It is a simple fact that nearly all successful business people hold significant real estate portfolios. So if you want long term, steady income, then real estate investing for beginners is just the place to start. Allow me to give you 4 fundamental concepts you must learn if you are going to be successful in the real estate game.
Real Estate Investors Must Have Funding
Now, notice I said “funding” not “money”. You don’t have to have money to become successful in real estate, but you must have access to money. Getting mortgages for your investment properties is still a good option, however it is significantly more difficult to secure a mortgage in today’s market, than it was a few years ago.
But there are other options available, like hard money lenders, who can issue loans to higher risk cases, but at higher than market interest rates. But let me say this:
It doesn’t really matter how much interest you are paying, as long as you are able to charge your renter or buyer more.
Now stop and think about that for just a moment. This is a critical business principle I am throwing in here for free. It doesn’t matter how much you pay for the product you are selling, as long as you can sell it for more. I’d pay $10,000 for a toothbrush if I knew I could get $12,000 for it from my buyer. You need to view properties the same way.
Another option is taking on a partner, however there is an amazing amount of risk to you when doing this. Refer to my Finding a Partner in Real Estate post for more information. Let me say here, do not use family, unless your family member is extremely interested in becoming a real estate investor as well. Even then, use extreme caution, it isn’t worth losing a brother or uncle over the matter.
Beginning Real Estate Investors Must Use the “Golden Rule” or the “Magic Pill” of Investing
I know it sounds really cliché, but I said that for effect. If you ever learn anything in real estate, learn this. You must, you must buy the property at a discount if you are going to make money. And when I say discount, I mean after you have done everything that is needed for the property to sell or rent, you must still be below market value.
So if a house is worth $100,000, but needs $15,000 worth of repairs in order to be sold, then you need to get it for less than $85,000, or you won’t make any money. The point here is, don’t expect to get any more for the property than the market says it’s worth. The sooner you learn this, the sooner you’ll start making money in real estate.
Real Estate Beginning Investors Must Find Motivated Sellers
This is a close second to buying below market value, as it is the only way you are going to be able to do so. When we talk about “motivated sellers” we are talking about sellers that have extenuating circumstances, and will be willing to sell their property at a discount, in order to meet more pressing demands in their life. Examples of this would be a couple that is getting a divorce and must sell the house, the owner getting a new job in another town, and must sell quickly, or someone who has lost their job, and must sell quickly before they lose the house.
There are all kinds of reasons folks would be motivated to sell, these are just to name a few. And finding these people are easier than you think. You could easily monitor your local paper for divorces and the obituary section, and then contact the people to see if they have any property they would be interested in selling.
You can also look at HUD owned and banked owned properties for other opportunities to get properties at a discount. I have successfully used Bid Select to find and facilitate money making investment property deals. It works!
Beginning Real Estate Investors Must Market Their Properties Well
Now when you first get started, it’s no shame to contact and develop a relationship with an agent or broker to help you. But long term, you are going to want to do this yourself, or secure a professional at a discount. Realtors are one of the most expensive parts of a real estate transaction, so wherever possible, I try to cut them out (there is no bias here, I am a licensed real estate agent myself!).
There are easy things you can do, like adding a listing to the local newspaper, putting out signs and fliers, but long term successful investors will have their own website to generate leads, as well as access to the MLS. MLS access can only be achieved through a licensed real estate agent, so I recommend thinking about getting your real estate license!
I’ve been involved in real estate for a long time, so if you have any questions or comments, please feel free to leave them below…