Advice for New Real Estate Investors Just Starting Out

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Converting excitement about becoming a real estate investor into your first profitable deal is one of the greatest challenges for many new real estate investors.

Notice I did not simply say “a deal” but instead a “profitable deal”? Anyone with a little money and a pen can do a bad deal.  It has been my experience that most new investors mistakenly assume they have to pay their dues and settle for marginal deals because all the “Experts” have gotten the really good deals already.

New investors shouldn’t be so naive. Don’t assume great deals are impossible to find or have been scooped up by the seasoned pros.  If you believe this, you will end up settling for marginal deals and you will lose out.

I hope this fact keeps you excited as you can be very successful in this market and in this business.  However, it takes effort and a lot of time to learn your market and all the relevant parts of the investing lifecycle to secure great deals.

Unfortunately I don’t know any short cuts to learning your market and investing your time.

When I indicate real estate investing requires work and the investment of time from new investors, I hear a couple of potentially dangerous responses. 

Does one of these responses fit you?

  1. This guy doesn’t know me or my market and thus his advice is not applicable to me or to my market!
  2. I get what you are saying but I am more intelligent than you are.  I am going to find the cliff notes version on my market to reduce my effort.
  3. I am so excited I am just going to jump in the market and look at deals before the great opportunities vanish.
  4. I have a lot more money than time and experience so I am going to find someone in my market that knows the business and pay them to be my personal talent scout for deals.
  5. I will do all the work but I only have time to do the work from my computer screen and the only time I can find is between 10PM and 12PM.
  6. I have to get to work and understand the current market for listings, the rental rates, the average repair cost and most importantly, I need to go out and meet people and walk through properties.

Unfortunately five out of the six responses are risky in my opinion.

Response #1: This guy doesn’t know me or my market and thus his advice is not applicable to me or my market!

The statement is undoubtedly true as I don’t know you or your market.  However, I am executing a working business model and I have done lots of deals. So instead of writing me off, you should see what pieces of information are relevant to you and your market.  Certainly something from my past experience is valuable.  Take what you want and ignore the rest.

Response # 2: I get what you are saying but I am more intelligent than you are.  I am going to find the cliff notes version on my market to reduce my effort.

Real Estate Investing is a business process; if there was an easy way I would have found it.  As I work full time, I invest in a market 3 hours from home and I travel 100K miles a year and spend more than 60 nights a year in hotels.  If you chose to take short cuts, you will overlook something important — you will make an expensive mistake or you will simply never get started.  I still go through the process all the time and I have 10 years of experience in my market, lots of relationships and have done many great deals.  Never short cut the process or it will burn you.

Response #3: I am so excited that I am just going to jump in the market and look at deals before the great opportunities vanish.

This is potentially the most damaging behavior, because this attitude will lead you to pull the trigger on one of the first deals you see.  Any guess what happens when you make a purchase decision without doing the work?  Answer – You are gambling.  The first deal is the most important and should not be left to luck or chance.  If the first deal goes bad or even if it is just marginal, you will never do a second deal. Don’t let this happen to you.  Step back, take a deep breath and perform the required due diligence.

Response #4:  I have a lot more money than time and experience so I am going to find someone in my market that knows the business and pay them to be my personal talent scout.

When people react this way, they are choosing to lean on a Real Estate Agent or maybe a Property Manager to advise them on investment decisions.  Part of the homework is meeting these people and getting to build your network, but don’t bet your hard earned capital on a single trusted source.  If you don’t have time to invest in active real estate investing I suggest you investigate being a passive investor.

Response #5:  I will do all the work but I only have time to do the work from my computer screen and the only time I can find is between 10PM and 12PM.

Being a committed night owl is not the best recipe for success with active real estate investing.   You can do some of the baseline work from the computer but you need to get in the field and really understand your market. Remember real estate investing is a people business.

If you can’t commit the time and effort to understanding all the aspects of Active Real Estate Investing, you should at least consider the option of Passive Real Estate Investing.  Successful real estate investors with proven models, frameworks and track records offer secure returns with downside protection to their passive investors.

Good Investing

About Author

Michael Zuber is an active buy-and-hold real estate investor who still has a full-time job. Michael is not an agent or broker, and simply uses the internet and agent relationships to drive his business. He currently averages at least one deal a month and has developed laser focus on his 5 step process.

11 Comments

  1. Mike,

    Two types of real estate investors come to mind….

    Investor A – A employee, small or large business owner or maybe even a retired school teacher seeking out and following the local talk to purchase a investment property. This property will be “fun” and keep them busy and provide a good return until… a couple years go by and tenants move in and out and managing the property becomes a hassle. They will probably even lose sleeping. When the market turns they sell the property, make a few bucks and pay capital gains. Several years and decades will go by and they chat at holiday gatherings and birthday parties of the property they onced owned and wished they never sold.

    Investor B – Investor B starts off the same way as Investor A but decides to purchase a second property and maybe a third within the first two years. This investor watches other investors that have been in the business for many years and is very curious on how people build a “system” that provides a endless amount of monthly cash with little or no work. This investor pencils out a plan on how to buy hundreds of properties that provides a return to dozens of investors. The small details that bothered Investor A have little or almost no impact on the thought process of Investor B. Investor B builds relationships and identifies the key components to acquire, leverage and manage a scalable system to provide the rerturns Investor A sought but could not execute due to a lack of time, stamina and strategic foresight.

    Type A investors can still enjoy the financial and most importantly the tangible benefits of investing in real estate. Pair yourself with type B investors and be part of the system.

    Frank

  2. Another Great post Mike!

    I like your point on response #5. I know a lot of people that think they can learn a market just spending time on Zillow or another RE website. I agree with you, you have to get your boots on the ground and kick the tires to really know a market.

    AG

  3. Antonio Tapia on

    Great article, Mike. Thank you for sharing.

    Frank- thanks for the visual of what the two types of investors look like. I’m starting out and I’m sure I’ll come back to your two models as a reminder of the type of investor I’m looking to be (and the type that, 40 years from now, I hope to look back and say I was).

    Antonio

  4. Julian Robinson

    Say you are just starting out, like just finished reading “The Ultimate Beginners Guide to Real Estate Investing” new. I’ve been stuck on deciding whether it would be better to continue working one job while focusing on my internship and pursuing real estate head on or just pursuing real estate while focusing on my internship.

    Do any of you have any advice for a young professional in hopes of learning from, experienced individuals such as your-selves?

  5. Ricardo Perez

    What’s a good starting place to get to know my real estate market? Who is a good source, brokers, agents, property management companies? Or should I find a local investor who is willing to discuss the market with me? or all?

    So many questions, I am just starting out and looking to get into the market not just sit and read.

  6. Brendyn Dabrowski

    I am also trying to find a good starting place to get to know my real estate market and real estate investing as a whole. I think that going to local real estate investor meetups and networking at those events might be the best step to get the ball rolling. I could definitely be wrong, but my thinking is that there is very little downside in taking action!

  7. Jim Pintchuk

    I am brand new to real estate investing in the Cleveland Eastern Suburbs. I am a licensed Electrician in Geauga County and do alot of home remodeling myself. I would love to find viable investment property in Geauga County, especially the Middlefield area. A gut rehab is great if the price is right. We also have a lot of Amish homes that have no electrical but are very wel built. This might be a good match with my skill set. I am pretty fit and am retiring at age 60 in 19 months. I like this kind of work and hope for this to be a new income source.
    Is anyone body interested in working together in the area? I would like to hookup with a local real estate investment club or realtor.

    Thanks
    Jim P

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