What is the First Thing an Aspiring Real Estate Investor Should do?

by | BiggerPockets.com

I wrote an article last week about creating big goals.  I think goals are extremely important for investors and anyone who wants to succeed in life, but if I had to start all over as a real estate investor, goals would not be my first action.  My first action would not be education or finding a mentor, although these are extremely important.  My first action would be to talk to a lender.

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Why Talk to a Lender First?

If your reading this article you already have some idea you want to be involved in real estate investing in some manner.  I would estimate 99% of the people on BiggerPockets want to be able to buy an investment property of some type at some time.  The other one percent are pretending to be investors, but are actually trying to sell something.  If you are an investor looking to buy investment properties you will most likely need financing.  Very few of us are coming into real estate investing with $1,000,000 in cash ready to spend.  Even if you have enough cash to buy a property without a loan, I think leverage is a wiser move as I described in this article.  Getting a loan on an investment property is not always easy to do and sooner you talk to a lender the sooner you can get started investing.

What If I Know I Can’t Get a Loan?

If you know you can’t get an investment property loan right now, then it is even more important you talk to a lender ASAP.  You need to know exactly why you can’t get a loan and what you need to do to fix it.  Ignoring the problem and hoping it will magically fix itself will not work.

If you have a credit problem a lender can tell you exactly how bad it is and what your credit score needs to be.  The lender can even help you contact a credit counselor or someone else who knows how to raise credit scores as quickly as possible.

If you don’t have the money for a 20% down payment, you still need to talk to a lender.  For one thing you can get started with less than 20% down, especially of you can occupy a house for a year.  If you do need to put 20% down or 5% down or 10% down, you will have more costs than just that down payment.

When you get a loan the lender will charge you an origination fee, recording fees, flood certificate, prepaid interest, insurance and possibly an appraisal.  These costs are called closing costs and are typically about 3% of the loan amount.  A lender can tell exactly how much these costs will be and prepare you for what you will have to spend.

You Need to be Pre-qualified for a Loan as Soon as Possible

There is a chance that you think you can’t qualify for a loan, but you actually can.  This would be a great surprise, but how would you ever know if you don’t talk to a lender?

If you think you are anywhere close to buying a property you need to have a pre-qualification letter from a lender.  Almost every REO and short sale is going to require a pre-qualification letter before they will even consider your offer.  Our market is extremely competitive right now and if you have to wait for that letter you could easily lose a great deal to another investor who was ready.

If you think pre-qualifying is going to be a piece of cake, think again.  The lender will pull your credit report and you must have verifiable income with a decent debt to income ratio.  You need to do this right away to make sure there are no surprises.

You also need to get pre-qualified to see how much house you can afford. You don’t want to spend 2 months looking at $200,000 four-plexes if your lender is only going to qualify you for $120,000.

Lenders Know People

One of the most important aspects of real estate investing is networking.  You need to have a great team out together to help you be successful.  That team can include lenders, real estate agents, attorneys, title companies, property managers and other investors.  Most lenders talk to multiple people in those fields every day!  If you talk to a lender and let them know you are in the market to buy houses, they may connect you to some key people to help you out.  If you get a loan through that lender, you are making them money.

Setting Goals After Talking to a Lender

Once you talk to a lender you will have a clear idea of how much money you will need, any repairs to your credit that need done and how much house you can afford.  If any of these things are way out of whack from what you believe, you need to know as soon as possible.  A change in the amount you can afford could completely change all your plans and what actions you need to take.  Talk to a lender right now and make sure your plan is in line with reality.

Once you have an idea of what you can afford, how much money you will need and when you will be able to buy, you can start setting goals.  You can set goals for savings, for what type of investment you want to buy and how many you want to buy.  Once you get those specific amounts, properties and dates in mind it will help you achieve your goals faster.

About Author

Mark Ferguson

Mark Ferguson is a has been a real estate investor and real estate agent/broker since 2002. He has flipped over 165 homes in that time, including more than 70 in the last three years. Mark owns more than 20 rental properties that include single family homes, as well as commercial properties, including a 68,000 square foot strip mall. Mark has sold more than 1,000 homes as a real estate agent and is the owner/managing broker of Blue Steel Real Estate in Greeley, Colorado. Mark started the InvestFourMore blog and website in 2013, which has hundreds of article on real estate. Mark is constantly sharing his insights, case studies, and interesting things that happen to real estate investors on both his blog and well-known sites like Forbes.


  1. Hi Mark,

    Great advice! I am a newbie and have been concentrating mostly on educating myself… My credit is pretty good, but I haven’t given much thought about talking to the bank and seeing how big of a loan I could qualify for. Thanks for the post.

  2. Hi Mark:

    Buying on terms as in Sub2, Wraps, Contract for Deed, Private Mortgages for Free and Clear Houses, et al are tools that every REI should have, as well as JV Partners and Private Lenders for capital (rehab and holding costs).

    Good personal credit and personal funds is important, being creative with contracts and a great negotiator with the seller is more important.

  3. Mark…

    My advice. RUN. Either run toward your goals with solid, get results action. OR. Turn around and run from real estate. Either way you will be happier. It is the marching in place, hem ‘n hawing that is a depressing killer of you real estate future.


  4. Mark,

    This was fantastic. I’ve always had the problem of “Chicken or the Egg”. So many people tell you to go one way first and so many people tell you go to another way first and so many people don’t answer the question. You, you made sense here. Thanks for pointing me in a direction I should be heading.


  5. Hi Mark,
    Thanks for the article. Useful information and inspirational, at least to me anyway I am fairly new to real estate investing and have been confused about the tasks of finding properties and funding them. You have given me motivation to make sure I have funding in place in order to follow up on buying properties.

  6. Mark…
    When I first became interested in house investing (while in Florida) I already had a few years of mortgage loan officer experience. This provided me with a good real estate vocabulary and understanding of the closing process. So, to a new person I would suggest going to local meetings and reading to get used to the industry terms.

    While I attended the meetings I learned that some of the experienced people in the meetings would pay you to take over a good deal. I did not have to actually close on a deal, just find a good one.

    I then made up a purchase contract based on what others in the group used. Mailed a letter to a safe, first time buyer neighborhood. I choose that area because about 40% of the houses needed work.

    I got 3 replies, bought one ( in year 2001 ) subject to the mortgage plus a hard money second which included the fix up money with $0.0 out of my pocket. Moved in and worked on the house and lived there just over two years. While there I continued to do mailings and walk neighborhoods handing out flyers selling the resulting contracts for income. My personal overhead was very low. The least I earned was $500 for putting two people together. The most I earned was $19,000, typical was $2,000 to $5,000.

    All of the meetings, classes and the books mostly teach vocabulary and some general concepts. Asking people to sell their house at 45% of area market value then buying the house or assigning the contract is what teaches. Real estate in mass is all the same. Individually each transaction is different. Doing it is what teaches.

    If you will not ask someone to sell their house to you, partner with someone who will. Otherwise, stop wasting your time and get out of real estate – go do something else. The other choice is to recognize that you just enjoy talking about real estate. That you have no intention of buying houses. That money you spend on meetings and classes is just an entertainment expense – then sit back, relax and enjoy.


  7. I think I would edit it to “Figure out how to fund your deals”.

    Traditional bank financing will be a big source for many investors, especially those just starting out since is known and comfortable for most. It isn’t the only way though and lots of people will not have that as a major component of what they do.

    So “Funding” your deals can be lots of stuff. Having enough cash to do it yourself, getting a pre-approval for a bank loan, forming a relationship with a HML, securing funds from friends and family and private investors, getting unsecured credit in place (Credit cards, credit lines, HELOC on a personal residence), getting proficient in any of the creative financing methods Brian Gibbons mentioned, or just having a buyers list that will buy good deals from you until you get your own financial house in order.

    I am self employed and know for a fact that I currently couldn’t get a mortgage on anything from a bank (with a high 700s FICO and more cash on hand then the principle balance of the loan I’m seeking, and only looking for a 75% LTV).
    However I could use most of the other stuff I had listed to take down any number of deals that come my way at any point if need be.

    • I wish more people that get into real estate investing would have terrible credit or be self employed so banks would hate them.

      Then they would be FORCED to learn about sub2, HMLs, wraps, lease options, Installment Land Contracts, JVs, Plers, SDIRAs, substitution of collateral, subordination, sale lease backs, etc.

      This is the foundation to acquiring properties. Not banks and credit.

    • Shaun, I am self employed and have no problem getting loans from banks. Do you not show enough income on your taxes?

      There are any ways to get financing, but the reason I list this as the first thing to do is because it is easy and provides a ton of info. Many aspiring investors never invest, they never do anything to get started. Taking action, any action is a huge step. The first step of talking to a lender is free and easy whether getting a loan from that lender is the end goal or not.

      • Hahaha…
        Yeah sure do!
        The underwriter actually accused me of overstating my income on my tax return so it would look better.
        I pointed out that the taxes I paid were higher than the principle balance of the mortgage I was applying for so that would be a pretty stupid move.

  8. Thanks for the advice. I started searching for homes and the one agent pretty much shut me down by saying I needed pre-approved financing. This is a bearable step to work towards. Are there lenders that perform only real estate financing or should I start with a local bank first?

  9. Hi Mark

    Appreciate your article, 1st for me youve laid out some good actionable items..
    I have some credit scars, however what you said about getting started w/o the 20% if you are able to occupy sounds interesting and something I think is worth exploring.. Any more details you could provide? Thank you

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