{"id":76416,"date":"2017-06-27T05:00:30","date_gmt":"2017-06-27T11:00:30","guid":{"rendered":"https:\/\/www.biggerpockets.com\/renewsblog\/?p=76416"},"modified":"2021-03-16T11:51:06","modified_gmt":"2021-03-16T17:51:06","slug":"2016-01-13-wholesaling7-paths-instead","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/2016-01-13-wholesaling7-paths-instead","title":{"rendered":"Investors: Don’t Begin by Wholesaling. Take One of These 7 Paths Instead"},"content":{"rendered":"

Is wholesaling<\/a> the perfect way to get started in real estate investing? Can you easily get started by using none of your own money yet still earn a profit and learn the business?<\/span><\/p>\n

As you know from the title, I don\u2019t think so. Wholesaling is not<\/em> the best way to get started for 99% of new investors. <\/span><\/p>\n

Some BP members argue that you shouldn\u2019t begin with wholesaling because it has legal issues (here<\/a> are some interesting articles from Bill Gulley).\u00a0<\/span><\/p>\n

But wholesaling as a model for beginners falls apart even before that. It’s simply\u00a0not\u00a0an easy business model to successfully execute.\u00a0<\/span><\/p>\n

Legitimate wholesaling requires strong sales skills, some cash for marketing, a solid list of investor buyers, a team of attorneys and closing agents, and a big chunk of free time to <\/span>start hustling<\/span><\/a>. <\/span><\/p>\n

Most beginners can\u2019t check all of those criteria off their list, at least right away.<\/span><\/p>\n

But this article isn\u2019t about bad news for beginners. Instead it’s\u00a0about positive alternatives!<\/span><\/p>\n

\"investing-options\"<\/p>\n

I was a beginner 13 years ago. I began\u00a0my sprint up the mountain\u00a0with big dreams,\u00a0energy, and $1,000 bucks in the bank. <\/span>So I can truly appreciate those of you eager to begin but not sure how best to get started. \u00a0<\/span><\/p>\n

The first thing to figure out is what you\u00a0REALLY need as a beginner. I would argue you are missing some or all of these:<\/span><\/p>\n

    \n
  1. Experience<\/span><\/li>\n
  2. Confidence<\/span><\/li>\n
  3. Cash reserves in the bank <\/span><\/li>\n
  4. Connections with a network<\/span><\/li>\n
  5. Specific knowledge and expertise in areas like deal analysis<\/a>, market valuation, rehab and construction, finding good deals, and real estate laws\/contracts<\/span><\/li>\n<\/ol>\n

    It may take you three months to fill these gaps. It may take two years. It depends upon your situation.<\/span><\/p>\n

    The rest of this article will explore seven alternative paths to wholesaling that will fill those gaps and help you safely and relatively quickly get started as a real estate investor. <\/span><\/p>\n

    Look at these paths as part-time (or full-time) apprenticeship jobs. In some cases you won\u2019t actually be investing in real estate. But you will be investing in yourself (and making money along the way) so that you build expertise that will command profits as you truly move into the core of real estate investing.<\/span><\/p>\n

    Here are my 7 suggested paths.<\/span><\/p>\n

    7 Strategies to Break into Your Real Estate Niche of Choice<\/h2>\n

    1. Hack Your Residence Before Becoming a Landlord<\/h3>\n

    This is the strategy I recommend for getting started in rental properties more than any other. I used house hacking to live with positive cash flow in a quadraplex\u00a0during the early years of my real estate investing. \u00a0<\/span><\/p>\n

    BP celebrity Brandon Turner did the same thing, and he wrote <\/span>a great article about how to do it<\/span><\/a>.<\/span><\/p>\n

    “House hacking” means that you buy a residence, either a house or a small multi-unit building like a duplex, triplex, or quadraplex. Then you rent out either spare bedrooms or extra units. <\/span><\/p>\n

    The rent from your tenants can often pay for your mortgage, taxes, insurance, and more. This means you are getting PAID to live in your home. Pretty amazing!<\/span><\/p>\n

    This arrangement also allows you to learn the rental business with minimal risk. As a beginner, you are bound to make mistakes, but living on site will allow you to minimize the impact of those mistakes as you learn. \u00a0<\/span><\/p>\n

    Related:<\/strong> An FHA-Financed Duplex is an Ideal First Investment Property: Here\u2019s Why<\/a><\/em><\/p>\n

    I also love that you can lock down long-term, low-interest financing while you live there, and then a couple of years later, you can move and keep the building as a solid rental.<\/span><\/p>\n

    \"rental-markets-2015\"<\/p>\n

    2. Live In Your First Flip<\/h3>\n

    Like house hacking for rentals, live in flips allow you to safely learn the business of fixing and flipping houses<\/a>.<\/span><\/p>\n

    The strategy works like this.<\/span><\/p>\n

    You find a house that can be purchased well below the full potential value. This usually means the house needs repairs, upgrades, or some improvement (like adding a bathroom, finishing a basement, etc.) in order to reach its full value.<\/span><\/p>\n

    The idea is to buy the house, move in and then carefully do the needed improvements. If you\u2019re like me, you\u2019ll hire everything out and just shop frugally to save on materials. But handy people can save money and learn by doing repairs themselves.<\/span><\/p>\n

    In either case, after two years the home can be resold for a profit. And this is where you benefit from <\/span>one of the most profitable laws in the tax code<\/span><\/a>.<\/span><\/p>\n

    Because you\u2019ve lived in the property for at least two years, you can make $250,000 as an individual or $500,000 as a couple TAX-FREE. \u00a0<\/span><\/p>\n

    This is a pretty good deal, isn\u2019t it? You learn the fix and flip business. You make a profit on your residence. And you pay zero taxes on your gain.<\/span><\/p>\n

    This is why so many people choose this method as their preferred path to get started in real estate investing.<\/span><\/p>\n

    \"fix-and-flip-tips\"<\/p>\n

    3. Learn Your Resale Market as a Buyer\u2019s Agent<\/h3>\n

    Fixing and flipping houses is a competitive game. To win, you need a competitive edge over others trying to do the same thing.<\/span><\/p>\n

    I have found that one of the most important competitive edges is an intimate knowledge of the buyers who ultimately purchase and live in the houses you flip.<\/span><\/p>\n

    The tastes and preferences of buyers are very particular. Color patterns, styles, layouts, amenities, preferred schools, and neighborhoods all change constantly over time.<\/span><\/p>\n

    Agents who help buyers find houses get to know these preferences better than anyone else. <\/span><\/p>\n

    So, if you are new to an area or new to the business of fixing and flipping houses, you could benefit immensely from a short or long stint as a buyer\u2019s agent in your target location.<\/span><\/p>\n

    In my popular BP article “<\/span>How to Quit Your Job and Invest Full Time in Real Estate<\/a>,”<\/span> I recommended getting your real estate license for a number of reasons like access to a broker as a mentor, access to the MLS, and the ability to earn side referral commissions. <\/span><\/p>\n

    If you\u2019ve already obtained your license (it\u2019s not hard in most states), you can then shop for a brokerage that gets a lot of buyer leads in your area. Volunteer to be on desk duty or to service buyer leads for other busy agents. \u00a0<\/span><\/p>\n

    If you are a quick study and add a lot of value to your colleagues, you can quickly build up a steady stream of buyer clients that will put some money in your pocket and help you learn the retail real estate business.<\/span><\/p>\n

    \"productivity-tips\"<\/p>\n

    4. Use\u00a0Master Leasing to Earn Cash Flow While You Learn<\/h3>\n

    Master leasing is not used by many investors, but it\u2019s an outstanding way to get into rental properties without large down payments or the risk of financing.<\/span><\/p>\n

    Master leasing means that you agree to lease a property from an owner, and in your lease you are allowed to sublease the property to your own tenants (called sub-tenants). \u00a0Your master lease could be for a few years or for many years.<\/span><\/p>\n

    This arrangement is beneficial to you because you can earn a profit on the difference between the rent you collect and the rent that you pay to the owner. <\/span><\/p>\n

    The arrangement can also be beneficial to the owner because they get a consistent income from you without dealing with maintenance calls, vacancy losses, and turnover hassles. <\/span><\/p>\n

    Two BP articles give helpful explanations of the strategy:<\/span><\/p>\n