Chapter 1: How to Invest In Real Estate: An Introduction
"Ninety percent of all millionaires become so through owning real estate." - Andrew Carnegie
Are you new to real estate investing? Learning how to invest in real estate doesn't need to be complicated, difficult, or expensive. In this beginner's guide, you will learn how to get started investing in real estate from beginning to end - with no hype, false promises, or pitches.
This chapter includes:
- Why Invest in Real Estate?
- Can I Invest in Real Estate if I Have a Full Time Job?
- Do I Need to Pay Some Guru in Order to Be Successful?
- Can I Invest in Real Estate if I Have No Money?
- Is Real Estate Investing a Way to "Get Rich Quick?"
- What to Expect in This Beginner's Guide
Why Invest In Real Estate?
There are many different places you can stick your money other than under your pillow, including stocks, bonds, savings, mutual funds, CD, currencies, commodities, and of course, real estate. There are positive and negative aspects of each investment option, but since we're here to learn about real estate, we'll focus on that and that alone.
One of the most commonly stated reasons that people give for investing in real estate is that they are seeking out financial freedom, but there are others as well -- of course, each person will have their own personal reasons why. They are typically seeking one or several of the following:
- Cash Flow
- Tax Benefits
The decision to begin investing in real estate is a personal one, and we absolutely recommend you make sure you and your family are 100% committed before deciding to move forward in doing so.
For more details on these reasons, see:
- Why Invest In Real Estate
- Top 5 Reasons to Invest in Real Estate
- Top 5 Reasons to Invest in Real Estate Instead of Paper Assets
Can I Invest in Real Estate if I Have a Full Time Job?
Yes. The kind of real estate investing you might see on television or might hear about from a guru is not the only kind of real estate investing out there. In many situations, that kind of investing is not even investing at all, but simply gambling or speculating.
The truth is, there are hundreds of ways to make money in real estate. Some of these techniques or strategies might require forty hours a week, while others might only require forty hours per year. The amount of time it takes to grow your real estate business largely depends on your investing strategy, your personality, your skills, your knowledge and your timeline.
You’ve probably heard the age-old high school guidance counselor question, "If you suddenly had one million dollars and didn’t have to work anymore, what would you do?" The answer, it’s said, is what career field you should be in. Would you invest in real estate?
If your dream path would be to open up a shelter for abused animals or to move to Aruba and train tourists to surf, you probably should not be a full time real estate investor.
That's not to say that you shouldn't invest in real estate -- you just probably shouldn't go full time.
However, you don’t need to make real estate your career in order to build wealth in real estate. If you love your job, you don’t need to quit it to invest in real estate. You can achieve the same or better results as a full-time real estate investor by investing on the side.
Advantages of Investing While Working a Full-Time Job
By keeping your day job, you have several advantages over a full-time investors. First, you do not need to live off any of the cash flow you make -- that's what your 9-5 is for. By reinvesting all the profits from your investments, you can fully realize the incredible benefit of exponential growth. Additionally, you have a much easier ability to get long-term bank financing thanks to the stable income from work, which can also help increase and stabilize your wealth building.
Investing in real estate while keeping your day job can be done in many ways, such as:
- Partnering in a larger piece of property
- Buy-and-hold property with property management
- Serving as a private or hard money lender
- Investing in notes (mortgages)
Real estate can be highly profitable as a career or if you're just investing while working a "normal job." However, the choice is yours as to which path you take. Don’t simply decide to quit your job and become a full time investor because you read about other investors who have been successful doing it that way. Having a concrete plan for how you're going to proceed in real estate is essential; we'll get into that a little later in the guide.
That said, life is too short to be stuck in a job you hate. Choose a career that makes you excited to wake up in the morning, energized throughout the day, and content when you fall asleep at night. If that desire leads you to full time real estate investing, welcome to the club! Just make sure you are not simply building a career, but building a future.
Also be sure to check out:
- BiggerPockets Podcast 006: Investing While Holding a Full Time Job with Arthur Garcia
- BiggerPockets Podcast 008: Learning to Be a Profitable but Ethical Landlord with Al Williamson
- BiggerPockets Podcast 023: Flipping While Working a Job, Partnerships, and Military Investing with James Vermillion
- BiggerPockets Podcast 033: How to Close 27 Deals in Your First Year While Working Full Time with Sam Craven
- BiggerPockets Podcast 037: Full Time Income, Part Time Lifestyle Real Estate Investing with Aaron Mazzrillo
- BiggerPockets Podcast 051: Small Multifamily Properties, Working a Full Time Job, and Training Tenants with Mike Sherwood
- BiggerPockets Podcast 054: Investing in Under $30k Real Estate, Working a Day Job, and Good Vs. Bad Neighborhoods with Lisa Phillips
- BiggerPockets Podcast 058: Flipping and Wholesaling Homes While Working Full Time with Justin Silverio
Do I Need to Pay Some Guru In Order to Be Successful?
Absolutely not. Countless investors have become successful without the help of the guru crowd. The goal of many of these individuals is to sell you on the dream of fast riches, fancy cars, easy money, and so on -- many prey on people who desperately want to make money and often use very slick and often dangerous (for you) techniques to sell you on their very expensive courses, bootcamps, mentoring, training, etc. In fact, the tactics used to get you hooked are very well documented, and there is absolutely no such thing as a free lunch.
Keep in mind that there are many in our industry who benefit from the marketing of these gurus. Most websites focused on the investment niche affiliate with them, making large referral fees -- often on the order of 50% -- in return for marketing their wares. Additionally, a large percentage of real estate clubs derive their revenues from products and events sold by gurus who "teach" there. And yes, they also get a nice 50% cut for doing so.
Remember, real estate gurus are in the business of marketing and selling you on the dream. Through this guide and the thousands of articles and hundreds of thousands of discussions available on BiggerPockets, you can absolutely learn everything that you'd pay thousands of dollars to a guru for, and you can do so for free. If you want to read an excellent article about the guru seminar trap, read "The Real Estate Guru Trap – How It Works & 4 Ways to Avoid It." Also, if you find a real estate guru that you are interested in learning more about, be certain to be careful, and check out our real estate guru review forum to find out the real deal from other investors.
That all said, they aren't all bad, and some of these individuals are very knowledgable. Just remember: caveat emptor (let the buyer beware). Do your homework and don't get caught up in the hype or promise of secrets; there aren't any.
Also be sure to check out:
- Purchasing a Real Estate Investing Guru Program? Read This First!
- Don’t be hypnotized by the “Guru of the Week”!
- Real Estate Gurus Promoting Other Guru Courses and Events – a Scam?
- BP Podcast 017 – Finding Mentors, Facing Retirement, and Note Investing with Jeff Brown
Can I Invest in Real Estate if I Have No Money?
The simple answer is: yes, it is possible to invest in real estate if you don't have any money at all. However, there is money involved in every real estate transaction. The issue, therefore, is not whether you're investing with "no money," but instead whether you’re investing with "none of your own money." Investing in real estate without using any of your own money requires using Other People's Money (OPM) -- learning to strategically invest in real estate without any of your own money is one of the most complex but important tools you can develop in your real estate investing career.
The key to investing in real estate without any money of your own is simple: bring something to the table. If you lack money, there are other things you can bring to the table in a transaction -- if structured correctly -- including education, time, connections, confidence, intelligence, and creativity. By reading this guide, you are already taking steps toward building your strengths in those areas.
Many investors use little or none of their own money when investing in real estate by using one of several methods that include:
- Using partners
- Using lease option strategies
- Via FHA 3.5% down payment loans
- Using USDA or VA no-down payment loans
- With home equity loans or lines of credit
- Using private/hard money.
We will look at each of these areas in more depth later in this guide, but we want you to recognize that investing in real estate without income is possible, but may not be as easy as the gurus would have you believe.
For more information on investing in real estate without any money, please see:
- 5 Ways to Start with No Money and No Credit?
- How to Close a Subject-To Deal with No Money Down
- Can You Really Flip Houses With No Money?
- Forum Discussion: Wholesaling With No Money Down
- Flipping, Marketing, and Wholesaling with Danny Johnson
- BP Podcast 050: Getting Started and No Money Down House Flipping with Mike Simmons
Working in Real Estate Without Investing at All
Many would-be real estate investors get their start by simply working in the real estate industry – earning money while gaining a solid hands-on education. Here is a brief list (far from exhaustive) of careers you can take on to learn the real estate business:
- Real Estate Agent
- Mortgage Broker
- Construction Worker
- Resident Manager
- Title/Escrow Agent
- Project Manager
If you are looking to get into real estate investing with no experience and no money, choosing one of these careers may be a great way to get your feet wet in the industry and to help you begin plotting your career into full time real estate investing. The experience you'll gain from mastering one or several of the other trades in the industry can be invaluable in helping you be successful.
Is Real Estate Investing a Way to "Get Rich Quick?"
How many late-night real estate infomercials have you seen where the real estate guru is sipping drinks on the back porch of his beachside home, next to beautiful women in expensive (or minimal) clothing, telling you that this life is for you?
No doubt one of the largest draws to real estate investing is the image of investors driving fancy cars, living in large homes, and being all around "rich." While many real estate investors do build significant wealth over their career, real estate investing is not a "get rich quick" scheme. Yes – there are some who make a lot of money in a short time; however, these situations are generally the exception, not the rule.
Investing in real estate takes planning, patience, and persistence. Don't expect to make millions of dollars in your first year. Instead, plan on creating a business through real estate that will grow steadily year after year to enable you to meet your financial goals -- and hopefully your dreams. No matter what you might hear otherwise, being successful in real estate requires hard work, just like it does in any other field. It is also important to know that there are no shortcuts to being successful in real estate -- there are no products or tools that will do the work for you, either. You must learn the fundamentals and then apply them. Of course, our goal here is to help you with that.For more information on "get rich quick" investing see:
- If You're Not Building Wealth – You Might Be in The Wrong Game
- Forum Discussion: Real Estate: A Get Rich Slow Business.
- Slow and Steady Wins the Race
- FAST Nickels vs. SLOW Dimes: As a Real Estate Investor, Which is Better?
By the end of this chapter, you should have a clear vision for why real estate can and should be an important step for building wealth for your future. Whether you decide to go full time or just invest on the side, real estate can be the path toward financial future for you and your family. In the next chapter, we are going to look at the very first step (and one of the most important) you should take on your journey: your education.
When you are ready, turn to Chapter 2 and let's get you on your way to starting out in real estate.
- Chapter 1: How to Invest In Real Estate
- Chapter 2: Your Real Estate Investing Education
- Chapter 3: Choosing Your Investing Niches and Strategies
- Chapter 4: Creating Your Real Estate Business Plan
- Chapter 5: How to Find Investment Properties
- Chapter 6: Financing Your Real Estate Investments
- Chapter 7: Real Estate Marketing
- Chapter 8: Real Estate Exit Strategies