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3 Steps to Make Your First Real Estate Investment

by Andrew C. MacDonald on February 28, 2011 · 12 comments

  
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Getting started as a real estate investor can seem like a daunting task. There are so many things to consider, so many different strategies, and so many opportunities. As an aspiring real estate investor, here are 3 steps you can take to take in order to get started on the right foot.

1. Select a strategy

The toughest part of getting started is selecting the strategy for your first investment. As part of choosing a strategy you should consider the type of investment you’d like to make. Are you going to go for a quick flip, a long-term buy-and-hold, or put together a rent-to-own deal? You should also consider the area where you’d like to invest and make sure the strategy you choose is appropriate for that area. In general, it is best to look for growing areas with a bright future since these types of areas will provide the best exit options for almost any strategy. Take your time selecting the right strategy, just don’t allow yourself to get stuck in analysis paralysis.

2. Gather your resources

Once you’ve decided on a strategy, you’ll want to pool your resources. At this stage make sure you have enough cash or liquid assets to cover the down payment and closing costs required for your particular investment strategy with some room to spare. Be sure to talk to a mortgage broker early on to determine what sort of financing you qualify for. This way you’ll be ready to pull the trigger when you come across a great deal that fits your plan.

3. Build a team

Regardless of the type of strategy you use, you’ll need some help from various professionals. Any experienced real estate investor will tell you how important it is to have a great team you can trust. Depending on your plans, in addition to a mortgage broker, you’ll want to find a real estate lawyer, Realtor, home inspector, insurance broker, accountant and property manager. Looking for professionals who own investment real estate themselves or who have experience working with lots of real estate investors will help you find the best members for your team.

Once you’ve found a strategy that works for you, gather your resources, find the teammates you need, and don’t look back. The most important thing is to just get started. You don’t need to make the deal of the century on your first deal, just find something that makes sense and get started.

Creative Commons License photo credit: Travis Hornung

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{ 12 comments… read them below or add one }

Matt Rosen March 1, 2011 at 9:34 am

Well said Andrew! Great post…and will make sure I share this with others.
~Matt

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Andrew C. MacDonald March 1, 2011 at 1:42 pm

Thanks Matt, hope the info will be helpful to your readers as well.

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Lana March 1, 2011 at 9:54 am

“Looking for professionals who own investment real estate themselves or who have experience working with lots of real estate investors…”

This couldn’t be more true! As a RE professional who *does* invest personally, not only do I ‘walk the walk’ but I also have a personal vested interest in knowing the rental market and local repair companies. To be successful you need to buy right AND rent right.

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Andrew C. MacDonald March 1, 2011 at 1:45 pm

Hi Lana, this is just the type of knowledge that other professionals who invest in real estate themselves will have over those who do not.

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Kevin Kaczmarek March 1, 2011 at 11:01 am

I think the other key component to all the strategy, is to take action. Most new investors are afraid to take action. Taking action helps all of your steps move forward!

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Andrew C. MacDonald March 1, 2011 at 1:46 pm

Hi Kevin, this is so true. Nothing happens without action. After having bought my first property I wished I hadn’t spent so much time in analysis paralysis. The key is to get a good deal done, not wait for the deal of a lifetime before putting your money to work.

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Taylor March 3, 2011 at 12:34 pm

Great advice Andrew. Also, since the lending markets are pretty tight right now, I would encourage new investors to explore non-traditional lenders (i.e. “Transactional Funding” for wholesaling and “Hard Money” for rehabs and holds). These lenders usually rely more on the asset and your deal and less on your credit score and income.

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Andrew C. MacDonald March 15, 2011 at 1:41 pm

Hi Taylor,

Great point, these lenders can also provide quicker closing in deals where time is of the essence. These type of deals may not be best suited to new investors, but it is nice to have options.

Cheers,
Andrew

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Michael Otranto March 5, 2011 at 1:00 pm

Great article Andrew. Is there a particular strategy you use for buying the right property? I’ve found that my best flips came from subject-to deals that had mortgage balances that were at 70% or less of the ARV. These deals were more difficult to find but the ones I bought at slightly below market value made little or no money. What has your experience been?

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Andrew C. MacDonald March 15, 2011 at 1:45 pm

Hi Michael,

One thing I had to learn early on was that there is no such thing as the “right” deal. You have to get clear on what your objectives are, and then select deals which will move you towards that objective.

I primarily use a buy-and-hold strategy where cash flow is more important to me than short term capital gains. For this I need to make sure the property is located in an area which will perform well economically over the next 10-25 years.

If you’re looking to flip properties instead, your criteria for evaluating a good deal will be based on how far below market value you can get the property, how easily (cheaply) you can increase ARV, and how marketable that property will be when it goes back on the market for sale.

Cheers,
Andrew

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Chris March 7, 2011 at 6:25 am

I am just getting started with REI and think that I will talk to partners that I know to be the lenders on my first project. I would like to fix an flip. That works best with the experience that I have being a home builder.

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Andrew C. MacDonald March 15, 2011 at 1:47 pm

Hi Chris,

Different people bring different skill sets to partnerships. If you are short on funds you can partner with people who are short on time or renovation skills to create a win-win for both of you.

Cheers,
Andrew

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