Real estate investing is one of the greatest wealth building and wealth preservation methods of all time.
It is also one of the few ways that someone not born into wealth can create their own wealth starting with little to nothing other than an intense desire combined with some ambition, drive, and willingness to do the work needed to get results in real estate.
While it is true that you can make money in real estate as an investor – it is also true that you can lose money too. You can also lose even more through risk exposure – especially in rental properties. There are plenty of real estate gurus and people constantly selling you on the promises of making easy money fast and the wealth potential, yet very few ever talk much if at all about the potential downsides, liabilities and other risk management things you really should know about.
The more you know the better the chances you will make good decisions that lead to your success. Also the better you will be able to protect yourself and your real estate investing business through sound risk management strategies and tactics.
Types of Real Estate Investing
One of the first decisions you will need to make is what kind of real estate investing do you want to do?
Commercial or residential or both?
Then you need to decide whether you want to buy and flip it (sell it for a profit) or buy it and hold on to it as a rental. Buying and selling is a short term approach and capable of producing more cash profit faster whereas renting your properties out is a long term approach.
You might even decide to do both. Buy, improve and sell some for immediate cashflow and profit. Over time you may also buy and hold some properties that you rent out and keep adding properties to your portfolio of rentals over the coming years.
You should also know there are many variants and other opportunities too – however, residential properties and basic introductory real estate investing methods are our focus for the purposes of this article.
In my opinion – for someone new to real estate – starting with residential properties is the way to go – even if you have a long term goal of getting into commercial real estate too. Its easier to get started in residential real estate for a number of reasons, and it is more predictable with less potential risks. Do be careful though, because contrary to the guru’s there is still a risk and you can lose money even in residential reals estate investing.
The key to minimizing that risk is in learning what you need to know before you just blindly jump in with both feet. So learn what to do first then go after it with specific plans toward specific goals.
Real Estate Investing Strategies
There are two basic approaches.
- Buy and Flip – This is where you find a property, acquire it and then as fast as you can sell it for as much profit as possible. In some cases in some markets it can be done without doing much if any work to the property itself, other than perhaps a good cleaning, some landscaping, and a few cosmetic improvements. In other cases, the property may need extensive repairs and improvements to be able to sell it. You need a sharp pencil and an understanding of how to do it all if you are going to make money this way. This is the method you see popularized by TV shows, which make it look so easy. It’s not. It can be very expensive, time consuming and there are many issues you need to address – including dealing with local authorities on permits and inspections and other regulatory issues that can cause you all kinds of headaches if you don’t know what you are doing. The more you know the better off you will be.
- Buy and Rent – The problems with rentals include the need to tie up capital in the asset (rental property) for multiple years vs the relatively fast turn around from buy and sell strategies which take place over a few weeks to a few months ideally. The benefit is that rents pay off the mortgage over time and value presumably also goes up over time resulting in more equity from that too. If the math is right there will also be profit after all costs and expenses on a monthly basis – and with enough properties – this cash flow can be significant. You do have obligations to consider first though. With most rentals the owner/investor has a mortgage payment to make. Then there is maintenance, upkeep, repairs, taxes, property management fees (if you hire a manager) and other costs. All before you make a dollar. There will be vacancies and evictions. People move out without notice, sometimes after damaging the property on top of it. Other times they stay but don’t pay. That can be because of a job loss or any number of reasons – however without their rent payment how are you going to make the mortgage payment and pay all the other things you are obligated for? So you need to learn property management and have systems and procedures in place to deal with all these and all other things you will face – that is if you want to be successful. Property management is both an art and a science to me – and most people suck at it. Why? Because they have no clue what they are doing and never bother to go learn how to do it better.
Finding and Acquiring Properties
Learn and know your market area. You need to know – not guess – what properties are worth in any areas you invest in. Ideally, it should be relatively near your home or at least within a few hours drive at the most, to begin with. Study property values there and market times and stay current on it al all times.
Use all available sources to find potential properties to consider. that includes your local paper, craigslist, the internet, and driving around. It also includes letting other people know you are interested in properties and asking them if they know of any. Use it all to find the best properties.
Once you find a property you need to do an initial assessment of it and run the numbers. Know what you can afford to pay and what you cant before you even begin negotiations with the seller.
Then make an offer.
Rememeber that you are an investor – not a home buyer. Your goal is to buy the property as far below market price as you can. Never at market price ideally and certainly not at market price when you are just getting started. You need capital to continue your business and the fasted way to get it is when you BUY the property – not when you sell it.
That also means this is a numbers game. Most properties are not going to work out. So long as you understand that it isn’t a big deal – just move on to the next one. But the thing is this, if you make enough offers – more than enough will be accepted and you will be amazed at what you can buy property for. The agents and the brokers will tell you it is impossible. They are wrong. Other people will tell you it is impossible too – and they are all WRONG.
I bought my first property when I was 20 years old and I sold it a few months later for over $7000 profit (plus a car!) and moved on to the next property from there. This was decades ago and my family, numerous agents and other people I knew at the time were always telling me what was not possible. Thankfully I never listened to any of them either.
Over the years I have purchased many properties far below market value – because I was bold enough to make such an offer and not be attached to the outcome. That’s simply sales. Make no mistake about it either – you are a salesperson already no matter what you do in life, and if you get into real estate as an investor you are in sales all the way up to your eyeballs whether you realize it or not and whether you like it or not. I suggest u decide to like it, embrace it, learn it and keep getting better at it.
Conclusion and Closing Remarks
Real Estate is a fascinating business that offers you all kinds of possibilities. Yet like everything else in life it is right for some people and wrong for others. You alone must decide whether you want to pursue it or not. I hope you do.
If you decide to go further – then start by beginning to learn about investing. But please do NOT run out and buy some real estate gurus “Real Estate Investing SECRETS” course or expensive seminar either! Most of them are full of crap and they are just going to take your money and then try to repeatedly upsell you on even more expense stuff – none of which you need.
Everything you need to know to get started can be learned from articles, posts, groups and other free resources along with a few inexpensive books and maybe a couple of good online courses that are under a couple of hundred dollars max. Many are far less than that too.
Start with the free stuff – start learning and doing research and see if you are staying interested enough to take it to the next level. Then maybe join a free real estate investing group online or in your area or both and keep learning. Then get started. Make some money.
After that, if you want, then you can invest some of that money into more expensive ADVANCED courses – and in time you will learn which ones are real and which ones are not. But you DO NOT need to be spending hundreds or even thousands of dollars on ANY course when you are first starting out. You have my thoughts on it – but as I always say – it’s your life and it’s you’re responsibility too – so do what you choose. Just make an intentional and well informed decision about it.
Thanks for reading and I will talk to you again soon!