Educate for how long before jumping in on the first property?

Question

Hi all,

I am a young professional in Pittsburgh looking to put my money to work.  I have some money saved but would feel more confident in getting started investing during the next year or two of my saving plan due to my lack of knowledge with regards to different fees etc that require some financial buffering especially when you're a new investor.  I wanted to get some opinions on how long to educate myself in the market and what are the best ways (especially now during financial distancing) to get involved in my market and start learning some of the ins and outs of investing besides books, podcasts etc which I am already diving into.  I would like to capitalize on the possible upcoming market opportunities that may come from the pandemic downturn but want to maximize my education prior to that.  I suppose my real issue is what could I do to ready myself for that first purchase if the great deals start to line up sooner than my savings are ready?   Thanks in advance.

Jeremy Taggart · Answer

@Chad Burkett Is house hacking an option for you? That's the best way to get started in my opinion. Can get into something for very little out of pocket and start getting that hands on experience with very little risk.

I would also start analyzing deals that are on the local MLS here. By doing that you can start to get familiar with the different price/rent ratios of all the neighborhoods and what constitutes a good deal or not. That and driving around these areas to experience them first hand is super helpful too. Scope out sites like zillow for rental ads to get familiar with market rents.

You could also reach out to an experienced investor or someone that has a lot of projects going on just to pick their brain or offer to help them in some way in exchange for their time/knowledge. That was probably the biggest learning curve for me was figuring out exactly how much rehabbing costs.

Keep rolling with the podcasts and books too. You'll know when you feel comfortable enough to pull the trigger it may be sooner than you think.

Alex Deacon · Answer

@Chad Burkett you are in good company. @Jeremy Taggart has a wealth of knowledge on this topic. I would suggest you join a few of the local real estate groups. @Josh Caldwell runs the REIA investment group. You can join his webinars and local events on a monthly basis.

Chad Burkett · Answer

Thanks everyone for the great responses I appreciate them very much.  @Alex Deacon thanks for the investment group recommendation for our area that is a great idea.  @Jed Haslam-Walker thanks so much for the thorough response and taking the time to do that.  @Jeremy Taggart I actually took a friend and current investor out for a round of golf to pick his brain on some of this last week and it was very helpful.  Also, @Anthony Dadlani that is a great point so I will take my time learning for a bit but try not to overanalyse and get stuck in this phase too long.  Thanks again everyone.

Anthony Dadlani · Answer

@Chad Burkett

Education is important. Education is Also an ongoing practice. I would suggest educate yourself till you feel comfortable, but don’t go into paralysis by analysis and get stuck. One of the best ways to learn is to jump right in.

Best of luck in all your endeavors.   ￼ ￼￼￼

Jed Haslam-Walker · Answer

@Chad Burkett Hi Chad,

Good for you.

It's tough to get started, I work with new investors a lot and you really need a basic set of skills to be able to analyse a deal.

It sounds like you want to know how to recognise a good deal when you see it so in (very) brief I would recommend you do the following as a minimum;

1. Property Type - decide where you are going to start - Single Family, Multi-Family, Condo, Mobile Home etc. Decide on your financing approach/product/s. This will normally be predicted by your available capital.

2. Area - decide on one area to begin with -identify what constitutes a growth area and gather metrics on that area only. Set your area to a miles defined radius or zipcodes. Analyse prices, rents and sold prices for a few months for the property type you are interested in- research ads for properties, call brokers to find out what properties sold for etc. Call Property Rental Managers in the area and ask about vacancy rates. This will give you a picture of accurate value and rents.

3. Analyse a neighbourhood - neighbourhoods go through phases of appreciation and depreciation and normally very predictably. Learn how to spot what phase a neighbourhood is in.

4. The Deal - once you know the reliability of the prices and rents you can run analysis. Learn how to accurately predict( as accurately as predicting ever can be) costs on a property and vacancy rates. Research the different rates of return that investors use - there are several and it can be overwhelming to understand how to utilise them properly to begin with but you can begin to understand them and then perhaps choose 2-3, like Cash On Cash and Return on Equity for example, the more involved calculations like Internal Rate of Return and Net Present Value are normally done on larger properties. Once you know more about them you will quickly get a feel for what you personally are looking for.

If you get clear about the three areas above you will far more confident and ready. Normally if you make a list and work your way down it will give your brain a way to hang the information on so it doesn't feel like a soup and you will start to feel more in charge of the information,

Hope that helps.

Educate for how long before jumping in on the first property?

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