Real Estate Investing Basics

What Would You do if You Were Starting to Invest in Real Estate Today?

Expertise:
72 Articles Written
starting out in real estate investing today

The most common question I get from new investors is:

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What would you do if you were starting today?

The very first thing I would do is get down on my knees and thank my lucky stars to be beginning my investment career at absolutely the best time of our lifetime!!!  Remember fortunes are made by investing at depressed levels and at the bottom or near bottom of cycles.

Research Phase: Analyze Your Market & Learn What DEALS Really Are

The next thing I would do is get off my butt and start doing my basic homework.  I would go out and see no less than 50 and probably 100 properties in my investment area of choice.  I am not kidding!!! I would immediately build a spreadsheet with data on no less than 100 properties.  Things like Prices, Expected Rents, Repair Budgets, etc.  This would give me the basis or foundation to understand what is a good deal, what is a bad deal and what is a great deal!!!!

Establish Your Deal Selection Criteria

After I have built my basic understanding of the market I would decide on what criteria I want to use to decide on what is and isn’t a good deal.  I recommend every investor pick one metric that is easily transferable between property types.  For me that metric is “Yield” or my expect return on all cash outlaid to secure and rehab a property. Today I personally look for expected yields in excess of 20% in my market.

Start to Make Offers

After understanding my market and deciding on my criteria for identifying a great deal I would start making offers on properties that met my criteria.  I would hold fast to my criteria and not let bidding wars drive up prices.  In fact you should only expect to get 1 out of every 10 properties you make an offer on.  If your success rate is higher than that I believe you are offering too much on your properties.

By following this strategy I am convinced I could secure 4 investment properties with Government-backed loans inside of 90 days and secure 10 properties inside my first year. Every property I bought would have a 30 year fixed interest rate and I would be a very happy man!!!!

Alternative: Find Passive Real Estate Investment Opportunities

Now if my market didn’t offer these types of returns or I didn’t have the time to devote to learning a new market I would still find away to participate.  I would find an investor with a proven track record, a simple to understand process and become a passive investor.  This would insure a decent return with a lot less headaches, reduced risks and still give me the upside I want.

In the end if I was starting today I would not let this investment cycle pass me by.  I would become a very active investor in my market and if my market didn’t offer returns I would find a way to be a passive investor in another market that offered great returns.

Good Investing

Photo: Katelyn Kenderdine

    Joshua Dorkin
    Replied about 8 years ago
    Fantastic first post, Michael. I’d probably throw in a few other steps if we were putting together a point by point plan, but this is absolutely a great start for folks!
    darwish alkuteifani
    Replied about 8 years ago
    For someone just starting out I really enjoyed your article Michael. Thank you
    Mike Z
    Replied about 8 years ago
    Thanks Josh, I agree there is another level of detail once one decides to start or focus on real estate investing. I look forward to creating posts aimed at helping new investors as well as the part time investors who have full time jobs. I see this as a small way to give back as Real Estate Investing has given me so much
    Mike Z
    Replied about 8 years ago
    Darwish, You are very welcome!!! I remember starting out over a decade ago. If you do the work and stay focused on the goals you can get there. Good Investing
    Steve
    Replied about 8 years ago
    Good article Mike. I have told people to go look at 100 properties many times and their eyes usually glaze over and they think I am nuts! That is what we did at the start and now we really don’t have to do much more than drive by to know what price works!
    Mike Z
    Replied about 8 years ago
    Steve, So True!!!! If you don’t setup a nice base to start you will make a bad deal. New Investors need to do the homework or leg work. Good Investing
    Joshua Dorkin
    Replied about 8 years ago
    Unfortunately, Mike and Steve, a lot of investors are led to believe that you can get rich with little work. That is why there is such a high attrition. When many of those people realize that you need to focus and put real effort in if you’re going to be an active investor, they look for something else (many of them end up trying to be internet marketers). If you look at 50 to 100 properties in your market, you’re going to know it pretty well!
    Greg
    Replied about 8 years ago
    Hello Michael, great post. I’d like to ask you about how to get 4 FHA loans within 90 days? Much appreciated. Thank you.
    Mike Z
    Replied about 8 years ago
    Hi Greg, Getting four FHA loans requires buying properties in good condition, with 25% down and having decent credit. As far as lending goes these days the first 4 loans are fairly easy assuming down payments and good credit. However the key is finding 4 good or great deals and then financing them at today’s tremendous rates. If you can get 30 Year fixed money under 6% you will be very happy long term
    Neiuw
    Replied about 8 years ago
    Great post. I’m getting started myself and think that the advice on getting about 1 out of every 10 is good to know going in. Would imagine that it’s easy to get frustrated or believe that there’s not that many actual “deals” out there.
    Mike Z
    Replied about 8 years ago
    Stay focused and do your homework and you will be fine Good Investing
    Mike Z
    Replied about 8 years ago
    Stay focused and do your homework and you will be fine Good Investing
    Greg
    Replied about 8 years ago
    Hello Mike, how are you able to obtain 4 FHA loans within 90 days if FHA allows only one loan per home owner? Could you explain this? I may not be thinking this through..Thanks again.
    Greg
    Replied about 8 years ago
    Hello Mike, how are you able to obtain 4 FHA loans within 90 days if FHA allows only one loan per home owner? Could you explain this? I may not be thinking this through..Thanks again.
    Greg
    Replied about 8 years ago
    Hello Mike, how are you able to obtain 4 FHA loans within 90 days if FHA allows only one loan per home owner? Could you explain this? I may not be thinking this through..Thanks again. Reply Report comment
    Mike Z
    Replied about 8 years ago
    Greg, My understanding is the FHA actually will finance 4 Investor loans assuming down payments, credit ratings, etc.
    Greg
    Replied about 8 years ago
    Thank you. I’ve listened to your other interview on the website and it really helped a lot. Top notch.
    Mike Z
    Replied about 8 years ago
    Greg, Thanks. I may have confused the situation a little by saying FHA Loans and I should have been more generic and say Government backed loans. In today’s lending environment the first 4 real estate loans are relatively easy. Sorry for confusion Good Investing
    Greg
    Replied about 8 years ago
    Hello Mike, I’d like to ask you one last question if you don’t mind? I’ve met a few investors here where I live (MN) where the investor owns 300+ properties and they are all in the toughest areas. You can buy for $20k put in $10k and rent it to section 8 for $1200. Do you ever buy in the war zones since you have a property manager anyway? Thanks for all of the advice sir.
    Mike Z
    Replied about 8 years ago
    Greg, With Real Estate Investing you need to be comfortable with your criteria. As your investor contacts show some folks are okay with this type of investing. I know several folks that do this type and they have all kind of great stories but my guess is between Unit Turns, Chasing Rent Collect and bad debt their actual cash flow is much lower than you would expect. To answer your question specifically one of my criteria is that I would be comfortable with my wife driving to the property and getting out of the car. Thus I avoid war zones Good Investing
    Jeff Brown
    Replied about 8 years ago
    Welcome Mike — Your post reminded me of one of the first pieces of advice Dad gave me about investing in real estate. He said, “You won’t know what a good deal is till you lose one.” I wouldn’t quite label that as axiomatic, but it’s been demonstrated to me in many different states. Again, welcome!
    Mike Z
    Replied about 8 years ago
    Jeff Thanks for the note. I love what you are sharing with the community. It is a real eye opener and has caused me to ask myself questions about both my short and long term plans. Good Investing
    Ken LaVoie
    Replied about 8 years ago
    Great article, Would you guide me toward where to look for 30 year fixed rate financing. I’ve just never heard of such a thing on investment properties. I’ve searched my area (every single local bank, every single regional bank, etc.) — are there other sources that I’m over looking? Thanks! I would dance on the roof top if I could find 30 year financing! What a great cash flow booster.
    Mike Z
    Replied about 8 years ago
    Ken, I would check two places. First I would talk to a Mortgage broker and ask them about Fannie Mae’s 30 Year fixed investor loans. Note this program won’t offer the cheapest financing as that honor will likely go to a 5 Year fixed, amortized over 30 years. Nonetheless I would lock in 30 year money even if it is 1/2 a percent higher. I have also had new investors have good look at Credit Unions or local community banks. It might take a little searching but the program does exist and is backed by Fannie Mae Good Investing
    Ken LaVoie
    Replied about 8 years ago
    Great article, Would you guide me toward where to look for 30 year fixed rate financing. I’ve just never heard of such a thing on investment properties. I’ve searched my area (every single local bank, every single regional bank, etc.) — are there other sources that I’m over looking? Thanks! I would dance on the roof top if I could find 30 year financing! What a great cash flow booster.
    Ken LaVoie
    Replied about 8 years ago
    Thanks Mike. I already have 11 loans, so I MIGHT not be able to use FNMAE (4 or 10 loan limit? or something of that nature??) I’ll keep looking though!
    Mike Z
    Replied about 8 years ago
    Ken, Sorry man I hit the same limit as well. One idea you can look at is a Portfolio or Blanket loan. The rate will be higher. The logic goes if you can get a Blanket or Portfolio loan across say 4 properties you could free up 3 more properties to do Fannie Mae loans. I know guys doing this in the Texas market. Mike
    Melvin
    Replied about 8 years ago
    Interesting article. I feel that you need to have the right people on your power team (rehabbers/handyman, mortgage brokers, hard/private money lenders, property managers, realtors, attorneys , CPAs, etc…) to get started on the right foot to invest in real estate. Another major factor is to know how to crunch (analyze) the numbers presented on houses. Too many times do I run into people who purchased properties for investments and they did not know how to crunch numbers. Time is money and looking 50 to 100 properties can take a lot of time when you can have the right people on your team that is on the same page as you and your investing focus. Just my deuce cents
    Mike Z
    Replied about 8 years ago
    Hi Melvin I love BiggerPockets as it gives experienced professionals the ability to share different opinions. I love the idea of a power team and believe one is important. However, I would much rather depend on my experience of seeing 50-100 properties to find a deal than hope I find a trust worthy team that has my best intentions. But your point about time is money is very valid and that is why our business takes work and commitment to be good at it. Your point about crunching numbers is dead on. You need to understand the investment, why you are doing it and finally what to expect or you are just guessing. Thanks for the great note
    Melvin
    Replied about 8 years ago
    Thanks for the response, but I guess we have our own styles. I would rather get 50 to 100 properties under contract with the right to inspect and then I have my expert power team members go through the properties with me in the beginning so they no what my expectations are from the start. For example, by the time I look at the 55th property 22 properties could already be under contract. I do feel beginners need to see properties to get an idea, but you there is not much to look/visually inspect a house unless you just want to get a feel for the neighborhoods, but city-data.com along with crime statistics in the area investors focus on can shed some light on target neighborhoods. I look forward to more articles on bigger pockets
    Mike Z
    Replied about 8 years ago
    Melvin Different styles and frameworks is what make this business great!!! Thanks for taking the time to share your thoughts Good Investing
    Mike Z
    Replied about 8 years ago
    Melvin Different styles and frameworks is what make this business great!!! Thanks for taking the time to share your thoughts Good Investing
    Arthur Garcia
    Replied about 8 years ago
    Mike, As you know, I am actually in the process of acquiring 10 FHA loans. So I thought I would add to your FHA loan commentary. see below… to acquire properties 1-4 (non-owner occupied) – you need above a 630 credit score with 20% down to acquire properties 5-10 (non-owner occupied) – you need a credit score of 720 and 25% down. Just in case anyone is following the thread. thanks again for the article!!
    Mike Z
    Replied about 8 years ago
    Arthur Thanks for the real life examples. One little twist. Your loans are Fannie Mae loans and NOT FHA loans. I also think you need to have a set of reserves. Good Investing
    Arthur Garcia
    Replied about 8 years ago
    Oops, sorry you’re right I meant Fannie Mae not FHA. And you’re right, you need 6 months of reserves per property. Thanks catching it!
    Reio
    Replied about 8 years ago
    OK going to look at some properties around the jersey shore area. Interested in picking something up but I only got qualified for 100K with 3.5 down plus closing costs, taxes, and inspections. Should I look into different loans? Rules I figure will help… look at the neighborhood (rents) (curb apeal) Single family home 2-3 bedrooms 2 baths preferably Cost to make it rental ready ——–question? Has anyone dealt with a hud? 203K loans? what loans and financial programs out there for a investor who has 10K? Best recommened approach?
    Reio
    Replied about 8 years ago
    OK going to look at some properties around the jersey shore area. Interested in picking something up but I only got qualified for 100K with 3.5 down plus closing costs, taxes, and inspections. Should I look into different loans? Rules I figure will help… look at the neighborhood (rents) (curb apeal) Single family home 2-3 bedrooms 2 baths preferably Cost to make it rental ready ——–question? Has anyone dealt with a hud? 203K loans? what loans and financial programs out there for a investor who has 10K? Best recommened approach?