Totally brand new to real estate investors reach out to us wondering the best way to get started? In today’s blog post, Kim takes a look at what we think the top Five Things the Person New to Real Estate Investing should do.
I have been investing in real estate in Kansas City with a few Mortgage Notes Deals across the US for the past 20 years. I also own and Manage Mid-America Association of Real Estate Investors in Kansas City and I have seen 100’s of brand new Real Estate Investors come and go. I have also seen a lot who do ok and I have seen a few who were widely successful.
I have also seen some who were widely successful in the early years fall flat on their face a few years later when the market shifted and their chosen way of investing stopped working. Or who were not as widely successful as they lead people to believe and were actually robbing Peter to pay Paul and it was a whole “House of Cards” as they say. So before you buy into someone who is going to show you the ropes, make sure they have done more than a few deals and been through a couple of cycles
But we are talking about where to get started, not who to get your advice from, so let’s dig in.
Explore all the Ways to Invest in Real Estate in the Kansas City Market or Your Market.
There are a lot of different ways to invest in real estate. Some that takes a lot of cash, not necessarily your own cash. Some that take a lot of time. Some that are very passive once set up. Some that are more hands on. I suggest reading books, listening to podcasts and TALKING to people in the industry to see what they do and how it works for them.
Cash Chunks:
These are ways of investing that create chunks of cash. This is where our team spends time – marketing for deals, talking to sellers, buying low, maybe fixing up, selling high and earning a profit. Anywhere from about $3,000 by Assigning our position in the contract to about $40,000 for buying the house and then reselling it.
So this will be strategies like: Wholesaling, Rehabbing, or a Combination of the two. There is also the strategy of finding seller-financed mortgage notes to buy and resell.
These are strategies that investors turn to so they can either pay down debt or build up cash for other investing strategies. I see many a new investor say I am going to wholesale a couple of house, maybe rehab a few and then I am going to buy and hold.
Cash Flow:
These are ways of investing that in “THEORY” create a “PASSIVE” income. I could explain it all, but I am assuming you have heard the term BRRRR – Buy, Renovate, Rent, Refinance, and Repeat. GREAT CONCEPT to create a monthly cash flow income and retire your JOB. Google the term there are 100’s of articles, posts and podcasts on how this works.
There are many different ways to buy these deals and many niches within the BRRRR: Usually, find a property, maybe buy with cash or hard money and then refinance with a bank. Great way to build cash flow.
But in the Niche areas: You could use those wholesaling skills you started with for your first few deals to find really motivated sellers so you might be able to:
1. Buy with Seller Financing
2. Buy with Zero Percent Financing
3. Buy Subject to the Seller’s Existing Financing
4. Buy with Private Partners
So for those of you saying I don’t have any money so I can BRRR yet, I have to wholesale for a while, I am here to tell you that you do need to have some cash for a few repairs here and there, but I know a Nice Lady who set out to acquire 100 rental doors using very little of her own money with the above creative strategies and was very successful. She was using the top 3 strategies to buy houses and rent out some with traditional rentals and then renting a few with the lease option. She did this all on her own with the help of one staff person to manage the rentals after she had so many doors and of course a few contractors to do repairs.
Of course, the reason why we like the BRRRR concept is that you can do this around a JOB.
Truly Passive Cash Flow:
One other option in the cash flow area is to be a Private Lender. So, for example, I have a nice person (several in fact) who have no plans of leaving their job until they reach retirement age. But they have money in the bank and in their retirement accounts that they want to invest. So when my team buys a house say for $60,000 for example and does some minor clean up and fix up for another $10,000 and can then sell for $100,000, they lend me $70,000 for some sort of return on their investment. Maybe 8% and maybe a flat fee of $2,000 if I pay them back in a week. For our beginning investors who have a Self Directed IRA or could create one by rolling over retirement funds, this might be an option.or
Develop Your Own Real Estate Investing Plan based on what YOU need, not the Latest Thing Being Pitched.
This is where you sit down and take a look at where you are at financially and time-wise. Write out all your money coming in, all your money going out, your debts that need to be paid and your available time. See what kind of money and time you would have to devote to your real estate investing.
Think about what you want to get out of this investing: Do you want to pay down debt, build up cash reserves, replace your job. Put real numbers to this and time frames.
Then go to all the ways you found for investing and select ONE strategy to start with to learn and start reaching initial goals. You may have a couple of other strategies you want to develop into in a few years, but for now, let’s just focus on one.
Get Education
So many new investors call me or message me and ask me if I can mentor them on whatever strategy they have decided on in their planning. And I always suggest a training course that I may have utilized myself to learn. And they come back with, I would rather find a mentor, and that just tells me they don’t want to spend the money or time learning.
I too was once a brand new investor. And I just could not find a way to part with that $1000 or whatever it was that the trainer was charging to get his or her step by step plan. My plan was to read a few books, listen to podcasts and figure it out on my own. All a great plan if you had the time and I did, we had other ways of making money in real estate to supplement our time curve of figuring things out and we were doing OK, buying a house here and there to rehab and sell.
And then one day I heard a speaker talking about wholesaling. He explained his course that had all these resources for finding lists, all these letters and postcards were already written for me, a software to manage, resources to take calls and everything I needed to wholesale a house in one notebook. I bought this notebook that came with 3 other specialized notebooks on wholesale niches. Read it in a day, put it on the shelf and it made me no money.
A few months later I got out the book, dusted it off and followed the instructions step by step and in about 2 weeks I had 10 motivated seller calls from 1000 letters sent. One was a deal, we bought it, we cleaned it out to rehab. We put our investor sign in the yard after it was cleaned out and sold it to the neighbor who was a landlord and made $13,000 in less than 30 days.
I became a firm believer in buying training. Not any training, so do your research, some trainers are better than others. And I highly recommend if you are buying training to look to the speakers that your local REIA group brings in for 3 reasons.
1. Buying Power:
The REIA, if t is like mine is a part of a larger organization – National REIA, so if the speaker they bring in provides less than stellar training or customer service, its not just you trying to get things made right, but also all the members of your local REIA and all the members of all the members of National REIA who can get that speaker to make things right. Those guys and gals that come to town promoting themselves, well you have no way to force them to make things right if something goes wrong.
2. Vetted Speakers
The REIAs who are a part of National REIA all compare notes. And the bad speakers, well word goes around who is good and bad, we even get together once a year to talk about them and quite often pick our speakers of the next year. And every year there are one or two speakers that get talked about that no one would ever have speak again and the few that everyone just loves.
3. The REIA Makes Money
The speakers sell their training to make money, that’s why they are there. But because the REIA spent money to provide them with the room, gathered a very interested audience, and promoted the event, the REIA makes money – that helps them pay for things like:
- The monthly meeting space where you should be going to network each month,
- The social media groups the REIA manages and provides so you can connect online.
- Money to spend on Advocacy efforts to protect your real estate industry.
- And to pay for the time and effort your REIA leaders spend in running the thing.
Most people are going to buy training at some point in their real estate investing career and starting at the local REIA to buy that training is going to be BY FAR some of the best and lowest cost training you will ever receive and the profits off of that training that goes to the REIA supports YOU and YOUR BUSINESS in so many ways
Learn What a Deal Is For Your Investment Strategy
This is where so many new investors fail. They don’t really know what a deal is, they take advice from someone they should not. They buy a property that is really not a deal and they fail. They stop and we never see them again. So while you should learn about ways to invest, develop a plan, join your local REIA and get an education. You should at the same time EVALUATE 100 deals or thereabouts so you can spot a good deal.
You should get on every wholesaler’s list in town, you should get a couple of Realtors to feed you deals. Search on Zillow and on Loopnet if you are looking for multi-family. Look at the emails that come through, look at the pictures, crunch the numbers. Learn what a really great deal is.
Now some will say, I am going to hire a buyers agent and have them help me. Great plan, except when you pick the wrong buyers agent. My first buyers’ agent knew his stuff, way more than me. I didn’t know much and when he showed me our first few deals, yes we bought 4 houses at once. They looked amazing on paper. But strangely, the day after closing, he disappeared to never be seen or heard from again. A few weeks later I became a licensed agent and discovered my buyer’s agent was really a scam artist.
Now, most agents are not scam artists, but they can still advise you wrong. I did meet another investor early in my career. A friend of mine had sold him a house and he was struggling with it. He wanted to know why he could not sell it, our Realtor friend had told him to do X and Y to the house. I went to look and that particular agent was all about rental property and had sold him a house in a mostly rental neighborhood that would be very hard to sell retail, and had told him to make repairs to it so it would rent well. His model was to buy, fix up and resell. The agent had advised him based on BRRRR.
So I am going to tell you to evaluate 100 deals. Physically go look at as many of those as you can. Share them with folks here on forums, get their input. And along about property 50, the numbers will start to make sense. At about 75 you will be good at it and for the most part, know what a deal is. At property 100, well you will be an EXPERT.
Network with others in the Business Where you Live and Where you Invest
This is where you are going to make money. You want to network with people who are in the business of doing what you want to do, both in your home market, where you live so you can go to meetings and events regularly. And also in the area where you invest, if that is different than where you live. You not only need to build your team of service providers but a circle of friends who do the same thing you do that you can share deals with, call upon for advice, possibly fund each other’s deals, exchange ideas and more.
Your first network should be your local Real Estate Investment Group. I would tart out at National REIA and find a local Chapter (there’s a lot of requirements to be a chapter – code of ethics, advocacy, member benefits, discounts, training) and join and ATTEND, their meetings, their subgroups, and their workshops. Next, I would see if your local group has an online forum where you can connect between meetings. And then I would see if your local REIA has subgroups or members of the group that host other meetings and events. And if there is no REIA group close, then go to Meetup.com to see what you can find. Just be careful as anyone with about $85 can start a Meetup Group and have no idea what they are doing.
At the local REIA and a few smaller Meetup Groups, you will find service providers that will help you grow your business. When I need a product or service provider that I have never needed before, my network provides me with a referral. When I need funding for deals, my network is where I have found 5 of my private lenders. And my network also puts my Self Directed IRA to work so it makes money. When I need to sell a wholesale deal, my network often buys it and when I have a problem I need to figure out, I turn to the network for advice.
So that’s it in a Nut Shell. What I think the brand new investor should do to get started. Thanks for Reading
Here in Kansas City be sure to check out www.MAREI.org and their online forum on Facebook www.MAREI.org/Facebook
About the Author: Kim Tucker and her family Husband Don and son Scott buy and sell houses in Kansas City. If you are looking for deals, be sure to register as a buyer at www.KCInvest.com. And if you have a house you need to sell, be sure to submit it to www.kcmoHomeBuyer.com.
Wholesalers, if you have a deal don’t have the money to buy cash outright, submit it through our website at www.kcmoHomeBuyer.com, If its a deal that would work for us, you could assign us the deal for a few $1000. We could buy it all cash in a few days and then resell it for a profit to our network.