I have read many of the posts and articles and have gained some very valuable information and I want to thank everyone.
My brother and I are about to receive a settlement and would like some advice on how to start in this wonderful business of real estate investing. We do have some ideas and a very general plan, but any advice would be greatly appreciated.
Here are the specifics, we will invest $100,000 in the direct purchasing of real estate. We will put aside $50,000 for rehab and any other expenses. We will put $50,000 into the stock market and another $50,000 into a revenue generating business, which has not been decided upon yet. We have decided to start with buying rentals to have cash flow and to build equity. After 2-5 years we would refinance or sell to invest in more properties and keep going. With the $100,000 we would try to buy as many properties as possible putting down between 10 and 20% down.
What is the best way to start and does this sound like a good plan or does it need major revisions?
Any advice or information would be greatly appreciated. I would like to thank you in advance and hope this is the begininng of a wonderful relationship between us and all of you!!
That is certainly not what I would do. The very first thing I would do when I got the money would be to put it into a money market fund or other safe place. I wouldn’t spend a penny until you really understand EXACTLY how you will make money with it. Putting $100K into real estate is not guarantee that you will make a penny. In fact, the vast majority of newbies fail in a short period of time. The same is true of the $50K that you plan on putting into some type of business. Unless you REALLY understand the business, there’s another great opportunity to lose your money. Ditto the stock market, unless you’re putting it into a broad based index or something like that. Even then, with a major recession on the horizon, your $50K could end up being $25K and then you could wait a decade or two to get back where you started.
What I would do is research how you want to make money. If that is real estate, then you need to become an EXPERT in your local market and REALLY learn the basics of the business. Only then would I think about spending the first penny of that money!
The reason why I say I am a newbie is because I have not actually bought properties, but I have been studying real estate investing for about 3 years. I have read everything I could get my hands on concerning the subject. I also already have a personal stock portfolio that averages between 10 and 15% return on my money. My own personal 401k plan averages between 15 and 18% return with very limited choices to pick from. My 401k is thru my employer and my stock portfolio is my own. I have actively traded stocks for about 8 years, so as you can see I am not that new to the investing world. I really do need advice in the real estate arena.
Again, thank you for your honesty and trying to help me!!
Propertymanager and I disagree on some things here on the forum, and occasionally we agree on things as well. But this topic I think we have a drastic difference of opinion on. The following is my two cents:
I once read/heard a bit of advice and every time I am presented the opportunity to do something I go over this in my mind and it goes like this, “If life teaches you nothing else, know this for sure: When you get the chance, go for it.”
To me this is awfully defeatist sounding. Of course there’s an inherent risk with putting your money somewhere, anywhere. If you sit back learning and reading and learning and reading all you’re going to get accomplished is wishing you had put your money here or your money there. Should you know what and where you’re putting your money, of course!! I just have seen so many of my friends and family suffer from paralisys by analysis while I have done okay for myself and many of them are smarter and/or more educated than I am.
Or the optimist inside of you should say, ‘Maybe I could turn this $50k into $75 or $100k.’ You know what, you may lose your money, lots of people do. But what if you’re one of those people who succeed and make it and become super wealthy. You’ve got some capital, here’s your chance. You can almost bet that in your lifetime you won’t again have $250,000 in cash to make some moves with.
I say these things not because I think that the other advice on this forum is wrong I just want to offer a different point of view. I’m 28, I can afford to take major risks at this point because if I screw up I have the time to make up for it. Rest assured as I get older my risk aversion will grow, but it is my belief is you are under 40 you’ve got to go for it, otherwise exactly what are you doing?
I’m not saying not to go for it. What I am saying is that it is crazy to throw away $200K without being very serious and deliberate about it. The fact is that the vast majority of newbies fail. That means the chance of success is very low if you do what most newbies do. In any business, you MUST understand the basics of the business or you will soon be out of business.
When I started, I spent one entire week studying the Carleton Sheets Course. I literally mean that I spent every waking minute studying about real estate investing. I read the course, watched the tapes, looked at a BUNCH of properties, etc. You would be amazed what you can accomplish working 14 hour days in a week. Then, I bought my first property.
On the other hand, if you “just do it” as they say in the commercials, in most instances you’re going to lose in a big way. Two hundred thousand dollars is not chump change and I wouldn’t treat it like it’s disposable. Instead, I would do WHATEVER IT TAKES to learn the business before spending the first penny.
You can almost bet that in your lifetime you won't again have $250,000 in cash to make some moves with.
I agree. It would be a shame to blow it just because he was in a hurry!
I can agree with everything you said there. I too got Carlton Sheets and watched every DVD, read every word, and looked over every form mostly to the dismay of my fiancee. She grew to have a disdain of the poor man because I spent many a night with Mr. Sheets instead of her. You know it’s funny you see alot of negative comments about Carlton and his programs and how it’s an apparent ‘Get Rich Quick’ type of scheme. But I know personally a handful of people in my small town who have either picked up the programs on their own or on recommendation by me and that’s where they got started. I would argue that Sheets is a great place to start. Maybe some of his techniques are questionable or flat out not possible in today’s market but he helps create a foundation and to me that’s well worth the $300 or whatever it is now—I think I got mine on ebay for less than $100.
Let me add that I studied and read all of Dolf De Roos’ stuff. I realize that jetsetting around the world buying up properties like he does is not realistic for most of the population, but those books are good. Real Estate Riches is approved by the NAR, I would absolutely, positively recommend that book to anyone starting out.
I would say there's valuable words of advice from jbaldwin & propertymanager.
First, I would say if you have been reading & getting educated for the last 3 years I would assume you have a pretty good general idea about RE investing and possibly some specific strategies. It sounds like you have a few general ideas and/or approaches you're considering (buying rentals & holding) if that is the case, I would commit & be very deliberate about refining the generalities & learning everything you possibly can about buying & holding rentals. And I would say the same about any businesses you're going to put your capital in to.
I don't agree with not putting $ into real estate because of the statistics of a newbie failure, but it isn't wise to buy just for the sake of buying either.
Also, rather than buying as many properties as your 100K will go & spreading yourself thin, buy one, make sure it's profitable, and get another. There's not going to be a shortage of "undervalued" property for a while.
Just a couple of suggestions. The real estate market has a bit of indigestion right now. Which, in my opinion, makes it a good time to buy.
Shop carefully and start out making low offers, and you should be able to pick up some bargains.
Sift through the properties offered and buy quality properties. Cheap is not the best criteria for making your selection, especially in a market that may go down before it goes back up again.
In any town, there are going to be properties that hold their value better, go up faster in an up market, lose less value in a down market, and recover faster. So if you are going to buy and hold, you want to look for that type of property.
Remember; cash is king, and you possess that cash. You may be able to get some GREAT deals with an all cash purchase vs conventional terms and financing. However, if you have the chance to buy several cash flowing properties with higher leverage, don’t be afraid to ask the owners what kind of discount they would take if you could close fast with cash. Your ROI may differ from either scenario, but it is something to keep in mind.