(Hopefully) Soon many of us "newbies" will be making their first moves in the REI world. It's quite a daunting idea that seems to overwhelm a lot of first time buyers for various reason. One reason that I have recently run into whilst searching for my first MFH home (specifically in Louisville, KY) is, what exactly gives me a competitive advantage? What sets me apart from an experienced investor in my area? How can I find a good deal when I am going against the "top-dogs"?
Sure, sitting at home alone browsing the computer/phone for potential deals and running the numbers can be easy/exciting, especially when you find one that makes sense! However, someone else is likely doing the same exact thing and has found the same exact deal. That being said, the question that I would like to open up to the community is:
How can or how do you think a newbie investor, with little (or no capital), can have any sort of competitive advantage in a market with experienced investors in the midst? What can a newbie investor do to set themselves apart to potentially land a "killer" deal? How can one proactively better themselves to achieve those better deals?
Specifically related to my situation (finding a multi-family home to house hack for a year), the only way I can imagine I find what I would consider to be good deal is that if the numbers (such as DSCR) do not work for an experienced investor and they pass it along for the newbie investors to feed on.
OR, I am not too familiar with the clause, but I heard on a BP podcast that there was something that allowed first home buyers the opportunity to bid on the property before other investors could (I believe it was something like a 30 day time window for new buyers only).
Lastly, this just came to mind whilst typing, but could newbie investor may be able to get a deal over an experienced investor if the property does not have much value-add potential? Just a thought.
I understand there are countless variables that can be discussed, so I would love to hear your feedback.
What will set you apart is how determined you are to get things done. Lots of people talk about doing things, and yet such a small portion of the talkers will back it up with getting out and hustling. You can find deals by door-knocking, driving for dollars, direct mail marketing, chatting with wholesalers, and so on. You should attend local REIA and real estate meetings and meetups as well to get to know some of the locals who are doing deals and pick their brains. Knowledge is power, and the most powerful investors became successful because they were willing to do the dirty work and get their hands dirty. As they grow over time, you will see that the most successful people do not have to do all of the little things as they have built systems and automated their processes to run like a machine.
First time buyers usually get first crack at HUD houses or HomePath houses. Can't remember exactly which one.
Don't accept a bad deal just to get in the game. A bad deal is bad regardless of your experience level.
My biggest advantage has always been my age (28 currently) and enthusiasm for the industry. I have made some deals by just appealing to older/tired landlords that are looking to get out of the game. I come prepared and knowledgeable about the possible property purchase and likewise, that helps win them over. They see a lot of themselves in me and want to pass that property onto a like minded individual. Real estate is a people business!
The "First Look" program that you are referring to is through government homes on HomePath. You will need a licensed real estate agent to help you with submitting bids. A little harder to find MFH on there but they do come up from time to time. I just even bought one a few months ago from HomePath! These properties will probably need a lot of work. However, they could be a great opportunity there for the right buyer. Working with the government will likely be a pain though so be ready to adjust on the fly.
@Jim Wilcox and @Bob Okenwa
Great notes from both of you. I appreciate the comments. I definitely understand that variable of the equation and have been using it to my advantage.
Like you said Jim, having that drive helps and I have certainty noticed it. I believe I have received help from experienced REI's just because of it. They see themselves in me (I am currently 23 years old) and want to help me on my path. I will continue to grind and find those deals, I was just curious, other than work ethic, if there was something variable/factor I was missing.
@Corbin Wafford I think you're smart to buy a duplex. I lived in three different ones over the years, financed as owner occupant, which is the best financing you'll ever get. I moved into one giant old place and then put an apartment on the third floor using a construction loan that I got at the same time as financing the house. It was a LOT of paperwork and hassle and hustle, but for a 30 year old without the funds to do it out of pocket, it was the only route I had. That property today leases out for 3 to 4 times what my other rentals do. (Everyone loves to hate on the govt., but that was a govt. secured loan and I'm ever thankful for it)
A bad deal, financed well, can still be a good deal. A local guy at the REIA always says he'll give you a million dollars for a $100K home, but under financing terms that won't be very attractive to you. Ha!
Do pay attention to "Firstlook" homes on HudHomestore.com. Not all of those houses are wrecked, but many are fixer uppers that can be had at good prices and they're reserved for owner occupants for the first few weeks or so that they're listed.
PS. It's truly a terrible time to be a buyer, so my best advice is to be very patient in looking for a good deal right now. Even the experienced guys are having trouble finding the volume of deals they could even two years ago.
@Corbin Wafford There will always be variables in REI that are hard to account for. You just need to make the best judgment call you can with the information given. That is one reason why surrounding yourself with a team of experts will get you further. You can't know everything. I have made plenty of mistakes, but all you can do is learn and move on. I bought my first deal when I was 23. I wouldn't buy it now because it was a horrible ROI. Yet, I wouldn't trade it for anything. If that property had not given me so much headache and money loss then I would not be the investor I am today. I just recently used that first place as a HELOC to fund a purchase and rehab of a much better deal. Even that garbage deal is still helping me on my REI journey. I am confident with BP in your back pocket, pun intended, you can buy a better deal than I could have only dreamed of at 23.
Here is what you need to succeed in life. Coined by yours truly! lol You need what I call the "god factor". No, I am not getting into religion here but what it takes to make you rise above the pack and be a "god" among all the other men in this world.
There will be times in your life when everything is overwhelming. Especially in REI you will think the job is too big, you don't have enough money, you don't have enough time, ect... Yet, you just have to dig deep and keep pushing forward. You need to be determined to get to the finish line even if it comes with some scars.
You need to be educated in your industry to recognize a good deal when you see one. Use your "gut" to be able to steer away from scams, bad deals, and bad life choices that will bring you down. Great opportunities await you every single day, you just need to train yourself to see them.
What gets you out of bed in the morning? What defines you? What cause or value can you provide someone today? Everyone has goals and they need a purpose in life. Use that as the driving force to get to your destination.
If you have these values and execute on them daily then the rest will fall into place. Just remember to some day take action! Good luck!
Great story and also excellent points. @Chuck B. !
@Jim Wilcox Great note and tips.
I will be sure to reference this when the going gets tough or I need a pick me up. Analyzing deals has probably been the toughest part thus far. For a first time buyer, it gets tough understanding everything to include whilst calculating whether a property would be a good investment or not. There are so many variables that go into it, and often gets overwhelming and at times, discouraging. Especially when the numbers are not adding up.
@Chuck B. Appreciate your comment and help. It is great to hear that the approach I am taking is worth while. I will also be sure to check out the HudHomestore site you reference and see if anything catches my eye!
Also, if either of you have any tips on analyzing deals, please feel free to either leave them here or PM me. Anything helps. I am tempted to purchase the BP pro membership for the calculators but would like to eliminate all other free options before spending.
@Corbin Wafford - Regarding analyzing deals... for buy and hold, my quick and dirty rule is to not ever buy anything less than a 1% (monthly rent to after-repair-value) deal. So if you find a duplex that is going to cost you a 185K and you're going to need to put 15K into it to get it up and running, that's an all-in cost of $200K. I'd need to make 1% of that a month in rents ($2,000) or more before I'd consider buying it. 1% deals can work with long-term (30 year fixed) financing, but they typically do not work with 10 and 15 year variable rate portfolio loans as you'll be coming out of pocket to support the house, capex, vacancy, etc. For these sort of properties you'll need to do better than 1%. Think 1.2%, 1.4%, 1.6% etc (or 2%+ in the west end)...
Good stuff guys. I bought a couple buy-and-holds in Austin. This time, in Orlando. I am looking for cash flow in Central Florida. It's super daunting -- so much information -- and everything is so fluid. I look forward to landing my first deal, but I am being super diligent, thanks in large part to this board.
First. I’d encourage you to try all you can to get a marketing budget. Now there are a lot of ways to get started in real estate investing using other people’s money, but there is nothing wrong with the old fashion way of saving up and paying for things on your own. That said, I think one of the easiest ways to find deals is to go to Craigslist and filter through all the
crappy stuff to find the gold. In my market at least, there are still great deals to be had on Craigslist, it just takes a lot of time to find them. If you dedicate yourself and create a system, and you stick to it, Craigslist can be a source for your first couple of deals until you can save up for a direct mail campaign. A good guide to help with this is:
@Brett Snodgrass Nice article. I had a chance to skim it at work and will definitely revisit it when I have some time on my side.
Out of curiosity, how much would you imagine a average direct mail campaign would run for?
Also, I just purchased several books by BP, one being "Finding and Funding Great Deals", so I am excited to learn more on ways to find deals.
Currently, my criteria is not to strict when it comes to finding a house (multi-family). Essentially, it just has to make enough sense to cover most if not all my mortgage and other payments so that I am living rent free. Sure, I would love cash-flow but for now, if I am owner occupying, I would like it to at least cover my expenses (for the most part). Hopefully in a year, once the FHA loan allows me to move out to another property and rent out the additional unit, I will cash flow. But simply put, I just want to eliminate that living expense, for now.
Campaigns typically run for at a minimum 4 mailings. Most people do 5-7 mailings in a campaign, spread out with a mailing every couple of weeks. Timing really matters as peoples circumstances change over time, and you need the mail to arrive at the right time to get a distressed situation where you can get the best deal. A lot of people quit after 1-2 mailings with illusions of amazingly high response rates. Most people aren't in a tough spot and need help, and how many procrastinators do you know in your own life? Even people knowing they are getting foreclosed may not want to think about it or are too paralyzed to do anything.
Tax delinquent lists are a good example of this. Still may take a few mailings before people respond.
@Corbin Wafford buy on what the property is producing currently and see the opportunity for the value add. Buy on the actuals though, especially to start. If you are "house hacking" you can adjust a bit because you are taking up one unit yourself. If you are not cash flowing with you living in the property but minor expenses, is it really a bad deal? Don't get in analysis paralysis for too long. It is great you are looking at everything! You will learn the market this way.
My tips for analysis are to factor in a healthy cap ex and repair fund. Yes, they are different. Also factor in property management rates. You want to be a passive investor one day right? You need to factor in the property management fees and some properties in L-ville property managers will not want to manage those. The rents are just not high enough and the effort is high for them to take on the job. Some properties in the West End of L-ville may fit those criteria points. If you want to "house hack" do you want to live next to someone that is paying $400 month in rent? You will certainly learn a lot lol. Whatever fits your buying criteria though.
@Chuck B. once again hits the nail on the head. Those extra costs up front can really hurt. I have been down that route and it sucks. I passed on a 3%+ on the paper deal once. The only deal I regret to this day passing on. However, it just wasn't in an area that worked for our property management and the money needed to get it up and running was questionable at that time.
@Kraig Kujawa keep it up. You will find what works for you someday. The more knowledge you get about the market, the deal will present itself. Keep out the local REIA for more deal opportunities!
The answer to your question is go out and find deals yourself, deals where you are not competing with the big guys. There's some wishful thinking in this thread but the reality is that nobody is going to sell their house to you for less money just because you're a great guy. There may be one-offs but that is not a business model.
Pick up the phone, knock on doors, mail leads that nobody else is (ie, not foreclosures) and make your own opportunity where you aren't competing with everybody else with access to the MLS. That's how you get deals.
@Corbin Wafford I think what can give any (newbie or not) investor a distinct advantage is understanding not just their market but the tiny submarkets in it. It's easy to think about an entire metro area but you'll have an advantage if you know a certain area that you believe in better than others. Real estate can be a block-by-block business and if you can see value where others can't, you'll have that advantage. And, not for nothing, but "experienced" investors don't have the luxury of house-hacking when it comes to a down payment, looking at cash-on-cash returns, etc. So you economic can be slightly different than others that are either already house-hacking or unwilling to do it. Also, experienced investors do have to allocate some portion of either time to either managing the properties or managing the property managers. At the moment, you don't have that from a time-burden perspective.
I don't know if this will apply to anyone else but I know that I have a more narrow focus on what I want to buy now. When I started it was a bit of an open book. Now that I have experience (read: properties) I really have narrowed by focus on what the next purchase may/can/will look like. If it doesn't fit that mold, I pass. It allows me the latitude to really focus on what I want but it also means I'm going to pass up (almost certainly) on "killer deals" that are outside of my focus area.
@Corbin Wafford I've "house hacked" two places now, and to me, that was my big advantage. I didn't live for free in either, but the financing advantages and the "convenience" of working on the place I was living in, plus on-site landlording, made them great deals for me. Starting out I strongly recommend house hacking, and I think it is the big advantage. One of them was done with family, and the other was done (and I still own it) with a partner.
Making the jump from house hacking to BRRR or flipping is where I'm currently stuck. Banks in my area don't like rental income - and rental income with a partner is considered at 25% of the actual income. I also went and bought a home to live in with my wife, converting my second hack into a full rental. It definitely means moving to private money for any new investments now - or hard money, but I don't think I would qualify for traditional financing even with the BRR completed!
A proper house hack is my strategy of choice right now. My brand of it calls for an upscale market, which I am not sure Louisville is, but look into it - may work :)
Have you read Scott Trench's new book, Set for Life, yet? It's worth your time. An owner occupant with a room mate can take down a duplex here and live 'free' or nearly free in good neighborhoods. Like you've heard countless times before I'm sure, getting started with that first deal can seem very difficult. You just need a base hit to get into the game.
@John R. Yes sir, I have. Which has catapulted me into learning about real estate as fast and as well as I can.
And as you mentioned, it can feel very difficult, but in all honesty, I am super excited to get my first place and not nearly as worried as I was when I first became interested in real estate a few months ago. Educating myself has significantly decreased the anxiety/fear/and potential risk that I initially had!
@Corbin Wafford I am not sure exactly what you mean in this question, but for time sake, We mail the same list every 2 months, and we do a 12 month campaign. So the person is getting 6 pieces of mail from us in 1 year. It’s costs us about 50 cents for postcards, and .85 for letters each. Hope this helps.
I think this sounds a good plan!!!!
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