule of thumb to determine the maximum amount you should pay for a property. There’s another version of this “rule” for BRRRR investors as well that Seattle real estate investor Thach Nguyen uses. (If you don’t follow him, he’s pretty interesting. 30+ year REI career, $100K+ in passive monthly income – wow!)
- Make an offer
Let me jump way ahead here – you’re most likely not going to get this property. But most new real estate investors are so afraid they might be wrong, they never get to this step. I am not advocating for someone to guess at a number and offer it up without some planning, but if you’ve done the above, you’ll be ready…and you won’t get it. In my market, most anything decent listed on the MLS has 10-12 serious investors competing for it. Even off-market deals sometimes have recent offers so the competition is everywhere. Don’t bend – be patient. Do not get emotionally attached to properties that you don’t have, to offers, etc – be clinical. But, make the offer, even a lowball offer. Run your numbers and make the offer. (This is why it’s important to work with an investor-friendly agent who understands that they’ll be writing lots of offers, and not a typical seller’s agent who only represents traditional home buyers – they won’t have time or patience for investors.)
Most seasoned investors will tell you that all of this is just the beginning, and that’s right. Once you have a property under contract there’s lots to do – it’s all just getting started – but that’s beyond the scope of my post here. This is intended to provide a few concrete to-dos for people who are just starting out. As my own journey continues, you can be sure I’ll include more of my own successes and missteps along the way in the hopes that it helps others. Good luck getting started!