Continuing the series on How do I get Started in Real Estate Investing?, let’s look at some other things that can really affect your real estate business in a negative way if you do not take care of them before you get going. Now, I last left off on the point of making sure that you invest locally, in a property that is near by to where you live. To that end, let’s look at some more points on your first property.
Farm Your Local Real Estate Markets
This carries the idea of driving through neighborhoods in your area, and looking for ones that you would be comfortable investing in, and that have strong property values. Don’t go for the high end neighborhoods, stick to middle of the road, working class type neighborhoods that will be the easiest to market to. Look at this way, the low income areas usually aren’t very desirable, and the high end areas will offer very few potential buyers/tenants, and the ones you do get, will generally be very picky and hard to deal with. So stick with the working class neighborhoods that will provide that long term increasing property values, and easier to deal with working folks.
Start with a Small Property
Again, this goes back to the idea of not biting off more than you can chew. I am reiterating this point with a slightly different angle to show you just how quickly you can get in over your head, and potentially lose everything. You need to view your first deal in this light – “If I can afford to carry this property myself for at least 6 months, I’ll probably be ok.” That’s the attitude. You are just starting off and don’t have a lot of experience. You probably have some help (if you have built up your backend network) to know what the value of the property is, how much repair it may need, and how much you can expect to get out of the deal, but that may not be the way it happens. Like I have said previously, my first deal was supposed to profit me $20,000-$40,000, and it ended up costing me $8,000 and 2 years of my life. You don’t want to go down that road. So again, stick with a smaller property in one of your favorite middle class neighborhoods, and do your homework.
Have Some Money to Invest
This kind of goes against the current when gurus talk about real estate investing. They all say you don’t need any of your own cash and you can make a fortune. Pie in the sky if you ask me. Now if you happen to have built a strong network, and you have several investors that are willing to put their money in the hands of someone who is buying into their first deal, so be it. But how many people are going to put up money with someone that has no experience? You see what I mean.
You can take out a partnership with a family member or close friend, but you have to be extremely careful, because you don’t want to do what I did; I didn’t know my partner well enough, and we didn’t have written goals for the property, so we crashed and burned on our first deal. This can cause serious problem in a family or friendship. So it’s really better to do your first deal or two on your own, or sell it to an investor.
Even if you don’t have a lot of loose cash, you can still probably swing a small deal to get started. And this can teach some discipline, and why small properties tend to do better than large properties. Many banks and mortgage companies will still grant a 90-95% loan for folks with good credit. And you can always post questions here at the blog for help in getting that first deal going.
Make Sure You have Good Credit
This isn’t a show stopper, however it is far easier to get started in real estate investing if you have solid credit. With the mortgage industry crash, lenders have become much tighter and unwilling to take a chance on folks with bad credit. So if you have bad credit, you are probably going to be forced to take out a partner or sell your first few deals. Don’t let this discourage you though, build your network and your credit at the same time, so you can get your own deals going later.