The Single Most Important Piece of Advice I'd Give New Investors

Learning how to invest in real estate is overwhelming. From finding deals to running the numbers to financing to legal entities and asset protection to tax strategies to property management to working with contractors, most new investors don’t know where to begin.

And that’s exactly why so many new investors fail. In the face of that overwhelm, they either experience analysis paralysis, or they focus on the wrong things, or they just start buying and figure they’ll learn what they need along the way.

None of those outcomes end well.

Here’s the single most important advice I’d give new investors to get them started as quickly as possible without risking the shirt on their back.

Focus on the Fundamentals of Earning a Profit

No matter your personal goals or real estate investing strategy, the fundamentals remain the same. The individual tactics and minutiae may vary, but the core skills required to earn a reliable profit through real estate should be your foundation.

Right now, I want you to start a simple two-column list. On one side, I want you to list the fundamentals—the things you absolutely must learn before buying your first property. The other column will be much longer, listing all the things that you’d like to learn about real estate investing, but which you don’t need to know in order to buy a property.

The fundamentals column is short and only includes three items. Make a deal with yourself:

“I will master these three concepts before I buy my first deal. In my continuing education, I will go on to learn more, but I won’t let the more advanced concepts stop me from buying my first deal.”

Start with these three fundamentals, master them, and then you can dive into the deep end of investing and ongoing education.

Fundamental 1: Analyzing Deals

If you don’t know how to accurately forecast your profits, you won’t make any. In fact, you’ll probably lose money—and not just a little money, either.

It doesn’t matter if you’re planning on flipping houses or on buying long-term rental properties, short-term vacation rentals, mobile homes or trailer parks, or commercial office buildings. The calculations vary of course, but whatever type of investing you’re interested in, you need to master the math behind analyzing deals.

In my real estate investing career, I messed this up—badly. It cost me hundreds of thousands of dollars over a decade.

I bought long-term rental properties in low-end neighborhoods. Yes, my timing was unlucky (2007 to 2008), and yes, it’s easy to underestimate expenses in low-end neighborhoods. I clung to those excuses for a year or two. But many years and thousands in losses later, I can acknowledge that I’m no victim. I can’t blame external factors like the housing market collapse or my atrociously bad tenants.

The crux of my problem was that I didn’t know how to calculate rental cash flow, and I failed to accurately run the numbers on expenses like vacancy rate, repairs, maintenance, property management fees, and accounting and bookkeeping costs.

Learn how to accurately calculate profits for any deal in the niche you’ve chosen. When in doubt, ask experienced investors to double check your analysis.

Master this skill, and you’ll never make a bad investment in your life.

Fundamental 2: Finding Deals

Being able to accurately forecast profits on any given deal is great, but where do these deals come from?

There’s no “deal tree” that you can walk up to and pluck a deal from. It’s not like investing in stocks, where there’s a finite list of options and you pick the one you want and click “Buy.”

Instead, you need to choose one or two tactics for finding deals and master them. It takes work: work to learn, work to implement, work to constantly improve.

For example, say you choose “driving for dollars” as your tactic for finding deals. You need a process for choosing neighborhoods to drive, a schedule for when you’ll drive which areas. You need a process for looking up owners, and a template for contacting them, potentially using multiple methods.

When an owner responds to you, you then need a process for evaluating the property, and another for making your (low) offers persuasive.

You need to create, implement, and then master all of these processes in order to reliably find good deals. It’s not rocket science, but it’s not easy either. It requires discipline and grit to keep going and to keep improving your deal-finding strategy.

Deals don’t just happen. The deals that fall into your lap rarely prove to be great ones. You need to go out and find good deals, and it will cost you time, effort, and education to do it right.

Fundamental 3: Funding Deals

Analyzing and finding deals only takes you as far as your ability to actually buy them.

That usually comes down to two components: your available cash and your options for financing any given deal.

For cash, you want to maximize your savings rate. Savings rate is not only the key to reaching financial freedom at a young age, it’s the key to building wealth of any kind. That gap between what you earn and what you spend is what determines how much wealth you’ll accumulate in your life.

You can whine and moan about how you don’t earn much money, how you can’t save anything because the cost of living is so high in your city. Boo freaking hoo. Stop thinking in terms of why you can’t save more, and start thinking creatively about how you could do it.

For example, you can house hack or ditch your car, or move overseas—or better yet, all three. I’ve done all three and have no regrets whatsoever.

Start with this blueprint on how to save $50,000 in two years while earning the median U.S. income.

But there’s still a limit to how much cash you can save, and real estate is expensive. You’ll probably need financing, as well, so start researching lenders who work in your investing niche. For someone using the BRRRR strategy for example, that means two types of lenders: short-term purchase-rehab lenders and long-term mortgage lenders.

There are nationwide examples of both, and plenty of regional and local options, as well. Aim to build relationships with at least three lenders in each category that you need, because not every lender will accept every deal you run by them. You need a series of contingency sources of funding in order to reliably close deals.

And yes, there are plenty of creative ways to finance deals, but they fall under more advanced investing concepts.

Everything Else: The Advanced Stuff

Don’t get me wrong, you should learn the more advanced pieces of the real estate investing puzzle, too. Continuing education is vital to your success, in both real estate investing and anything else you pursue to earn money.

But it’s not strictly necessary to buy your first deal.

Here are a few quick examples within the “everything else” category that can wait until you’re ready to tackle them:

Legal entities and asset protection
Tax strategies and tax-sheltered investing
More advanced financing tactics like seller financing, privately raised funds, etc.
Renovations requiring more than cosmetic updates (which involve permits, multiple contractors, and more)
Niche real estate investments like low-end properties
New construction and development

Imagine feeling the need to learn all of that before buying your first deal! You’d never close a deal.

Start with what you need to know, and then gradually expand into what you’d like to know.

Final Thoughts

You have enough on your plate when you set out to learn real estate investing. So if you want to succeed without getting caught in the trap of analysis paralysis and overwhelm, you need to pick and choose the most important lessons that will prevent you from losing money on your first deal.

And then let go of the rest, and set it aside for learning in the months and years to come.

Because there are so many niches and strategies in real estate, this also means choosing one to focus on. Define your own goals and definition of success. When you know what you want, it helps you hone in on a path to get there.

A path that you can take one step at a time, starting with the most foundational lessons and gradually expanding from there.

You’ve heard mine; what’s your single most important piece of advice for new investors? What do you wish you learned when you were first starting out?

Leave a comment below!

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.