Real Estate Investor · Reading, PA · Member since 2012 · 2 posts · 1 vote
Hi Real Estate Experts,
My husband and I are going to be making a career change into the world of real estate; however we are only in the beginning stages. We are interested in purchasing homes to be flipped and as rental properties through pre-foreclosures, foreclosures, short sales, sheriff sales, and/or bank repos. With this being said, we have no idea where to start other than capital. There are so many ins and outs of this business that it is very overwhelming!
After reviewing many posts, I am completely befuddled. I am sure that this it a very typical question - what are our first steps to take in this business? What is the most important subject to become well versed on when starting out? Should we be reading books? If so, are there any recommendations? Should I get my real estate license, a mentor (not my preferred starting point), etc? We are willing to take baby steps in order to start out in the right direction.
We appreciate you sharing your knowledge with us. We look forward to hearing from you.
Rental Property Investor · Colorado Springs, CO · Member since 2010 · 476 posts · 305 votes
14y
I would recommend reading as much as possible on Bigger Pockets and find a niche that you want to specialize in. Become an expert in that niche. My niche was short sales because I love to help homeowners. My personality was a good fit for this type of investing. The next thing I would recommend is reading blogs in the topic you want to specialize in or buying books. You should also go to as many real estate networking events as possible. You can find these events on Meetup.com. The purpose of going to these events is to find hard money lenders, investors to wholesale houses to, investors to partner with, and possibly a mentor. I know you said you prefer not to have a mentor, but I got started with a mentor in my area who helped me tremendously. I basically worked for her as an assistant to learn the business inside and out. I worked for free to gain the knowledge. I think having a local mentor is the best versus a national mentor.
Wholesaler · Salt Lake City, UT · Member since 2009 · 1k+ posts · 401 votes
14y
Tiff
It boils down to 2 things, knowledge and action.
Start by going to the local library and reading everything real estate related.
Secondly, start finding out who all the players are, lots of info and how to do this in the archives.
Third, don't worry about getting your license right now, but do get the state refefence book if there is one, and learn the basic knowledge of a real estate agent. Follow the state dept of re website.
Be prepared for a lot of work, you don't give any clues as to your situation so no specific suggestions at this point.
Investor · Hampton Bays, NY · Member since 2009 · 907 posts · 258 votes
14y
Tiffany: the first step is to decide what resources you have to apply to the business. Do you have capital, good credit, access to private money? You intend to change careers. If this means you have already either lost your Job or a job loss is eminent than you have limited choices.
If this is a long term move than you have the best opportunity to start slow and build long term wealth. You can use your current income to qualify for leverage on rental properties which will give you both long term growth and current income. The key here is to become fully engaged in learning about the particular market you intend to work in. Does the market fit with your goals?
For instance: I required substantial current income and the market where I live could not deliver the return I required, therefor I needed to invest outside of my home state.
If you intend to "flip " properties understand your exit strategy and be prepared to hold as a rental if the market turns out not support your profit goals.
Understand that different markets will support different investment objectives and exit strategies.
For instance Austin TX has been seen as a hot market with prices on the rise. This market would support a rehab and flip strategy.
If you tried this in Dayton Ohio where I invest flipping would be hard.
A buy rehab and hold as a rental is a strategy better suited for this area. Prices have gone down and do not appear to be moving up very fast in Dayton any time soon because the economy has experienced a hit even before the recession and population has declined over the past few years. The ratio of rent to price of the property however makes it a good area for me to generate great returns on rental rental properties.
Real Estate Investor · Hartville, OH · Member since 2010 · 148 posts · 174 votes
14y
Some good advice given already. I'll add my 2 cents because I'm still relatively new only being in this game for a few years now.
When I looked at getting into the real estate business I first thought about my goals, what did I want to do? In my situation I had been investing my savings in the stock market and the ups/downs of that crazyness was just not fun.
So I started looking at real estate. Why? I was watching this documentary on the Great Depression of the 20's. In this documentary they talked about the massive amounts of wealth created by just a few individuals. That's not a typo, that's a fact....wealth. The "robber baron's" like J.P. Morgan and Carnegie and Standar Oil all built the beginnings of their massive industrial empires during the great depression. How? Simple, the waited for the weaker competitiors to go belly up and then bought them out of bankruptcy for penny's on the dollar. When the economy recovered they were some of the richest men on the planet.
Take a look at what is happening in real estate now. The markets have crashed and are severely depressed in some areas. I looked at this and saw opportunity, not despair. My logic is that people still need places to live. Just because the market has busted and people are losing their homes to foreclosure doesn't mean that these people simple disappear....they have to live somewhere right?
So my strategy has been to purchase foreclosed properties for penny's on the dollar in working class neighborhoods. I then rennovate them and use a rent/hold strategy. I like this for a couple reasons. First on every property I own I will recoup my initial investment in rents paid in around 5 years. Secondly, the prices are so cheap that there really is nowhere for the value to go but up. If I hold the properties for a few years or more I can likely sell the property for a significant profit.
A good example of this. The very first house I bought I paid $23,000 for. I put about $5,000 into it. It was an all cash deal so my all in costs are $28,000. I've had the same tenant in this house for 2 years and have received $15,600 in rent over those same 2 years. Now the tenant is interested in buying the house from me. We ran the comps on it and the house comps out at about $50,000 now. So if I do sell it to her I'm looking at a gross revenue of $22,000 ($50,000 selling price less $28,000 investment cost) from the sale of the house and $15,600 from rents received for a total gross revenue of $37,600.
I'll probably pay around $1,500 on commissions and taxes/insurance have cost me around $3,000 over 2 years and probably about $1,000 in misc. repairs over 2 years. All told I'll walk away with a net profit of around $30,000 on this house with a buy/hold/rent for a few years strategy. This is what works for me. You just need to find your niche and work it!
Real Estate Investor · Houston, TX · Member since 2012 · 44 posts · 13 votes
14y
I also am in the beginning stages of investing (less than 2 months in).
My first thought was that I needed my real estate license so I signed up for online classes through Kaplan to get my sales persons license. After signing up I was told by friends who are realtors that I should not get my license. I still do not understand their logic because almost every successful real estate investor I know has a license but I would not make that your first priority. Learning the business is!
Take a look at this post and review the comments and you will get a full grasp of the pros and cons based upon the views of others
[/url]http://www.biggerpockets.com/forums/55/topics/39235-new-member-from-phoenix-az?page=1
Then I went to the book store and spent about $100 on real estate investment books and went through them 1 by 1 with a note pad and paper to keep track of the key things. The first was Are You Dumb Enough to be Rich by G William Barnett II. Then I began searching for a Real Estate Investment Group and signed up for Lifestyles Unlimited (LU) as a recommendation of a family friend who has retired at 37 and live on passive income. LU is a mentoring group and there is a cost of $500 for the first year of membership and $250 after that but you do not have to start with a mentor.
However I would recommend completing the Free 7 day course on their website even if you do not sign up for the membership the free info is invaluable.
I have gone to the tax & foreclosure auctions several times and there is quite a bit of risk involved with purchasing the unknown. In addition here in Houston anything that looks promising at the tax auctions is sold at amounts well over the amount that is owed and you still have to deal with other leans that are on the property if you do win. If you go that route make sure that you do complete a lien search prior to making a bid
So with all that said I will say research is the ultimate start. Take the time to inform yourself of the options with real estate investing because flipping was my first plan as well however after learning some of the tax benefits of holding I have decided to change my strategy.
I think is great that you are taking baby steps because we all have to crawl before we walk so take a month or so to soak up all you can then walk ….then jog and so forth.
Investor · Scottsdale, AZ · Member since 2008 · 281 posts · 113 votes
14y
I really like Michael Lauther's answer to you. My advice is to decide what you "like" about real estate. Do you enjoy marketing, construction, interior decorating, financial analysis or are you a people person. Certain niches lend themselves to certain skill sets. For example, I was an investment banker before I quit my job to start flipping land full time. It's been 11 years and I've only flipped one home and even though I made money when I factored in my time and frustration I probably broke even or lost money.
I'm not handy, and I have a hard time giving up control to someone else so not being on site and fixing up a home made me miserable. Raw land is a perfect fit for me since it requires no maintenance and I focus on the aspects of real estate I enjoy such as deal hunting, marketing and relationships.
Best of luck to you, but really take a deep breath and figure out what your skill set is prior to jumping into any niche. Then learn as much as you can!
Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
14y
Tiffany,
You are located very close to an area where properties can be purchased cheaply. There is good possibility for positive cash flow. Not so sure about flipping. You probably already know that there are areas in that town where you have to go block by block to say avoid or consider; because of that I tend to stay away from that town (I don't know the various blocks at all).
I would avoid anything that reeks of "lifestyle" - they are selling info to you so that THEY can live their desired "lifestyle".
Real Estate Investor · Reading, PA · Member since 2012 · 2 posts · 1 vote
14y
Thank you for the great advice! We really appreciate it.
So after musch consideration, we have decided to focus on pre-foreclosures and short sales. I have since gone to puchase a few books; however our local Barnes and Noble did not have much to offer.
Brian P. - We are already researching our local competition. We are joining the REIA in order to start networking and hopefully to find some experts we can have on our team. I have not come across a state reference book yet, but I will start looking for one. Thank you for that tip.
Michael Lauther - I currently am employed as a sales professional and do not plan to leave for at least 2 years - I have acheived top sales professional for the past 4 years. I have hit my plateau and become bored (for a lack of a better term) plus why am I helping to build someone elses empire. I have the same desires and drive as the president of my current company. My husband owns his own company in tele-communications and computer networking. He has no plans to leave all that glory behind. We are starting this venture, so I can have a better work/life balance. Thank you for your guidance. We will need to conduct research to figure out what our exit strategy will be rent then sell or "flip" to sell.
Joe M. - I possess your same logic - "that people still need places to live. Just because the market has busted and people are losing their homes to foreclosure doesn't mean that these people simple disappear....they have to live somewhere right?" I could not agree more! I am seriously considering the buy/rent/hold strategy as well. Thank you for the insight to your business strategy.
Ali Y. - After much investigating, there is way to much risk with sheriff sales. I do believe that we would be better off purchasing during pre-foreclosure to obtain the lower purchasing price. What type of tax benefits are typically offered when holding a property? Sorry, I am a complete novice at this.
Mark P. - Excellent advice - deep breaths! Well, I have calmed down a bit since I purchased some books. One foot in front of the other. I love many things about real estate: interior design, marketing (I love!!!!), and I am a huge people person. As far as financials are concerned that is where my husband will come into play. He is a numbers man and I think with the other side of my brian.
Steve B. - The properties that can be purchased cheaply in this area are in the slums. I have no interest in working in the city since it is one of the most crime ridden, poverty stricken cities in the US. per capita, it has the highest drug, murder, and crime rate in the nation. Slum lord - no thanks! I highly suggest not venturing into the city at all. The entire area should be leveled in order to drive out the undesireables and the problems they bring with them. I think that even it the city was leveled that the roaches, rats, and mice would still be there and no property owner wants to deal with infestation.
Real Estate Investor · Houston, TX · Member since 2012 · 44 posts · 13 votes
14y
Tiffany
Some are the ability to depreciate property over a period of 27.5 years. As a landlord any expenses to prepare and maintain the property is tax-deductible including capital improvements. In the event of vacancy (hopefully this does not occur) the monies lost are tax-deductible. Travel to the property for any reason is tax-deductible along with the property insurance payments.
Later on if we do decide to sell we will be using 1031 exchanges to defer the depreciation taken originally.
Real Estate Investor · chicago, IL · Member since 2012 · 1k+ posts · 231 votes
14y
the depreciation has to be paid back upon the sale. i's not a deduction...it's a loan from the government. & the capital improvements aren't deductible...they're depreciated (paid back up on sale as well)