The Very 1st Question Any New Real Estate Investor Needs to Ask Themselves

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Pick out the question below that you believe is the very first question any new aspiring real estate investor should ask themselves.

A) “What type of investor do I want to be? What will my exit plan be?”

B) “Do I know how to analyze a property to determine if it is a deal or not?”

C) “How well do I understand the market I am looking to invest in?”

D) None of the above.

If you chose D, congratulations. I have either a smiley face sticker or a gold star sticker I will send you. All you have to do is ‘Like’ my Facebook page… (I’m pretty sly huh? See that shameless self plug???)

Those above questions are certainly important and ones that need to be asked near the beginning of your quest to become a real estate investor; however, there is one that seems to get overlooked quite a bit but is just as important. In fact, I would argue that it is THE most important question.

Before I get to the question though, I want to first give you the context of my viewpoint. While I won’t go as far as saying this is the case 100% of the time, I feel very comfortable saying that 95% of the time, you will need money upfront to get started investing in real estate.

Now, if you are striving to become a real estate investor and you already have cash to work with, then this question really doesn’t pertain to you since you already have cash on hand. But, if you are like the majority of people who are entering into real estate, you have very little capital to work with or none at all.

The Unavoidable Real Estate Costs

Yea, yea, yea. I know about all those “no money out of pocket” real estate strategies. Bottom line, nothing is free and nothing can be done without $0 cash. Let’s take a look at some of these costs…

  1.  $ for Marketing. You need to find the properties right? Direct mail, bandit signs, flyers, etc. All cost $$$. Even if you plan on using lease options, Sub-2 or whatever “no cash out of your pocket” strategy, you still need to locate these properties.
  2. $ for Protection. If you are okay with losing your home and personal possessions, then skip over this bullet point. Creating a LLC is something that needs to be done. Besides the whole personal protection aspect, it also just makes you look that much more professional.
  3. $ for Marketing. Make people want to work with you. If you think you will be saving money by simply going to your local real estate group networking events in order to find deals and investors, think again. When they ask you, “Can I get your card?” and you say, “I don’t have one, let me scribble down my name and number on a napkin!” ask yourself, do you really think they are taking you seriously and will keep you in their “call this person” folder?
  4. $ for Transportation.  Car. Bus. Boat. Horse and buggy. These things cost money. Whether you are driving to see a property that your marketing has located or driving to your local real estate investing group, transportation is not free. Gas prices only trend in one direction, and it isn’t ‘down’, so you better be ready to spend money to keep your fuel tank full. (or, if  you are using horse and buggy, make sure you are buying plenty of food to feed those horses!)
  5. $ for Marketing. This slot is for all the other marketing costs that pop up that I’m forgetting about right now. If you haven’t made the connection yet, marketing is THE most important part of any real estate strategy.

The Good News…

You will notice there is no category for “education”. No guru courses required. I will go into more of this later on, but now let’s get to the question…

Related: How to Invest in Real Estate with No Money

The All Important Real Estate Question

If you are thinking of getting into real estate and have very little or no capital, then ask yourself…

How does my month-to-month budget look?

As I’ve established, the only way you are going to get your feet off the ground and have any success as an investor is with cash. The only way you’re going to get cash is by saving money. And finally, the only way you’re going to save money is by looking at your budget.

Don’t have a budget? Unless you are the United States government, this is not good for you. To be brutally honest, you better create a budget, or just don’t even try the business of real estate. If you have no motivation or desire to understand your personal (family) finances, then you have NO CHANCE at success in real estate. Considering real estate is all about budgeting and numbers, the business wouldn’t be catering to your strengths/desires.

Alright, if you are still reading, I’m assuming you fall into one of two camps. You either already have a budget, or you are going to sit down and draw one up.

Time to Go Hunting

Put on your hunting hat. Put on your camouflage. Grab your red pen. It’s time to do some slashing. You are looking for cost-savings. You need to get some money.

The fastest way to do this is figure out what costs you can live without. Go through your budget…

  • Mortgage Payment – need that… no cut.
  • Groceries – need that… no cut.
  • Insurance Payments – need that… no cut.
  • Cable TV with HBO… hmmm…
  • Friday Night “Fun $”… hmmm…
  • Netflix Subscription… hmmm…
  • Lottery Tickets… hmmm…
  • Date with Husband/Wife $… negotiable…
  • New Video Game/Movie $… hmm…

Hopefully you are getting the point. How much do you spend on things each month that aren’t required? Now I’m not saying you slash it ALL out of your budget, but I am suggesting you slash some of it.

How much do I slash? That’s a question only you can answer. The reason I can’t answer it is because I don’t know “how bad/fast you want to succeed”. The more slashing you do, the fast the money adds up. The faster the money adds up, the quicker you can start marketing and getting things rolling.

A Realistic Scenario and Suggestion

To reiterate again, only YOU can answer how much you slash, but I wanted to put some numbers to my logic so you at least have a baseline.

Let’s say you slash $100 worth of unnecessary costs per month. As Benjamin Franklin said, “A penny saved is a penny earned.” so now that you are “saving” $100 per month, you just increased your monthly income by $100. You are now putting this $100 into a new category, “Real Estate Start-Up”.

Remember that good news about education not being an expense? Here’s where it comes into play. While you save up money, you get an education. Where? The internet! More specifically, BiggerPockets!!! Create an account. Start reading. Ask questions. There is so much knowledge here, and the best part is it is unbiased knowledge. No one is trying to sell you a $997 course, they’re just helping you out.

The ONLY cost associated with this education is time. That’s it.

Let’s recap. You are making $100 per month (via cost cutting) and getting educated.

Do this for 6 months.

You now have a boatload of knowledge and $500 worth of start-up money. My math is not off. The reason this is NOT $600 is me trying to keep things realistic. You probably spent $100 or so on real estate related stuff during this 6 months. Maybe you…

  • Bought a book on Amazon for additional motivation. $ well spent!
  • Drove to a couple local real estate events. Fuel cost money, however, $ well spent!
  • Purchased some preliminary marketing material.

Whatever the expense, let’s just say you now have $500 left at the end of 6 months. Let’s look at the numbers a bit closer.

  • LLC Formation (do this online!) $175
  • Business Cards – $50
  • Stamps & Direct Mailing Supplies – $150
  • Fuel – $50

This all amounts to $425.

So now let’s recap where you stand…

  1. You are now protected with an LLC. Not to mention, you look extra professional!
  2. You can now begin marketing via direct mail (or whatever method you choose).
  3. You can now pull out a business card and hand it over at your networking events.
  4. You can have no worries about driving to check out properties because “gas prices are high”.
  5. You still have $75 sitting there waiting for you to put it to work.
  6. You are educated since you’ve spent the last 6 months on Bigger Pockets asking questions and soaking it all in.

Your Real Estate Dreams Are All on YOU

6 months?!?!?! I can’t wait that long! If that’s you, then great… no problem! You will just need to do more slashing and spend more time on BiggerPockets each day.

That’s why I LOVE being an entrepreneur. Everything rest on your shoulders. Everything is a function of “how bad do I want it?”

Regardless of the amount of slashing or the amount of time, it’s all up to you.

Finally, there is another method. If you can’t slash anything, then head out and find another part-time job. Increasing your income is always another option to create “cushion” in your monthly budget. I personally would prefer the slashing method, but you can increase revenues too by finding another job. The trade-off here is now you have less time for education.

Do what works for you. That’s what entrepreneurship is all about.

How about you, BiggerPockets nation? Any budget tricks that you can share to free up cash? How did you build up cash when first getting started? Please comment below and let us know.

Photo: dr_tr

About Author

Clay Huber

Clay (G+) is a licensed real estate agent and the owner of Huber Property Group, LLC, a real estate investment company located in Grand Rapids, MI. His company purchases distressed properties with the main exit strategy of fixing them up and reselling with owner financing, particularly, land contracts.


  1. Wow! A reality check for champagne tastes on a beer budget!

    I love this! Cut out going costs or more more net income!

    This is one of my favorite “Getting Started in REI” posts! Well said!

    And, a talk to your spouse-partner about boot-strapping for 12 months until consistent income comes in would be a good idea too!

    Again, this is awesome!

  2. Great post Clay.

    Even without the real estate ambitions, I believe proper money management and budgets are essential for a quality life for the long term. Having a plan makes things more predictable but also opens up more opportunities. I lived like this for my whole life thanks to my upbringing and it allowed me to get into real estate much easier. I think budgeting and models show the long term rewards of real estate investing. I work a W2 job as well and I see a lot of people turn down overtime. In reality they are saying my time is more valuable that $200 which translates to real estate as well. If they look into or hear that one duplex can give them $200/m cashflow they say well I could make that in one long day of overtime, So why would I want to deal with that but to see the long term benefits when it is played out it becomes much more than that $200/m. Math shows reality, desire and action makes it a reality.

    • Clay Huber

      “Math shows reality, desire and action makes it a reality.” This is a great saying! I might have to use this one again.

      I agree whole-heartily with everything you’ve said. Budgeting certainly does not just pertain to real estate; however, if you don’t understand budgeting, you have a very very very slim chance of success in your investing goals.

      Thanks for the comment Kyle!

  3. Learning to live on $1 less is much more valuable than earning $1 more as it is continuing and earning a $1 only nets you $0.60 or less depending on your taxes. Live simply and invest in minimizing expenses – that is the best way to financial freedom!

  4. I’m a budgeting geek, my wife actually thinks it’s a sickness. I prefer to call it my “spending plan”, it just sounds better to me. By far my favorite budgeting software is YNAB, I hope it’s ok to post a link because I think it’s an excellent way to get started.

    [link removed]

    • Clay Huber

      I can relate Eric. My wife calls me the “budget Nazi”.

      Thanks for the comment and resource. I took out the link since I figure it’s better to play it safe than sorry.

      People can Google ‘YNAB’ and get to it.

      • No worries Clay. I find that once you have a few months worth of transactions imported and catagoried it’s painfully obvious where the money is going. A quick look back and I can see that we spent $337 on dining out in February, ouch.

        • Clay Huber

          “Painfully obvious” is the best type of obvious there is! Very little gray area when it is ‘that’ obvious 🙂

          From the sounds of things, if you want some extra cash flow each month, you’ve located $337 worth of it. Then again, dinging out with your wife is something I’m sure she enjoys, so maybe more like $200 or so in potential cost-savings.

  5. Great article Clay.

    I do have one question for you though. I have heard from a couple different people that you should not create an LLC online because it is not personalized to you and your needs. You also don’t get one on one support and help like you would if you went to a RE or small business attorney. In my thinking even though it costs more to go to an attorney to get an LLC created compared to legalzoom or one of those, if it saves you in the long run in taxes, personalization, and support, wouldn’t it be worth it? I guess couldn’t it be looked at like saving a couple hundred up front might end up costing you thousands down the road?

    I’m just wondering what your stance is on this issue and once again, great article especially for those who have trouble with a budget.

    • Clay Huber

      Nice, an extremely valid/smart question.

      In my experience, the online LLC thing has worked awesome. I’m not a lawyer and/or CPA, so that’s my disclaimer, but as long as you treat your LLC (regardless of where you set it up) like a business (setting up a checking account in that name, only using that account for business expenses, etc), then I think you’re pretty set in regards to legal issues.

      As far as taxes and so forth, my CPA has never said anything in regards to the formation of my LLC that is hurting me tax wise.

      Again, I am NOT a lawyer or CPA, I’m just speaking from experience.

      You are 110% right though. When looking at things Short Term vs. Long Term, I am all for spending more $ upfront in the short term if that means more money in the long run. I won’t argue that point with you at all.

      Thanks for the comment!

  6. This is definitely a slap to a lot a faces.
    I was in the same boat. I made the mistake thinking “NO MONEY TO START!” really meant no money to start. I made out a budget, but the more I got into it (the more I learned), the more I realized I was living in a pipe dream. I had to step back and reanalyze my plan to make this business happen.

    I have since cut back on my expenses (Netflix’s never have the movies I want to watch anyway) and found a better paying job. I am now saving all I can and working a ton of overtime (a few less night outs with friends isn’t gonna kill me). I should be buying my first rentals before the year end.

    • That’s awesome Risto!

      The biggest accomplishment I see you’ve made is simply acknowledging you made an error in judgement (welcome to the club!). The people that are too prideful to ever admit that they make an error are the ones that never learn. The ones that never learn are the people that never succeed.

      I’m with you though, the movies I always want from Netflix always have the “Long Wait” next to their names!

  7. Hi Clay,
    Thank you for this great article!
    I know you can not give legal advice but I would love to hear your thoughts. I am just starting out with little money to spare so I am focusing on wholesale to build cash. I would like to have an LLC name on my marketing materials, but I’m not positive I need one yet. I am in Montana and it’s easy and inexpensive to register an LLC, but I know that Wyoming offers superior protection for RE businesses. In my research I haven’t found any major issues with registering the LLC in WY and doing deals in MT as long as I pay my self employment taxes to MT. Any thoughts on when I need to set up an LLC and if out of state is OK?

    • Rebecca, thanks for the comment. Glad you found the article helpful!

      As you acknowledged, I’m not a lawyer nor qualified to give legal advice, so this is strictly my uneducated opinion.

      In regards to the LLC, I would set one of those up right away. You never know what could go wrong (regardless of if it was your fault or not), so you definitely want this wall of protection.

      I see no reason why setting up an LLC out of state is an issue as long as you are paying taxes to the appropriate people. For this one though, I’d certainly check with a lawyer or CPA. You don’t want Uncle Sam coming and knocking on your door saying you haven’t been paying your taxes correctly.

      Hope this helps!

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