Real Estate Investing Basics

4 Tips to Avoid Overpaying for Your First Investment Property

Expertise: Real Estate Investing Basics, Personal Development, Landlording & Rental Properties, Real Estate News & Commentary, Business Management, Flipping Houses, Real Estate Deal Analysis & Advice, Personal Finance, Real Estate Marketing
247 Articles Written
Young businessman leaves a meeting while other business people stay in office

Let’s talk about how to invest in your first investment property without overpaying. 

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4 Ways to Ensure You Won’t Overpay

1. Be patient.

First, I want to talk to you about how when I started my journey as a real estate investor, I made a lot of mistakes. One of the mistakes was being impatient.

I was just buying properties for the purpose of adding properties to my portfolio, so I could call myself a grand real estate investor. But I wasn’t really generating a better life for me and my loved ones.

Thankfully, I woke up and smelled the roses and sold out of that portfolio. Then, I restarted my real estate investment journey.

The message for you is this: You have to be patient when you start your real estate investment journey. Be very patient; don’t rush in and don’t jump into it. 

2. Surround yourself with knowledgeable people.

The second thing is figuring out how to not overpay for a property. I think you need to surround yourself with the right people.

I’ve said it before, and I’ll say it again. I’ve done hundreds of videos, and I always keep talking about this. I’m literally like a broken record.

Teamwork makes the dream work.

People like real estate agents, real estate attorneys, title companies, accountants, property managers, appraisers, building inspectors, contractors, and maintenance people are going to be your mentors. Other successful real estate investors are going to be your mentors, too.

You have to surround yourself with these people. So, spend time networking, shaking hands, and kissing babies. Go to real estate events, post on online forums, and ask questions. Spend money on lunches, dinners, and coffees. The best investment is investing in yourself. 

I’m not saying to buy DVDs, courses, and masterminds. That’s all fake guru crap.

I’m talking about going and talking to people that are actually out there and doing it every single day. And they won’t be hard to find, because you will see them in the trenches doing the work.

Related: How to Build Your Buy and Hold Dream Team

When you meet these people and talk to them, you need to realize that they will ultimately be your eyes and ears, your heart and soul, if they’re in a region you want to be investing in. They’ll be the ones that will mold your opinion when it comes to real estate investing and give a lot of real estate insight in regard to everything that’s happening in that area. From the price points to the market valuations, they’ll provide insight.

Remember, teamwork makes the dream work, and network your butt off. 

3. Get familiar with your market.

You also have to become an expert in the particular region you’re interested in.

We’ve talked about talking to a lot of people. Now let’s talk about some of the data, stats, and analytics.

computer-research

Immerse yourself in anything and everything that you possibly can find online when it comes to what properties are selling for on the MLS:

  • What are the price points?
  • What are renovated properties selling for?
  • What are distressed properties selling for?
  • What are properties renting for?
  • How much can you buy a distressed property for?
  • What can you sell a renovated property for?

Check out Craigslist and Facebook. Basically, leave no stone unturned. I want you to become a master in the market on everything that is going on in that particular area.

You’re going to get a lot of insight from the people that you’re meeting with. But you’re also going to get a lot from educating yourself on all the online stats, demographics, and comparable sales. Then, in my opinion, after a decent amount of time, you will become a market expert.

You’ll know the true value of a renovated property and what a bargain is when you see it. Then you can make a decision very quickly, because you understand the market value. 

4. Once again, be patient.

I can’t emphasize this one enough, you have to be patient. I’ve done over 1,000 deals, and we offer on 100-plus deals every week. But we only buy a handful of properties.

Related: 5 Real Estate Investing Lessons Learned From Building a Campfire

I only buy when the price is right, I know I can make a good profit, and I can still deliver a good product to my investor for fair market value with a good cap rate in place. So again, be patient.

When one door closes, another door opens. Just wait for the right deal to come along in the right area that you can buy for the right price and that needs the right amount of rehab. And make sure you know you can make a good profit margin and a good return on investment if you’re buying and holding. 

In my opinion, that’s the only recipe where you’re not going to overpay for property. If you think you’re an expert just because you’ve read one article and saw one video—and now you’re going to go to the market and buy a property—you’ll probably lose your butt and overpay.

If you spend a year doing what I’m recommending, there is no chance that you’re going to overpay. Then, if you’re patient on top of that and wait for the right house, I really don’t see how you’re going to overpay on your first property. 

Guys, that’s my advice to you. Take it or leave it.

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Am I right? Am I wrong?

I’d love to hear from you in a comment below.

Engelo Rumora, a.k.a."the Real Estate Dingo," quit school at the age of 14 and played professional soccer at the age of 18. From there, he began to invest in real estate. He now owns real estate al...
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    Barry H. Investor from Scottsdale, AZ
    Replied 9 months ago
    ENGELO Great article and I definitely overpaid for my 1st couple properties. I did not intend them to be flips, but they became rentals for a little longer than I wanted them to be. Like you, I now purchase Class C props in the Midwest (Kansas City), do $40K (average) rehabs, place $1000/Mo tenants and sell them in turn key fashion with Seller Financing. Buyers earn 20% or more per year after all expenses are paid, including loan costs. It was those first 2 properties which taught me the hard lessons of over-paying, having made most of the mistakes you have outlined in this article, but especially #2 and #3. Fortunately, my painful PAST education translates to success for my Buyers now. :-)
    Engelo Rumora Specialist from Toledo, OH
    Replied 9 months ago
    Thanks for your comment Barry. I'm sure it was all a good experience when you look back on it now. I love learning on all of my mistakes. Happy Holidays mate
    Brian N. Rental Property Investor from Minneapolis, MN
    Replied 9 months ago
    How do you find a price that is right for getting my first deal? It feels impossible and I’m constantly looking
    Engelo Rumora Specialist from Toledo, OH
    Replied 9 months ago
    Look at another micro market that hasn't yet fully recovered. The Midwest is full of them. Thanks
    Michael P. Lindekugel Real Estate Broker from Seattle, WA
    Replied 9 months ago
    Define overpay? Based on what FMV, appraisal, ROI metrics? that can be subjective and qualitative. It can it be made more quantitative. Profit is commonly mistakenly with ROI or yield calculations. both are interest on the investment descried as a percent. Cash flow is used to calculate all ROI metrics. Capitalization rate is not a ROI metric. it is an index reporting Net Operating Income as a function of price to compare with competing projects. Capitalization rate does not include accounting and tax treatment items necessary to calculate Net Income on the statement of operations or cash flow on the statement of cash flows. ROI is most commonly calculated using the discounted cash flow techniques IRR and NPV. It is not uncommon to have a favorable capitalization rate, FMV, or appraisal and unfavorable IRR or NPV proving a false green light. It is not uncommon to have an unfavorable capitalization rate, FMV, or appraisal and a favorable IRR or NPV indicating a false negative or do not invest. There is a lot more to price than just FMV, capitalization rates, etc. I see people overpay all the time when they think they are getting a discount on price but the IRR and NPV are bad. Is that overpaying? To me it is the worst kind of overpaying. It is a common mistake among real estate agent “investment specialists”, blogs, and investors. It is prevalent and it is an opportunity when you understand the calculus for ROI.
    Engelo Rumora Specialist from Toledo, OH
    Replied 9 months ago
    It's quite simple mate, Your overcomplicating it... When you know what true market value is in your target area, then you will know how to not overpay and how to buy below market value. I've done so 1,000+ times in Toledo, Ohio. Much success
    Michael P. Lindekugel Real Estate Broker from Seattle, WA
    Replied 9 months ago
    that's great you done this over a 1000 time with success. it doesn't change the fact that real property is more subjective and qualitative and less quantitative. homogeneous product such as cookie cutter housing developments are easy to value and price based on certain criteria. no, it is not that simple. there are opportunities for arbitrage for that reason. what is "true market value"? is that an appraisal? is that the agreed to price between a willing seller and willing buyer? zestimate? value is dependent on the criteria.
    Bobby Brown from Long Island City, New York
    Replied 9 months ago
    Michael, Your post is very revealing. I am taking a course on real estate financial modeling. It emphasizes how very important DCF, IRR and NPV are in properly evaluating an investment. I never thought about the fact that cap rate and net operating income is mainly to compare one deal to another as opposed to looking at the deal on its own merits. Thank you very much for replying to the post. I will connect with you on BiggerPockets.
    Eric Anderson Rental Property Investor from Alexandria, MN
    Replied 9 months ago
    Nice article, I'm a newbie and now have 1 SF rental and living in my next fix up for a rental. The first one took me about 18 months and I almost purchased two properties that I knew was not a good business deal. Your part about being patience resonates with me, and fighting the emotional side of wanting to be in the game is a battle. The lesson I learned was to be involved with investing with other deals to keep my money working, talking with other to hear their mistakes which shaped the demographics of the renter I want to serve. Not immediately being "in the game" does not mean your not building, working and shaping your future. I invested with others which also shaped opportunities to use other peoples money for my own project. Even small steps forward in the right directions, IS going in the right direction. Thank you for your input.
    Engelo Rumora Specialist from Toledo, OH
    Replied 9 months ago
    Thanks Eric, All good things take time. You always end up paying more if you make a mistake when jumping in then the cost of a missed opportunity. Be patient and keep the dream alive.
    Tommy Daggett New to Real Estate from San Diego, CA
    Replied 8 months ago
    Great article! I have stumbled across quite a few of your articles and have enjoyed them all, especially the HEATED article you wrote on house-hacking. Anyway, my plan was what you mentioned at the end of this article which was taking a year to learn the ends and outs of my market and then get after it. Thanks for the great article!