I have been reading the articles for the newbie and noticed that many people emphasze the importance of a good mentor, which I truly agree with my fumbling days.
But how to find a good one? I even never have a house of my own.
Should I register at local realtor association? Should I call a real estate agent and ask for mentoring?
I read a few books and will read more. Maybe I should focus on one writer and read all his experiences?
Any advice or share of experience is appreciated!
To be honest with you, I have seen a lot of posts that express the disappointment that can come from a paid mentor. You have to be really careful here. There are quite a few out there that just take your money, throw you a few impractical tips and set you lose.
On the other hand, if you get your real estate license and then work with a reputable agency, you will get a lot of hands on training - and get paid to get it.
Here is another option: Let the team here in REI be your mentor. This forum is full of seasoned investors who are willing to give good sound investment advice. If you got questions - someone here will have the answers.
Remember 10 out of 10 coaches/mentors will recommend newbies to get a paid coach/mentor to help them get started.
As Simon said, there are plenty of people here who will help answer your questions. I strongly recommend you read every thread in the forums here on REIclub that relate to the type of investing you aspire to do. When I first got on here, my wife and I had been operating our first small multi-family rental for a few months. I started at the oldest thread in the forums and just started reading and reading until I got caught up to the current discussions. You’ll be amazed at how many of your questions will be answered like that. You’ll also see real life scenarios play out and see how they were handled.
I think one of the most important things is to not chase too many paths at once. Many investors will do things like wholesale and do rentals at the same time, but they learned and got good at one of those first (most of the time) before they stepped out in a new direction. You should definitely look at your skills, desires, and finances before picking a road, but after you pick a strategy you need to study it, practice it, and work it. Don’t just keep jumping around to different strategies because that road will lead you to nowhere.
The best way to find a mentor, is to first “take action.”
I don’t mean finding a mentor first. I mean decide what you want to accomplish.
Ask yourself at least the following questions:
- Why do I want to invest in real estate? What results am I after?
- Am I wanting to replace my day job?
- Is this going to be a full-time business for me, or a hobby?
- Am I investing for passive income?
- What is my credit score?
- Have I created a personal financial statement (income/liabilities)?
- Is my spouse supportive of my real estate pursuits?
- Who will vouch for my character (on paper)?
- What are my short term goals from real estate investing?
- How much money do I have to work with?
- How much money can I borrow?
- Who’s likely to be a credit/cash/down-payment/bank-qualifying/financial-statement partner?
- Do people annoy me?
- Have I talked to anyone who’s already accomplishing what I want to accomplish?
Once you’ve answered at least these questions, if not ones that will come to mind as you move through the process, you’ll have the guide posts in place, that will allow you to move in one direction.
As you move forward, even better questions will come to you. This is when a mentor can be helpful.
Otherwise, until you’ve settled on what you want to accomplish, and started taking action, if not moving forward, seeking a mentor is a waste of time.
It’s like asking someone to help you steer a parked car. Sure, you might have some back and forth action, but you’ll remain in the same spot you started in.
Hope that helps.
I came across this email yesterday that showed me a bunch of videos on this website here: http://www.reiclub.com/realestateinvestingvideos.php. There’s a video on coaching and mentoring I suggest you check it out. There is a lot of other valuable information in there that I am still looking at myself.
Thanks for the responses and recommendations!
I should have provided some of my basic info earlier.
I live with my wife and a lovely baby girl. We have saved a little cash enough for a typical house down payment and fees. However I want change my job in one or two years. So we live in apartment instead of having a house.
I was inspired by the the “Rich Daddy” book, his game, and the following others books, audios and stories I discovered after the first read. I want to get out of the rat race! Having said that it has already been 1+ month after the first book. :eek
By the way, I feel steady cash flow better fit my characteristics. The current ideal model in my head is to get a property for rental cash. I am now more inclined towards either the buy-and-hold method or the lease option method, though I could change in the future. I have a health concern and rehab does not fit me. Other ways all seems attractive to me more or less. “campbellsimon” I agree that one direction is enough for a starter like me right now.
I have couple hours every day to spend on REI digging besides my work and my wife is supportive of my doing. I currently have to keep my job so cannot go full time or even part time on REI.
My credit is above 760. I am not quite a people person, instead more like a tech rat.
I live in Memphis outskirt where the SFH has wide price range from $5000 to $500k.
However since I never bought a house before., I have literally no experience in it. I have visited couple open houses of my range but the prices are higher than average making me worry, I have not found any small size aptmt (2plex/4plex) in my area, I plan to visit an auction next month. I believe I need to spend more time than one month.
“javipa” your question list is great! I basically try to answer those above. Thanks.
Some of my recent questions are:
- how can one find small size apartment (2plex, 4plex), as I feel these could be attractive start investment for me.
- Should I get a real estate license? I will invest in it if it fits. Maybe a good way to get mentored?? How involve it is?
Here’s what I’m taking from your response:
- You want flexibility in case you change jobs (by not buying your own home).
- You’re looking for rental income, not appreciation.
- No rehabs.
- You’ve got (theoretically speaking) 14hrs/wk, or 56hrs/mo to spend on real estate investing.
Well, I see at least one problem: You don’t have the time to hunt for the ‘real deals.’ Or it will take you until Moses comes back before you’ll get going with anything meaningful.
You need to google ‘wholesaler + your town’ and find the guy who can hunt for what you want to buy, and let a professional find you a ‘real deal.’ Forget auctions. You don’t have the expertise it requires to keep from blowing yourself up doing this. There’s rarely deals at auctions. Auctions are notorious for achieving retail prices, or leading the unsuspecting down a primrose path.
Just forget auctions. Until you have LOTS of experience and know your market and can spot a real deal from 30,000 feet. Even then they’re mostly a distraction for professionals, and more like playing a game of golf, because they’re fun to watch. Of course, sometimes you get a hole in one when nobody is paying attention.
In your case, it would be wise to get your license. Why? Because it’s a formal way to understand terms and contracts. It’s a terrible way to learn negotiations and anything creative, but it will put you on a solid footing regarding deal structures and the law. Licensing is otherwise mostly about teaching housewives cum agents how to act ‘ethically’ in the real estate business, and how to stay within the law. It’s NOT about much else that’s helpful for an investor.
Gotta go for now. Hope that helps a little.
I have only been doing this Real Estate for slightly over 2 years now and luckily I have slammed a few home runs and a handfull of smaller deals. A few Sub to’s, a few Lease Options, but mostly wholesaling. And part of the reason I got some great deals is because I help other newbies get going. They find the properties and we split the profits 50/50 on the deals they find and need help with.
I suggest all experienced investors should cultivate relationships with beginning investors and help them along. Not only can it be profitable, its a great feeling.
Rando
Thanks.
I did some searching and found something called turnkey rental investment, which seems a way like you described. The website says can locate the house, help with the financials, find 1st year tenant, and create $200-300/mo cash flow for a $100k-150k house. Is this type of investment a viable way or too risky?
To answer your question… you need some testimonials and referrals from happy investors before you engage these operators. Otherwise, this is TOO convenient for me to take seriously. I could be wrong.
Meanwhile, I’m dubious of having someone offer to find me a deal, find me financing, find me a tenant, and guarantee me $200/300/mo in cash flow. Based on what criteria?
This can be an enormously hard nut to crack, all things being equal, and just begs for creative accounting on somebody’s part. I mean promises made, but not kept, or worse …fraud.
For example, if this operator tells you that the expenses on these houses are something like 30%, or less, you know you’re in for trouble.
Why?
Because a reliable rule of thumb for expenses is 50% of your gross rents including 5% vacancy (if that’s the prevailing vacancy factor for the area). That means 50% of your rents are going to management, maintenance, and repairs. Unless of course, you are going to donate your time and money to these 'causes.
Many small time operators are forced to donate their time, because they are not buying cheap enough (or can’t find properties with rent/price ratios high enough to allow otherwise).
Which brings me to rent/price ratios. You’re gonna want to buy properties where the rents are at least 1% of the price you negotiate.
In some areas, it’s possible to buy with rents at 2 and 3 percent of the negotiated price. You do what you can.
I could say more, but hopefully that’s helpful enough.
BTW, the remaining 50% of the rents is called your NOI or net operating income. This is what’s left over for debt service and cash flow.
If you are looking for rental properties with good cash flow, perhaps the best place to start is in the lower price range in some of the less appealing neighborhoods. Now I am not advising becoming a slumlord by any means, but there is always demand for base rent housing and usually these properties cash flow much better. Often jumping into a higher class of home does not equate to an equally as large increase in rent.
Hi Javipa,
You are correct the expense is claimed about 28% of the annual rent/GOI: property mgmt (10% GOI), prpty tax(11%GOI), ins (4%), maintenance(2% 1st year), HOA(1%). Mortgage is big(50% GOI). Rent is 0.85% of the purchase price. It is a renovated 2006 house.
The prpty mgmt, tax, mortgage number seems calculated ok。 but is the mortgate too high compare with the rent? for 20% down and 4.875% interest. I am not sure about the others, esp the maintenance or additional cost. I feel HOA is high too. They also charge a strange 2.2% closing fee at purchase and 8% sales fee after 5 years (this seems a must as their model).
You mentioned to find testimonials/referals from happy investors. That would be a great way! But… how can I find them? If I ask the operator I likely will have doubt talking with the referred investor.
Gao
Thanks Campbell, It is a great point.
Use Gross Scheduled Income (GSI) for your analysis. “Operating Income” is what’s left after you deduct vacancy and credit losses, and is not the same as “Scheduled Income.”
Scheduled Income also denotes what is ‘supposed’ to be happening currently regarding the income.
Operating Income, by itself, doesn’t make it clear if this is future, actual, or wishful thinking income. So don’t use this term as your starting point.
Here’s a form you can use to organize your thoughts on your analysis:
http://jaypalmquist.com/real-esate-analysis-form.png
If you can’t talk with anyone after requesting some testimonials and referrals, that should give you a pretty clear idea of how to go forward, shouldn’t it?
Play with that real estate analysis form. See what kinds of numbers you get just plugging in the blanks from other operating statements. I think that after you plug in 10% for property management, and simply use 10% for maintenance/repairs/replacements you discover how high the operating costs can be.
BTW for my purposes I use 3% for exterior repairs/maintenance, 7% for interior repairs/maintenance, and 3% for replacement/reserves. That alone comes to 13% of the GSI. If the vacancy factor was running 10%, now I’m at 23% of GSI. Then when I add in 10% for management, I’m at 33%. I haven’t even added taxes, insurance, or utilities yet.
I forgot to mention that we base all expense percentages on the GSI, not the GOI.
This means that if the management costs were 10%, we would calculate that percentage using the GSI. Same with the vacancy and credit loss percentages.
:beer