My last article discussed why I think the 2% rule is a bad rule of thumb for beginning investors. In this article, I give newbies a few simple tips on how start taking action in their investing career.
The BiggerPockets forums are full of posts from new investors introducing themselves or asking questions. Even though there are many new investors looking to get started buying properties, very few ever actually become successful investors.
Many new investors hear how great investing in Real Estate can be and they want to start buying property right away. The new investor quickly realizes how much money it takes, how much work it takes and how much competition there is. It can be overwhelming for a new investor to visualize all the steps it will take to get to where they want to be.
The biggest hurdle to anyone starting something new is taking the first step. I am not talking about reading books or looking up information online, but actually taking action. My advice to the beginning investor is to take action in their Real Estate career. Analysis-paralysis is a great term for investors who over analyze a deal, instead of going for it. I think the term can also apply to newbies who are stuck in the education phase and are not taking action.
I am not advising that new investors go out and buy a property as soon as possible. However, I am suggesting new investors start the process of investing as soon as possible. There are so many things a new investor can do to get involved and take action towards buying an investment property. Here are a few suggestions on how a newbie investor can start taking action!
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1.) Look at houses for sale
One of the most important things an investor needs to know is their market. Almost every house for sale is listed on the internet somewhere. It is very easy for an investor to look up homes online and start getting an idea for what prices are in a particular market. This is a great start, but a new investor needs to start physically seeing houses as well. Start by driving by interesting properties, then find some open houses to go to or talk to a Realtor who can show you houses.
2.) Talk to a Realtor
A Realtor can be an investors best asset, especially a beginning investor. A Realtor can show you almost any house for sale, can give you an idea of what prices are and let you know about good deals. I would ask around for any referrals of good Realtors from your friends, family and co-workers.
Don’t be afraid to talk to a couple Realtors to find one who will work hard for you. Be honest with Realtors and tell them your goals and what your plans are. Don’t be afraid to take a Realtor out to lunch or give them something back if you plan to have them show you houses before you are ready to buy.
3.) Go to an REIA meet up
Even seasoned investors can learn a ton from REIA meetings. They are also a great place to network and meet valuable business partners. Whether you want to be a wholesaler, flipper, long term investor or even a Realtor, REIA meetings can link you up with the people you need to know. They are also full of investors willing to share information to help you get started.
4.) Talk to a Lender
One of the first steps for any investor, is talking to a lender. Local lenders have a reputation to up hold and are usually much more accountable than out of town lenders. I have been an agent since 2002 and I always recommend using a local lender. A Realtor can suggest a couple of lenders to talk to or you can talk to the bank you have your current accounts with.
It is best to talk to a lender as soon as possible when looking to buy a home. There may be some unknown credit issues or judgments against you, that catch you by surprise. Even though they may be very minor issues, they can easily prevent a lender from giving you a loan. It may take a couple weeks or even months to clear these issues up, so talk to a lender right away.
5.) Calculate your cash flow on a property
Research and education is great for newbies, but reading books and forums is not enough. Not only should new investors be learning by taking in information, they need to be practicing what they learn. A great way to get your brain in investing mode is to write out the expenses and income on a potential property. I prefer to write things out by hand, not a computer, but either one is fine.
Take out a piece of paper and write down all the possible figures you can on a property.
Price, down payment, mortgage payment, closing costs, rent, utilities, repairs, taxes, insurance, carrying costs, vacancies, maintenance, property management, legal fees and anything else that comes to mind.
From these figures, at a minimum calculate your monthly cash flow, total cash needed and cash on cash returns.
6.) Create a Budget
Many new investors are blown away by how much it can cost to get into an investment property. If you want to invest, but don’t have the money, take steps to get that money. One of the hardest things for me to do, is look at how much money I spend. I know I spend too much and I don’t want to know just how much I spend. Even though it is not easy to do, it is essential to have a budget, know where your money goes and where you can cut back.
7.) Write Out a Ten Year Plan
I love goals and projecting where I am going to be in one, five or ten years. I wrote out a ten year plan to purchase 100 rental properties and detailed exactly how I was going to do it. At first it seemed like an impossible goal, but once I started writing it out and breaking down the 10 years into one year increments it seemed more possible. At the end of my plan I actually believed I could accomplish purchasing 100 properties and it provided great motivation.
Write out a plan for how many houses you want, what the rents will be, what the cash flow will be and how much money you will be making at the end of ten years.
All of these items can be started without spending any money and at any point in your investing career. The sooner you get started taking action, the sooner you will know your market, meet valuable people, and get a clear picture of what you want to accomplish.
Photo: Micah Taylor