Advice for a beginner

Hello everyone,
I am a young, very driven and motivated investor in training. I’m in search of your opinion on getting organized and ready to ‘jump in’ so to speak. I’m looking to do my first realistic deal next summer whether it be a wholesale deal or possibly something along the lines of a rental or lease option. I would prefer to wholesale a property verses holding onto it unless the numbers are there. I’m not looking to make a killing, or even a substantial amount on my first deal, but rather getting some of my paralysis of analysis in check by contracting and closing my first deal. To me, as long as I don’t lose money, or a lot anyhow, the knowledge and confidence I would gain would be priceless to me. I’m just in the beginning stages of finding potential investors, Realtors and a decent real estate lawyer to work with. Can you guys offer any kind of advice that I should possibly take heed in from now until this summer? I’m a full time college student and a new father so I would like to give myself at least that amount of time to get my ducks in a row before I attempt to put a contract on anything. I’ll make a list of what I’m going to achieve before I do anything in the real world:

Network and find agents, investors and a lawyer to work with
Organize myself and set up a system for finding the deals that my investors are looking for
Save up some reserves (I should have around 10k saved by the summer, which isn’t a lot, but it is something)
Read, read and read some more
Have a backup plan if something were to not work out

Can you guys offer any kind of advice for a new guy looking to start out in the field? I’m not broke and I can afford to not work this summer (my wife is a nurse and is very supportive of what I am aspiring to do). However, I would like to make it a goal to at least contract and close on something by the end of next summer. I have a lot of time, determination, and some money to get started. I would appreciate any advice that you guys may be able to offer a young, aspiring investor! Thank you for reading!
Chris

Here is something I saved from another website. It was written by John Carlson (JohnBoy) and posted on June 13, 2002.

BEST WAY TO GET STARTED IN REAL ESTATE

Here are a couple of ideas that should help you get started in the right direction and answer how you can do a no money down deal with no cash, no credit, no income, no nothing, except having some general knowledge backed with a desire to succeed by going out there and taking ACTION!!!

The way most people make money in this game is by using creative techniques to solve one person’s problem while being able to structure the deal to where it makes you a profit.

The key to finding a lot of deals in this game is to look for the MOTIVATED SELLERS… forget about looking for houses, that’s a waste of time and requires way too much work!!! Narrow it down to dealing with “MOTIVATED SELLERS” and make fewer offers that result in getting more offers accepted!

Let me give you an example on buying a house for full market value, with no money out of your pocket, picking up a quick $5k up front, some positive cash flow every month, and a nice payday on the back end… plus where talking about dealing in NICE homes…NO junk properties!

Mr. Seller has a newer home he purchased about 2 years ago. When he purchased the home he put about 5% down and was able to qualify for 95% financing. After closing cost he had hardly any equity left. Mr. Seller ended up buying a new home a couple years later. He’s been trying to sell this home before he has to close on his new home. He can’t even afford to list the home with a realtor because he doesn’t have enough equity in the property to even cover the 6% - 7% commission he would have to pay a real estate agent.

Now the Seller’s new home is finished, ready to be moved into and he needs to close on it. He closes and figures he’ll sell the old home soon, but soon enough doesn’t seem to be coming. Now the Seller is starting to have some financial problems because he has to start paying two mortgage payments until someone buys the old home. The Seller has a problem now because he can’t afford to make two mortgage payments. If something doesn’t give pretty quickly, he’s going to fall behind on the payments on the old home. He’s going to pay the new homes mortgage first. But he doesn’t want to be late or get behind on the payments of the old home either. The Seller is worried about damaging his credit if he misses any payments.

This is where I would come along and be in a position to SOLVE HIS PROBLEM! I can put a stop to the Seller’s worry and stop the bleeding TODAY! All the Seller needs to do is agree to my TERMS and I’ll even pay him what he owes on the property, which is pretty close to full market value. The Seller knows he wasn’t going to get any money out of it after paying off his mortgage and closing costs, so all the Seller wants and all he NEEDS is to get out from under his mortgage payment!

I agree to take over the Seller’s mortgage. I take it over “subject to”, which means I assume the Seller’s loan without even qualifying through the lender that holds the Seller’s mortgage. The Seller will deed the property over to me. I now OWN the home. The Seller is still on the loan that has the lien against the property. The Seller remains responsible to the lender for that loan until I pay it off! Usually within a few years when my tenant ends up exercising their option that I will give to them under a lease option agreement. I won’t be liable for the loan on the property to the lender. The Seller’s bank can’t come after me if something where to go wrong. The loan is in the Seller’s name, not mine! However, I will be liable to the Seller to perform on our contract agreement to make his payments and pay off that loan eventually, but my liability is to Seller, not his bank.

The Seller deeds the property over to me. The house is worth $150k. The Seller’s loan balance is about $145k. I agree to start making the payments in 30 - 60 days from today! Now I have 30 - 60 days to market the property before my payments start. The payments are $1400 PITI

What is the FASTEST way to sell a property? Sell on TERMS!
So I run an ad in the paper.

NO BANK QUALIFYING!!!
RENT TO OWN
NICE! 4bd/2ba House
Call xxx-xxxx

The phone starts ringing off the hook!

I find a potential Buyer that has $5k to put down and says they can afford to pay $1700 per month. ($150k homes in the area would rent for $1200 - $1400 per month, so getting $1700 a month on a $1400 rental when offering an OPTION TO BUY, will bring a premium rent and people will gladly pay it, because no one else will even finance them because of one reason or another) I agree to give them an option to buy the home for $165k in one or two years. YOU get a premium on the sale price because you’re offering TERMS!

I collect the $5k up front as “Non-Refundable Option Consideration” and “IF” they exercise the OPTION, the $5k will be deducted from the purchase price of $165k, leaving my Tenant/Buyer with a balance owed of $160k. If they don’t exercise the option the option money paid is non-refundable and is lost by the Tenant/Buyer!

I get the $5k up front, plus first month’s rent of $1700. Since I was lucky and found this Tenant/Buyer in the first week, I get to keep 100% of the first two months rent since my payments won’t start for 60 days! So I collect $5k + $1700 first month rent up front, for a total of $6700. The following month I collect the full $1700 for rent and the 10 months after that I collect $300 per month positive cash flow. At the end of the year, IF the Tenant/Buyer exercises their option, they will pay $160k. After paying off the underlying mortgage of $145k remaining on the Seller’s mortgage, I’ll collect another $15k at closing.

So let’s see, that’s…
$5k option money up front
$1700 first months rent
$1700 second months rent
$300 x 10 months rent = $3k
$15k at closing ($160k - $145k = $15k)
That’s $26,400.00 over 12 months total PROFIT!

Now what happens if my Tenant/Buyer doesn’t exercise the option in a year???

WONDERFUL!!!

Now I get to start all over again! I get to collect another option fee, raise the rent after a year for inflation and get a higher selling price for the option the next time around! I just keep repeating the process over and over again until someone eventually exercises their option!
Assuming every tenant was to exercise their option in the first year… how many deals like this would you have to do each year to make $100k???

Just FOUR deals like this one and you’re making $105,600 per year!
How many hours would that work out to be to find and structure a deal like this and get a Tenant/Buyer in the property? Not very many!
How many hours per week would you have to put into working at your job to make $105,600.00 per year???

One thing to remember is that the typical homebuyer or seller does not understand any type of creative real estate buying or selling. They typically use a realtor to buy or sell. When that realtor doesn’t sell that home or when that buyer can’t get that loan… that’s where motivation starts to set in. The Seller starts getting motivated to sell and the Buyer starts getting motivated to buy. In either case they both either, just want to get out of the property or buy to get in. The Seller will just let the property go to get their problem solved and the Buyer will gladly pay any price to just get in if you can solve their problem.

Motivated Sellers are those that have been trying to sell but haven’t been able to for one reason or another. Or they may be facing foreclosure. Or they may be in a divorce situation. Or they may have been transferred with their job and need to move on, but they don’t want to leave the house empty or deal with renting it out to renters being so far away. Or they may have lost their job and can no longer afford the home and need to find something less expensive. Or they may have purchased another home and are now stuck with two mortgage payments. Or for whatever other reasons, they just need to get out from under their mortgage payments.

The Buyers just need someone that will sell to them. They can’t get a bank loan or some just “think” they can’t get a bank loan and they only care about two things! How much down and how much per month? If they can afford the payments and have enough to put down in order to allow them an opportunity of owning a home, price doesn’t matter to them as much. They just WANT to be able to buy a home!
Your job is to become the “PROBLEM SOLVER!” Instead of thinking in terms of, I’m looking to buy properties, or I want to be an investor, or how do I buy properties with no money, or how do I get financing, etc…

Start thinking in terms of being a “problem solver”. Your job is to find SOLUTIONS to fix someone else’s problems! Your job is to sit down with these people and find out what their problem is. Once you figure out what their real problem is, you now know what they NEED! They all WANT an all cash sale. They WANT full price and WANT someone to just waltz in and buy their home the traditional way. But your job is to find out what they really NEED! Once you find out what their PROBLEM is, then you can determine what their NEED is. Once you know what they really NEED, then your job to get the deal closed is to just come up with the SOLUTION that will get them what they NEED that will SOLVE their PROBLEM!

You are not a real estate investor, you’re a PROBLEM SOLVER! You find SOLUTIONS to solve anyone’s PROBLEM! That’s how you make the deals come together!

The best way to find the Motivated Sellers is to get them to find YOU! You get them to find you by getting the word out that you buy property! Any property, any condition, any price, any time! It doesn’t matter. Just present the property to you and you will figure out a solution to solve the Seller’s problem to get them what they NEED!
You get a bunch of business cards printed up. Put them out everywhere you go. Hand them out to everyone you meet. Get flyers made up. Post them everywhere you can. Put them in Laundromats, bowling alleys, advertising boards in supermarkets, car washes, etc. Put them anywhere and everywhere you can put them! Then get some poster signs made up. Post them anywhere and everywhere you can. Telephone poles. Nail them to a stake and post them in the ground on every intersection in town. Let the world know that “YOU” buy houses for CASH! Just give you a call!!!

Eventually people will start calling YOU! Most won’t be motivated, but some will! You want the ones that are MOTIVATED! When they call YOU, that’s when you screen them over the phone first and determine their motivation. Then you go visit them and get face to face with them and build a relationship with them. You want them to get comfortable talking to you. They may want to talk about their dog for all you care. Let them! Get comfortable with them. Let them build some trust in talking with you. Whenever they talk, you SHUT UP and just LISTEN!
Listen to everything they say. The more they talk, the more information they let out. The more information they let out, the more you learn about their PROBLEM. The more you learn about their problem, the more you will be able to find out what they really NEED! Once you got that information you can now figure out a SOLUTION that will SOLVE their PROBLEM by being able to give them what they NEED! Your solution to their problem gets them what they need and you make a profit for your problem solving skills! You’re a PROBLEM SOLVER! You are the DOCTOR OF SOLUTIONS! DR. BUYER, the master of problem solving!

OK, so now you have a general idea on how this stuff can work. But HOW do you go about getting started with all this? Start by going to the [navigation panel] on the left side of this page. Click on the link that says “Success Stories” and then READ EVERY ONE OF THEM AT LEAST THREE TIMES OVER.

From there, determine which type of investing most appeals to you most (Lease options, renting, flipping property, rehabs, etc) and then click on the links that offers courses for sale. Find a course that pertains to the type of investing you like most and start with that! Master that and then move on to another type of investing to expand your knowledge to enable yourself to have more tools in your toolbox to work with. That will allow you to find more solutions to close more deals!

Also, READ EVERY SINGLE POST ON THESE NEWS GROUPS HERE!

Thank you Dave! Very informative read! Also, I do read everything on these forums, or try to! I try to keep learn as much as I can from other people and their posts. It may serve to help me someday when I can recall something that I read here on the forums!

That’s a great reply, Dave…I’ve actually just started getting interested in L/O’s recently after reading a book by Peter Conti…I’ve always rehabbed/held but as soon as I finish up my 3 current projects I want to delve more into the L/O arena to see what may come about…Seems like Conti (and your reply above!) just about cover all the basics…Obviously, the 1st step would be to see an attorney to have forms drawn up and answer questions on liability (so the T/B is JUST a tenant, not legally regarded as a buyer for obvious reasons), etc…Once the legalities are out of the way, it’s a matter of marketing…

Any books that you could recommend that would cover the subject in a lot more detail?

Thanks,

John

:shocked

Someone either had waaay too much coffee, or they are copy/past happy! Nice post dave.

I say read daves post like 20 times, then read this entire site 40 times. That will get you off to an amazing start.

John, I have numerous books on a variety of real estate investing techniques and strategies. None more so than on lease options, because it’s the easiest way to invest, in my experience. That said, I always recommend Carbonare’s The Naked Investor. Excellent overview on the subject, good contracts and documents, and a great support forum.

I believe in investing in real estate to achieve a goal. What I mean is that I don’t do this for the money I do it for the lifestyle. I don’t want a job I have a job. I don’t love real estate. I love the lifestyle that real estate affords me. That being said, what I looked for when I started getting into real estate is a person that had the time with his family that I wanted, the social time and vacation time that I wanted. Then I did what he did. I didn’t reinvent the wheel, I didn’t start doing what some guru from the other side of the country did. What I did was what this guy in my town was doing. I figured out how much money I needed from my real estate to achieve this lifestyle. (hint it is not replace your income it is fund the lifestyle you want unless you are living paycheck to paycheck or you are not living that lifestyle already). Say that is lifestyle costs $4000/month then that is your goal enough real estate to give you $4000/month.

All real estate is local. What works in Gulf Port Mississippi, may not work in Paramus New Jersey. So what I would do is go to my local real estate investors club. Find a person that is getting out of real estate what you want and do exactly what they do. In Houston what works is rentals. So I found a bank that does rehab loans and refinances out to permanent loans. I found a real estate agent that deals in foreclosures for investors. I found sub contractors that did investor quality work. I then went out and found 3 bedroom, 2 bath 2 car garage houses worth about $100k that I could buy for $70k that would rent for about $1000 that needed around $5k-$10k in repairs. And would cash flow about $200/month. Why did I want those things? Because the person that had the lifestyle I wanted had those types of houses using these people. That means that to reach my goal of $4000/month I need 20 houses that give me $200/month. Now I have a direction and a path to follow to get to that goal.

These examples are general but they give you some idea of how I think about real estate.

Terrific Greatmoon! Thank you for replying! As of right now, it isn’t necessarily about the money more than it is about being able to ‘do it’ and do it well. I know there is great money to be made and that is one of my long term goals, but I just want to be successful at this and work from there. The time I will get to spend with my family will be splendid as well. Like I had mentioned, I don’t plan on making this a ‘living’ so to speak until I really have it down and can feel confident about myself and the decisions I am making. My wife and I live very comfortably off of her job as it is. We decided that we’ll continue doing this for the next 3-5 years while I’m learning the business and anything that I do make will go into a savings account. I don’t want to do great on my first deal, be mislead by that and go out and lease a hummer, only to not make another deal for quite sometime. We’re playing this as cautiously as possible and are trying to map out any rough terrain ahead of time if something were to not work out. I plan on making this a career because of the payoff that my hard work and determination will achieve me in this business. I understand that there will be rough times to go along with the great times and know that I will need to stick it out regardless to truly make it in this business! Thanks for the replies once again!

Education - Work with a system that is comprehensive and ongoing
Property - Acquire multiple properties with positive cash flow from the start
Income - Develop multiple revenue streams so as to maintain flexibility
Community - Find a body of like minded individuals to work with and pal around with