Getting Started in Real Estate Investing


Getting Started in Real  Estate Investing

by James Miller
Getting started in Real Estate Investing can be both promising and confusing.  Do you start by Flipping, buying a rental property, assigning contracts, bird dogging, or any of the other hundreds of ways to make money in Real Estate?

If I were to have to do it all over again here the approach I would take:

Since your knowledge level in real estate is low, you will want to minimize the downside risk.  You don’t want to tie up a lot of cash, or use your credit. This eliminates most conventional ideas on how to make money in Real Estate. We see people on TV making a hundred thousand dollars buying an old house, fixing it up and reselling it.

Surely if we even did half that well we would still make a fortune.

It’s possible, and many do it, but that is one of the highest risk methods of real estate investing there is. It takes  relatively large amounts of money, specific skill sets (or hiring contractors) to get the work done. The property is uninhabitable for the entire time the work is being done on it, but you still have to make the mortgage payments, and pay utilities and taxes.  Even with a good home inspection, there are always unexpected repairs and problems that creep into the picture.

I can tell you this as I am in the process of two rehab projects that are requiring much of my time, money for contractors, mortgage payments, utilities and taxes.  As I sit repairing them the housing market slides lower and lower.

Will I make them work?  Yes, eventually, but it is only because I have one thing on my side that investors just getting started don’t:

Experience.

I have rehabbed several homes with my own two hands and have seen enough to know what problems to expect. I know how to exit the properties and I know how far to take a rehab, (as it is easy to over-fix a property and not get the money back out).  Do I still make mistakes? Yes, all the time. But experience shows me how to minimize the chance of problems and how to best handle them if they do creep up.

What I am driving at is that you do not want to take on a “flip” right off the bat.  Save those speculative investments for after you have been around the block a few times.

If you can accept the fact that you have the greatest potential for failure when starting out, you should be comfortable with the idea that you will need to position yourself for the least amount of risk to your money and your credit.  As your knowledge grows, so will your ability to make money. This will in turn lessen the risk of any money you put into a deal.

You want to have the lowest risk possible with the highest possible return.  Always try to Limit the downside while having the highest upside potential possible.

Here are the absolutely lowest risk ways to get started in real estate:

Bird Dogging
This is where you are hunting down deals for other investors.  If you get a deal for them you will typically get paid a finder’s fee, or possibly cut in on the back end of the deal.

Making calls & reviewing properties and deals for other investors
Good real estate investors can be pretty busy. Helping them make outgoing and incoming calls and becoming their “go to” person to handle lower level tasks probably won’t pay much as far as a wage, but what you can learn from the right person will far outweigh most wages.

Flipping contracts
Getting a property under contract an then selling your position in that contract to another investor can be done with minimal risk. You can have

Buying properties “Subject to” the existing mortgage
Buy a property for what someone owes on it, the Deed transfers, but the mortgage stays in their name. While their credit and not yours is tied to the property,  you do have a moral obligation to do what you say you are going to do. If you promise to make their payments, you better make their payments.
For a long time this has been one of the most leveraged ways to get into a property. You can help a lot of people out who may otherwise lose their home, however in some states there is legislation against buying a property “subject to” and many are trying to enact it as an unscrupulous investor taking over a property can skim the equity from a property and walk away.

Working with a partner
You may be able to work out a deal where you do the work for someone who has the cash or credit, but may not have the time to invest into a deal. In return for your work, you would get an equity position in the property.
Ways to invest in real estate that require some money, but no credit as long as you do not sign a personal guarantee:

Optioning a property
Will require money for option consideration, giving you the right to buy the property within a certain time frame. Similar to getting a contract on a property, but usually for a longer period of time.  If the option is not exercised the money is forfeited.

Buying a property using a lease Option
usually requires some money down for the option to purchase. You rent the property until you are able to buy using conventional financing. Allows you to “test the waters” without risking your credit.  If you default on the lease, or if the option expires, you will forfeit the option money. The deed does not transfer.

Buying a property using a Land Contract or Contract for Deed
This is a little stronger than a Lease Option but may require more down as well.  The Deed does not transfer.

There are other methods as well, but these are the ones I would start with. After time you will find that all of these, as well as, other Real Estate investment techniques revolve around effective marketing.

The key is to always think to position yourself for the least amount of risk first and then the highest possible reward.

As always use a good attorney for both advice and the proper documents. They are worth every penny.

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