A Challenge to New Real Estate Investors: 7 Steps You Can Start Taking Today

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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.

Conclusion

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

About Author

Mark Ferguson

Mark is Real Estate Broker and investor in Greeley, Colorado. Mark invests in long-term SFR rental homes and also does 8-15 fix and flips a year. Mark started a blog this year that focuses on investing in long term single family rentals.

18 Comments

    • Mark Ferguson

      Hi Donna,
      Thank you for the comment. There is a ton of advice to give on flipping. Since you are a seasoned broker, you know your market and values and that is the number one thing to know.

      I would make sure you have a couple of good contractors ready to work who you trust.
      I would always overestimate costs and overestimate the time it will take for repairs.
      I would look at the flip from a worst case scenario, what would you make if everything went horrible and could you make it through if that did happen.

      A lot depends on your market. A few years ago we were making homes super nice to be the best in the neighborhood because of the competition. Now, the it is a sellers market and the homes do not have to be as nice to sell. We don’t have to do quite as much to them.

      If your home is the nicest in the neighborhood, remember the appraiser is going to have to find comps to support value. Over improving can bite you in the end.

  1. James Ormond on

    Hi Mark,

    Great post! Thanks for sharing with us. I see that you are a Broker and also hold several SFR rentals, which is what I will focus my REI business on. I’ve recently considered getting my license, but am unsure how much this would help or hinder me with a buy and hold strategy. I have enough time to complete the local RE school before I begin acquiring properties, but am not sure if this is money (and time) well spent. I was thinking that just the additional education and contacts I make locally would be worth the price of the coursework, even if I do not even take the exam for licensing. Do you have any thoughts or concerns that might help me shape my plan?
    Thanks so much for your generous contributions to BP!

    James

    • Mark Ferguson

      Thank you for the comment James,
      I am actually writing an article on this topic for my next post. I highly suggest getting your license. It saves money on commissions and you don’t have to rely on a Real Estate agent to submit contracts and show you houses. Saves a ton of time.

      • Kevin Kimble

        Mark,

        Thank you, thank you, thank you!! You just in this moment changed my life! I know what my strategy is, my frustration is these “hustling agents” who have many clients they are servicing and cant move as fast as I need them to move.

        Once I see a property I am interested in I want to see it IMMEDIATELY, if not sooner and it was KILLING ME that I couldn’t move at the speed of light. (Did I mention they lasted on the market maybe 12 days before they were under contract. (The latest one in Hagerstown Md 2 unit 3bd 1bath both units FOR $52,000 are you serious? REALLY? Oh, I would have made it sing (Don’t all newbies think that?) But I knew if I thought like that SOMEONE ELSE WAS THINKING THAT SAME EXACT THOUGHT! Now I know my realtor couldn’t let me invest in that market (we’re In hot market Bethesda & DC) It’s so out of the blast zone they call it Hagerstown Pennsylvania.

        So needless to say I was heart broken when I checked new years eve and found it under contract.

        I am (I guess it’s was now) very frustrated at the fact that I couldn’t get in to see a house until someone would grace me with there valuable time.

        What’s the commission on a $52,000 house anyway? Not enough to make a realtor move.

        NOW I DONT NEED THEM AT ALL!!!! I’M FREE!!! YOU MEAN I CAN LOOK AT ANY HOUSE I WANT WHEN I WANT AND NOT BE CONCERNED THAT MY LOST COST STRATEGY IS AT ODDS WITH MY REALTOR’S HIGH COMMISION STRATEGY? OH HAPPY DAY!

        MARK THANK YOU!!!! THANK YOU THANK YOU!!!!

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  3. Wow Mark, great article. I read it and you described me to a tee. I’m a nurse by profession, but I have been interested in investing in real estate for quite some time. I read and research, then research and read some more, but am paralyzed and intimidated by all of the real estate jargon, closing costs, escrow. I am confident that I can get financing, but worried about getting in over my head. I’m interested in buying and holding long term, but I live in a coastal community which might be too pricey for me to start. You have motivated me, however, to call my bank and get the process going. Thank you.
    Julianne

  4. Thanks for the article Mark. It is good to know I am headed in the right direction. The big obstacle I face right now is having the money to start, but I am in the process of saving capital to get started by year’s end.

  5. For the calculate section. Where would a newbie get the numbers to calculate the property and to see if it would be a good deal? Would the newbie just rely on pro-forma data? or would you need to use actual data? if for pro-forma data how do you get that information exactly? If one needs to get the actual data and not just the fluffed up pro-forma data how do you go about this?

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