RE Wisdom from a Real Estate Auctioneer

I recently conducted an informational interview with an Auctioneer for myself. I always conduct informational interviews as a way to learn more about RE. I felt his insights were very valuable so I have decided to share some of them here. I have removed any identifying information. I hope you find this as useful as I have.

What is a good way to break into RE investing? The first step is going to be to analyze your financial circumstances. The amount of money you have to invest is going to significantly impact what type of properties you should be considering. Typically, the best advice for new investors would be to focus on the least risk product. That is not to say buy the cheapest properties available. From a residential perspective. The $75-250k price range is usually the most stable. It has the largest pool of end buyers. If you are looking from a rental perspective, maybe in the $75-150k range. If you are considering commercial properties, you have some different considerations. Once you figure out what type of properties you want to invest in, you will need to choose where to invest. Looking at a variety of neighborhoods and locations is good to figure out a single target location. It will be better for you to become an expert in one area than simply ok in a lot of different areas.

2. What are some of the challenges to be aware of? The cheapest product seems most attractive. However, you will find that some properties are simply not worth acquiring at any price. There are certainly locations where the cost of renovating a property will exceed the property’s end value. You also need to consider your venues for financing. Because these are investment properties, the interest rates for any financing will typically be higher than on a primary residence. You will likely be presented with hard money lenders. These lenders charge exorbitant rates, but if you are only borrowing for a short time, the rates may not eat into your profit too much. If you are able to sustain a high equity percentage in your properties, you are likely to have a lower risk position. You may only be able to do a few deals, but you will not be extending yourself too far.

3. Any general thoughts for a person getting into this industry? Do your research, but know that at some point you simply have to make a move. Real estate investing seems easy, and it can be very profitable, but you need to look at the beginning, middle and end of each deal. That includes if the deal goes well, and if the deal goes sour. That being said, if you overanalyze every situation, you will never be able to jump in. Real estate investing takes a certain level of risk tolerance. Identifying in yourself what level of risk you are willing to take with your money will be highly valuable as you move forward. In the same way that people consider whether penny stocks, blue chip stocks, mutual funds or t-bills best suit their investment needs, so goes considering real estate property types and investment scenarios.