No one has any experience until they have experience. That’s what I always tell people who ask me about beginning a real estate investing business. It seems like a basic statement, but it’s one people who are looking to get in the business worry about. They fear they don’t have the experience, the knowledge, or the ability to achieve their goals.
That’s understandable—real estate investing is a business that rewards experience. When I started, I wasn’t totally sure what to do and sort of played it by ear until I made a life-changing decision. Now people ask me about how to get started and I tell them: While there’s no substitute for experience, there are ways that you can stay ahead of the curve while building that experience.
Have a plan. Gather the right resources. Find the people that are going to help you achieve your goals. There are ways beginner real estate investors can prepare and there are ways to tap into the knowledge that old-timers like me have spent a lifetime building. So, let’s get you started.
There’s so much more than just the cost of purchase plus rehab equation. When you really start to add up the cost to flip a house, you see that there are a lot of hidden expenses, all of which can eat into your bottom line.
When revenue exceeds expenses, you win. The only way it can do that is to understand the true costs. Here’s how you get the numbers right.
Real Estate Investing for Beginners: Step-by-Step
Your career in real estate investing doesn’t begin with buying a house. The last thing you want to do is grab some property and then think, ok, what next? In a lot of ways, buying a house is the last step—or at least the end of the beginning.
You have to start with a plan. And your plans can change as the market changes, you get more experience, or develop other opportunities. But, here are the steps you need to take to set yourself up for a strong start.
1. Identify your goals
How’s this for a goal? Get rich, quick!
That’s an unrealistic one. It might be a goal that’s touted by gurus or pushed by a bunch of TV shows, but that’s not how it works. If that’s your goal, you’re never going to get there. You need a realistic idea of what you want to accomplish and that begins with deciding what kind of business you want to have.
There are three broad categories of real estate investing business goals.
You have a job, you have some savings, and you want to turn that into a side hustle for extra income. This isn’t going to be your primary source of revenue—though, it can turn into that. Your plans for the future are heavily involved with real estate investing, but you have other ways of maintaining financial stability in the meantime.
Full-time investment business
Real estate is going to be your primary income. Your job will be to find houses, fix them, then sell, or rent them out. It’s a job, sure, but you don’t have a boss. Your life, and your finances, are entirely self-directed.
You’ve retired, have some savings, and want to stay active. This can also be full-time, but there is a different sense of urgency. Just remember that investing in real estate after retirement isn’t a hobby—there are serious financial implications.
This decision revolves around more than just how much time you want to spend doing this. It will also influence how much you spend on houses, how big your portfolio gets, and, of course, your potential returns. The other primary aspect of your real estate investing business plan to consider is if you are working with partners or going solo.
No matter what path you choose, you’re establishing a line of work where you are in charge. That’s exciting. It’s also scary. There’s no one to ask questions to, which is why so many people look to different organizations for guidance and advice.
2. Choose your strategy
Just as important as deciding whether to go all-in or build a business over time is identifying your strategy. There are a lot of different kinds of real estate investment strategies, all of which are good ones, but not all of which might be right for your market, your talents, or your particular goals.
The three primary ones are:
This is probably the most well-known way to invest in real estate because you see it on all the TV shows. In theory, you buy a distressed property, turn it into a dream home, and then sell it for huge profits. Closer to reality, though, your goal should be to make steady profits at a decent margin.
🔑 Know your market
You don’t want to put $50,000 worth of work into a house where the average going price is $100,000. Too many people just see the finished product and not the environment in which the product is going to be sold.
Understanding how to value a house and the costs of the necessary work is one of the most important aspects of buying, rehabbing, and selling houses. And, it is the one that might be the hardest for people without much experience.
➠ Buy-and-hold rentals
You buy a house, single or multi-family, and hope to sell it in a number of years when you project it will be worth more. Of course, you don’t want to just hold onto it and do some occasional dusting. The whole time, you’re paying taxes, utilities, mortgage, and more.
So, you need to rent it out. But, knowing what to look for in an investment property is an art and a science. You have to have a house that doesn’t require so much work that you can’t afford the loan. You want a house in an area where people tend to rent. But, be cautious: A $1200 a month home in a $500 a month neighborhood isn’t going to get tenants.
Buy-and-holds can be a great way to make passive income, which can help keep you liquid even if you are also engaging in active income strategies. But, you need to make sure you aren’t holding onto empty properties.
Wholesaling houses is fast-paced, exciting, and can be nerve-wracking. You buy a house from a distressed seller and then, in turn, sell it to another investor-buyer for a bit of a ‘finder’s fee.’ That means getting there before other buyers who are willing to pay a little bit more than you.
A lot of people are able to wholesale houses as a full-time or part-time business. But, before you dive in, there are a few questions you need to ask yourself.
- Is wholesaling even legal in my state? Be sure to check with your legal advisor about which methods are and are not allowed.
- Can I do the math so that I am making an offer that ensures enough upside for everyone—including me?
Some guru-driven formulas for wholesaling houses can lead you astray.
- Do I have enough buyers lined up so I’m not sitting on a house for a long time?
Answering these questions isn’t easy. But getting the answers is vital to achieving your wholesaling goals.
Needless to say, you don’t have to choose just one of these real estate investing strategies. Some investors find mixing them up helps to build a growing business.
3. Get realistic about hard money
Let’s say you have a spare $150,000 lying around. First of all, congratulations. And, now you’re looking to get into real estate investing. Hey, there’s a house for sale for $120,000! You think you could buy that, put $15-20,000 of work into it, sell it for $180,000. Sounds like a tidy margin, right?
Well, there’s a few things wrong with that.
#1: If you don’t sell it for that, you eat into your returns.
#2: If you don’t sell it for a while, the holding costs cut your expected ROI.
#3: That’s all the money you have.
In real estate investing, you have to be realistic about your finances. You can’t afford to put your whole nest egg into one basket. That’s the best way to get ruined. You need to look into loans to get the liquidity to buy a distressed house and rehab it.
Hard money loans are the best lending vehicle for real estate investors. They are faster than banks and are designed for real estate investments. Of course, the less experience you have, and the worse your credit, the higher the rates. And rates also impact your profit.
The rates and terms of the hard money loan you qualify for can be impacted by a lot, including:
- Your cash on hand
- How many deals you’ve done
- The type of house you are buying
- The state of the real estate market
Now, some lenders care more about experience, some are really picky about credit. There are tons of hard money lenders nationwide. One of the challenges is finding the one that can give you the best rate for the specific deal. So, it’s important to have a plan to find quick cash when you find one that fits your investment criteria.
4. Create your investment criteria
So, you’ve decided to buy your first investment house. But, of course, you’re not just going to buy any old house. In order to maintain discipline when starting, it’s good to lay out your criteria. You can be as specific or general as you want but it should be based on your finances, your abilities, and the market.
Some of the criteria your investment categories could be aligned with include:
- Cost of the house
“I only qualify for a certain amount of financial backing.”
- Size of the house
“I don’t want to deal with anything larger than four bedrooms.”
- Area criteria
“I want something that’s near schools since my business plan involves attracting families.”
- Work needed
“I only want to put X dollars into this, so if it is too broken down, I’ll pass.”
- Average area cap rate
“This is an investment property so I want a neighborhood where average rent is $X more than my monthly bills.”
Obviously, none of these are set in stone. But, understanding the type of houses that fit your business plan is crucial to financial discipline, and, almost as importantly, to the way you pursue leads.
5. Develop a strategy for finding leads
Remember above when I said you can’t have experience until you have experience? Well, here’s another one that will blow your mind: you can’t sell a house until you find it. That’s where your lead generation strategy comes in.
There are a lot of ways to find houses that are for sale. A few of the more popular ones include:
- Paying a real estate agent
- Looking through free internet listings like Craigslist or Facebook Marketplace
- Joining real estate investing clubs
- Sheriff’s and foreclosure auctions
- Joining a franchise
- Walking around and knocking on doors
- Lead lists and direct marketing
Overall, there are two main criteria when it comes to finding leads: 1) Is there a good ROI, and 2) Is it worth my time. All of these lead generation methods take time and money to different degrees. Even walking the neighborhoods costs money, if you think time is money—and in this business, it is. Not all of them are worth it.
Sheriff’s auctions, for instance, often have a good selection, but a lot of competition and red tape. In some states, a foreclosed-upon homeowner could take back their house months after you purchase it. Even if you eventually get it, that’s a lot of legal fees.
Paid listings and real estate agents cost a lot. Free ones make you sift through a lot of chaff before you find any wheat. It’s not that you can’t find a great house using any of these methods. It’s just that there are usually more elegant ways.
A big way to get leads, a better way, is to have a known brand that people trust.
6. Build a marketing platform
Let’s say a distressed homeowner wants to sell their property. They need to get it done fast and they don’t want to go through a real estate agent. So, they’ll try to find a direct cash buyer. You want that person to be you.
There are a lot of different ways to market yourself. There are the aforementioned Craigslist, Marketplace, and other sites. There are radio ads, TV ads, billboards, direct mail, and paid internet advertising. Some people even hang up signs on light posts that say “I’ll buy your house, you can TURST me” (spelling error theirs).
Don’t be that last guy.
But otherwise, these are all reasonable marketing techniques. Some are better than others, of course. On Craigslist and Marketplace, you have to keep bringing your ad to the top, otherwise it will get buried. That costs money. For the others, you either have to have instant name recognition—which won’t happen when you are starting out on your own—or you have to catch them at just the right time.
Essentially, your real estate marketing platform has to be ubiquitous enough that you can get a homeowner’s attention the moment they are ready to sell. You have to find a way to be the brand, or be attached to the brand, that people think of when they think about selling.
7. Learn how to close a deal
OK, this is probably the toughest one to do without experience. You can have a house, and it fits your criteria, you feel confident you and your team can do the work. But, now you need to close the deal. That means building trust, being sincere, and calculating what the right offer is.
The right offer should be enough so that the person gets what they deserve, and you can make a reasonable ROI when you sell or rent it out. That means understanding the market, understanding your costs, and ultimately, understanding human psychology.
There’s a good chance the seller is going through an “ugly” situation. Job loss, a death in the family, divorce, a looming foreclosure—or worse. But that doesn’t mean they aren’t human beings, ready to be taken advantage of. If you treat them with the respect they deserve, and treat them fairly, you have a much better chance of making the deal.
All of this comes with experience. Ideally, you can speed up that experience with good training. Getting to a “yes” is one of the hardest parts of this business.
8. Build your contractor team
OK, you’ve got a house lined up. You’ve somehow closed without looking at the next step. You know all you need to do is fix the roof, put in new kitchen cupboards, and finish the basement. Then you’ll have a place that everyone in the area will want to rent or buy. Awesome! Now, just to find a roofing person. And, a cabinet installer. And, I guess, a basement guy?
If you start looking after you buy, you’re at the whims of the market. If every roofer is busy, you’re sitting on your hands. And, that isn’t cheap.
So, make sure you have contractors lined up that you are ready to hire. Talk to other people. Get referrals. Make introductions. Let them know who you are. That way, when you’re calling, they pick up.
As you move forward, you have an established team—if you treat them right. Bring lunch sometimes, you know? Don’t nickel and dime your workers. Unless you’re Bob Villa, you’re going to depend on them to make this old house shine like new.
9. Develop a strategy for selling
Everyone loves the fixing part. That’s where you can be creative, get your hands dirty, even if just by hiring people. That’s where the magic happens and a run-down house becomes someone’s dream.
That is, if someone buys it.
The “flip” part is where people often get stuck. No one has ever said: “This is as fun as selling a house”—at least not sincerely. Think of this as the flipside to buying. The ways to sell are mostly the same: advertising, possibly working with a real estate agent, and having a real estate investing circle.
But, just because this isn’t the fun part doesn’t mean it isn’t important. It’s hugely important, and it is often overlooked. It never, ever’ just happens.’
There are more expensive ways to sell a house fast, like hiring an agent, and there are cheaper ways, like doing a FSBO. Cheaper ways that take longer so you’re sitting on the house longer, paying taxes and utilities and a looming date for paying back your hard money loan. So, either way, it costs money. This is especially true if you are wholesaling and every day cuts into your tight profit ROI.
That’s why you need to factor in your selling strategy with all your other costs. What are you going to pay for marketing? Are you going to hire a seller? Is it cheaper in your state to sell-by-owner and pay the bank?
Having a strategy for selling is a key part of getting started. It should never be the last step.
10. Get at it!
Ready to get started? Go!
OK, I get that this is a lot. It’s not as easy as “Buy low, sell high.” If it was, everyone would be doing it, and we’d all be rich. Clearly, that’s not the case. That’s why you need to find a way to make the most efficient use of your time and money. Luckily, there’s a way.
A Solid Path For Beginners in Real Estate Investing
I mentioned at the beginning that I once made a life-changing decision. That’s when, after a few years on my own, I became an independently owned and operated HomeVestors® franchisee. It was probably the best decision I’ve ever made in my professional life.
|Real Estate Investing Support||How I Benefit|
|Industry-leading training||There might not be a substitute for experience, but training from seasoned HomeVestors experts is pretty darn close. You can learn more about financing, how to read the market, how to close, how to find contractors, and everything else. It’s not a shortcut. It’s a ladder.|
|One-on-one mentoring||There’s nothing better than having a professional to talk to and through the HomeVestors mentoring program, you’ll have that. People in this business love talking through deals and figuring out problems. You’ll have access to some well-earned wisdom.|
|Unparalleled access to hard money||I have a proprietary hard money portal, where I plug in the data from my deal and get offers from some of the most trusted lenders nationwide. And, they compete over me. I get to pick the lender with the terms I like the best.|
|Qualified leads||I have the weight of the HomeVestors’ marketing apparatus at my back. The nationally-known and trusted “We Buy Ugly Houses®” campaign cuts through the noise. I don’t have to promote myself as heavily. Qualified leads come directly to me from people ready to sell, with less competition and before the house goes into foreclosure.|
|Network of wholesale buyers||As I mentioned, wholesaling is fast. You need buyers to sell—and fast. As a HomeVestors® franchisee, I have access to DealVestors®™, which is an online platform for professionals ready to buy. It really turbocharges the process.|
Being a HomeVestors® franchisee means launching your career, your side hustle, or your retirement plan off on the right foot. It has worked for over 1,100 professional real estate investors. It means being your own boss, but being supported by those that have ‘been there, done that.’.
Beginnings are never easy. Real estate investing for beginners is particularly hard. But with hard work, some luck, and the best tools and resources, you give yourself the best chance. If you’re interested in the support you get from becoming a HomeVestors® franchisee, request information today. It’s the experience that gets you experience.