hi we are just getting started on this great adventure and would appreciate any comments on the best way to get our feet wet
For most new investors, starting out means little starting capital and even less know how. Meaning you need to use strategies that don’t require large cash outlays and are easy to understand. With this in mind I would recommend lease options and, to a lesser degree, wholesaling.
What do you want to accomplish by investing? Investing for Cash flow? Investing for appreciation? Flipping? Rehabbing?
While you’re making up your mind what type of “investing” you want to do, keep in mind how much seed money with which you have to start.
Then pick a neighborhood to become the expert in that reflects your investing goals. For example, don’t spend time in pretty neighborhoods where the rents are not 1% or more of sale price, if you looking for cash flow.
Generally speaking, look for diamonds in the rough. The worse the “diamond,” the more money you can make…and faster.
You must become an expert at “creative finance,” because you will run out of cash and/or credit at some point quickly.
Learn what “forced appreciation” means and why it’s so important to sophisticated investors.
Understand what OPM (other people’s money) does and why it’s so important to harness in order to keep moving forward.
Learn to ask sellers lots of questions about what they’re trying to accomplish by selling their property, and learn to give sellers more of what they need (and less of what they want) and you take everything else.
Know that seller financing is usually the first, fastest and cheapest form of financing you can get (the major variable here is the amount of money you put down; the less down, the higher the price you’re going to pay, as a rule).
Always ask for more than what you want, and slowly trade off for what you can get. There’s a lot in that statement.
You must read books on negotiation. Roger Dawson is excellent. Barney Zick’s course called, “He who talks first loses wins” is exceptional.
Discipline your thought life and treat this like a business, not a hobby, even if it’s not your “business.” Treat sellers like friends, not enemies.
If you’re not a natural salesman (and don’t want to learn to be), or worse …people annoy you… and you hate talking to them …forget real estate. Just saying.
javi had some good info in there. learn your market by wholesaling to start is what i would do in your shoes.
hello to you all and thanks for each of your inputs (will put to use)…working hard to try and make a wholesale buyers list but not having a lot of luck…any ideas on where to find some wholesale buyers ??? kenzie12
kenzie12,
Yes, you’re problem is that you don’t have a property to sell.
Meantime, you’re getting things backward. You do not need a list of wholesale buyers to start. You need a wholesale deal to start. If you’ve got a real deal, real buyers will come out of the woodwork.
This is an evergreen issue with newbies. They’re too often insecure about finding buyers, or misled into believing that somehow finding buyer’s first is necessary, or critical. This is wrong.
This is a simplistic answer, but just find the deal, tie it up, and then raise your hand and let everyone know what you’ve got. If it’s a real deal, you’ll have it resold in five business days. If not, you had something else.
Good luck.
I get mail, e-mail etc from people wanting to bird dog for me or put me on there ‘buyers list’, I don’t pay it any attention, if someone sends me something on a specific house/deal then I look.
as was said, go get a deal, being on someone’s “buyers list” doesn’t make a buyer any money, a deal is what makes money
First, I congratulate you for taking some action, posting here and seeking help. It is an important first step and I commend you for your activity.
I really appreciate Javipa’s first reply. It is filled with some awesome information that is really helpful.
In my opinion, you should start seeking buyers AND sellers immediately and simultaneously. I do agree that if you have an amazing property at an amazing price and some experience with marketing to find a buyer and selling that selling it is usually easy, but as the deal moves from amazing to OK the more experience you have finding buyers and marketing properties for sale and the bigger your buyers list is the easier it is.
As for someone just getting started, here’s what I would tell my little sister if she was interested in the family business:
There are basically five ways that I might suggest you get started that involve little to no risk so that you can learn the business and ultimately decide what you want to focus on. In the beginning you are trying to get some experience with a variety of things so that you can decide what it is that you love to do and where you can see yourself being a force for good and helping and adding value to the marketplace.
The five ways are:
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Bird Dogging - Many people use Bird Dogging and Wholesaling interchangeable. In my mind they are very different roles. Bird Dogging in my opinion is a research based or administrative position. It involves identifying potential properties and doing research on those properties. You then provide that research to a wholesaler, real estate entrepreneur or real estate investor that will actually go out and do the “sales” side by calling, meeting with, negotiating and ultimately contracting with the seller on the property and the end buyer (or in the case of a real estate entrepreneur or real estate investor maybe a tenant or tenant buyer). While what you charge are also negotiable, it is not unreasonable in my experience for a bird dog to be paid an administrative/research fee of $200 to $500 for each property that closes. If sales are not your thing, but you’re attracted to real estate and can visualize yourself adding value by making the job of the wholesaler and entrepreneurs easier, this might be a good fit. Since you are not agreeing to make payments or even entering into contracts on property I consider this to be extremely low risk. You can use mostly free ways to find deals, but investing in some marketing to find sellers would be a good investment and you could, with many wholesalers and investors you’re working with but not all, justify and pass on the marketing expense in your fee. Use your time as a bird dog to learn the business, your market, build your dream team, raise your confidence and make some immediate money at the same time.
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Wholesaling - Wholesaling is a sales position. You are finding and researching potential properties, talking to sellers, meeting with sellers, negotiating with sellers and coming to an agreement with sellers via paperwork. You are then taking the property that you have an agreement on and selling it usually to another investor but sometimes to someone that will be living in the property (an owner occupant). You usually profit from the difference in price between what you agree to buy it for from the seller and what you sell it for to your buyer although there are additional profit centers that we can discuss as you do more. Sometimes you will be getting an option to buy the property where you have the right but not the obligation to buy it at an agreed upon price with the seller. Sometimes you might get an agreement to purchase the property where you are agreeing to buy the property except for very specific circumstances. While it can vary quite a bit, you may be able to come to an agreement with the seller where you are using very little more ($10) some may require more (in some cases to do the deal you might have to put up thousands of dollars). You can decide to walk away from (or get creative with how you structure) the deals that require larger sums if you do not want to do that, but generally you’ll be able to complete more transactions as you expand what you’re willing and able to do. In many cases you will not be closing on the properties and instead will be just assigning the rights you have in the property to your buyer for a fee and that buyer will be closing on the property directly with the seller. However, with the advice of your attorney and if the laws where you decide to work strongly encourage you to close on each transaction and resell, you may decide to do that instead of assignment of your contract. If you decide to do that, you may need to line up a short term lender to make sure you are funding your deal appropriately between when you buy it and when you sell it (often that same day). Since you do need to put up some money to control deals, will likely want to do some marketing to find buyers and sellers and may, depending on your local laws, need to close on your transactions instead of doing straight assignments there is a little risk in wholesaling. Typical wholesale fees can often range from $2,000 to $5,000 net after all expenses. They can be MUCH larger, but I would’t use higher numbers when putting together your business plan.
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Lease Options - Lease options are very popular right now and many folks suggest it as a great way to get started. It definitely has its pros, but it does have some things to be aware of as well that make it less attractive to me personally. If you decide to focus on lease options (that is agreeing to lease the property with an option to buy it), it significantly expands the pool of properties you can choose over wholesaling since the properties you can work with include the majority of the ones that you could have wholesaled if you could have come to an agreement with the seller plus many of the ones that owed more than the price you could have paid to buy it as a wholesale transaction. That’s because you can typically lease option properties with much higher loan balances. It is important to realize that you are agreeing to lease the property and are usually responsible for the lease payments to the seller unless your agreement with them allows you to stop making payments to them unless your tenant or, in most cases, your tenant buyer is making payments to you. Some sellers can afford to make that agreement and make payments on their underlying mortgage if you are not paying them and some sellers cannot (even if they agree to it). Doing lease options allows you make money usually in two ways: the difference between your payments to the seller and what you collect monthly from your buyer and the difference between the price you are buying the property from the seller and what you sell it for. There are other profit centers that we can talk about as you do a few. The difference in the price you are buying the property for and the price you are selling it for can bring in some immediate chunks of cash too if you collect a bigger up-front fee from your tenant buyer (likely as a non-refundable purchase deposit or an option fee) when they occupy the property. This usually applies toward their purchase. Many sellers will want you to put up money when you take control of the property as well. Typical lease option fees can be $15,000 to $30,000 or more net after all expenses with some of the money up front when you start the transaction, some of it monthly but most of it at the end of the transaction years later.
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Real Estate Agent/Broker - A very low risk way to get involved, learn the business and build up some profit would be to get your real estate license. It allows you to find buyers for properties that someone else has already gotten under contract (via a listing agreement) usually with a pre-agreed upon fee paid to you for finding the buyer. Or, if you prefer working with and helping sellers and controlling properties you can focus on getting your own listings so that you can sell them and either you or other agents can find buyers. In many ways, it is like being able to do half the wholesaling business (either find buyers for properties that are already under contract and for sale or find sellers and control properties with listing agreements). There are some upfront fees. Some people argue that a license will limit what you can and cannot do; but as a law abiding business professional it really does not. If you’re dealing with $200,000 properties, a typical net commission to you might be between $2,500 and $5,000 if you find a brokerage that charges reasonable splits (not 50/50).
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Building A Real Estate Investing Business - If you’re great at leading and managing people, you might be best served hiring a bird dog or two and a wholesaler or two and run the business with them as either independent contractors or employees (talk to your attorney and CPA for the pros and cons of each). You do not need to be the one that is talking to sellers, meeting with sellers, negotiating contracts, raising private money or any of that. You can write a check and hire a professional to do it for you. You can also set it up so that the professionals you hire are paid based on performance. For example, you could hire a licensed real estate agent that understands our business to do acquisitions for you where they are only paid when they find a deal. What I am suggesting is different from just working with an agent to find deals.
So, those are 5 ways to get started in the business off the top of my head presented as I would to my little sister.
I really hope that helps. Please let me know which direction you decide to go or if I can help in any way.