Would anyone mind telling me what my first step should be if I want to get into real estate investing? I'm still paying off debt right now and I rent, so I essentially have no capital. I'm trying to pay off all of this debt as fast as possible and save up some money, but I'm not sure what to do once that happens. I've read a couple of books, but I know that isn't like getting out there and doing it. There is an overwhelming amount of information out there. What should I be aiming at as an initial real estate goal? Thanks.
See if there is a local REI club that you could attend. While paying down your debt, you can be reading up and deciding which area of RE you want to focus on.
Going to an REI meeting can help you narrow this down - I know there are tons of choices of what to do.
Work very hard on improving your credit score. Talking with my broker the other day, and he said 100% (not HML) financing will be hard to come by without a credit score of 720 or higher. I think it was 670 before (although not positive). Having good credit will open more doors for you.
My credit is very good despite my debt, fortunately, because I've always made payments to the credit card (very large ones these days) and pay all other bills on time as well. I'm sure that will improve even more as my balance decreases.
Yes, I've been wanting to join a real estate club and just haven't gotten around to it. I still know very little about real estate, but I think I have a few basic ideas about what I DON'T want to do. For example, I'm not interested in being a landlord for a bunch of apartments or condos - seems like a lot more work and hassle than I care to deal with, with too many variables.
I've read a little on wholesaling and I'd like to learn more about that. A friend of mine has gotten into that - he says he basically acts as a middle man - he obtains the purchase contract and then sells it to someone else, so he never actually spends any real money on the property. Somebody else was ranting on a message board once about how that is illegal and how he's acting like a real estate agent when he's not. Other people have told me it's different, and that there's absolutely nothing wrong with it. There's so much about it I don't know.
the whole thing about wholesalers acting as real estate agents comes down to this - if a contract is signed with no earnest money down (consideration), than this might cause some problems in terms of the contract being a valid one. in NY, all real estate purchase contracts must contain some form of consideration to be valid. if they don’t - they’re considered void. this could be a main issue for agents complaining about wholesalers.
personally, i don’t get why re agents would be concerned - wholesalers focus on distressed properties mostly - so these houses for a re agent wouldn’t be what they focus on primarily.
also, your credit is good BECAUSE of your debt. your debts are the problem though in terms of how bad they are.
most people use their CC to buy junk they can’t afford with cash. they continually turn their cash into trash.
the difference between good debt and bad debt is the basic foundation for becoming wealthy or staying poor.
Yes, I do realize that establishing a credit history is an important part of helping your credit score. I don't think my credit score would be very good if I never made any payments though - that's why I was saying my score is still good. I haven't gotten so overwhelmed that I can't even make payments. The problem is that I was basically living off of student loans and my credit card in school. The balance snowballed and now my main financial priority is just paying off the card.
How profitable is it to buy run down homes and fix them up without doing the labor yourself? Does it normally still end up being worth it once you've paid for the renovations, or not? I'm sure it varies greatly from house to house. I want to get into investing without having to devote my whole life to it. Any other words of advice?
Most n00bs entering this business make the mistake of trying to be all things to all people. You can’t do all types of deals, at least initially. Avoid the Paralysis of Analysis and concentrate on one niche or investing strategy. Learn it well, then move on to another.
For what it’s worth, I believe that for most newcomers, options and lease options are the best way to begin. In your situation especially, with little experience and no investment capital at your disposal, options are ideal. They’re risk free, also.
If you cards are at or near the limit your score could be affected despite paying on time every month. Luckily that’s a temp negative and goes away as you pay it down unlike a late payment.
Rehabbing can certainly be profitable if you hire out everything, in fact that’s the only way you can really do it large scale and get a lot done per year. You have to buy right and have the right contractors working for you. No matter what strategy you take you need to make sure the numbers work. The benefit of using contractors is quicker turn around that allows you for shorter (read: cheaper) hold times. The shorter hold times may save you tens of thousands of dollars. Imagine a job hired out takes 2 months and a DIY job takes 10 months because there is only one of you and there may be a dozen guys working at the jobsite at any given time. Imagine a holding cost of $2000 a month (interest on that expensive hard money, property taxes, utilities, insurance, etc). What is $2k times 8, $16k right? So when you do it yourself and save some money on labor how much did you save when yourself? I plucked every number out of the air but you can see my point right? And if you do the work yourself make sure you are being compensated properly for the work you do, divide the savings by the number of hours worked and make sure that’s enough to make it worthwhile. If you saved $10k and worked 1000 hours doing it yourself you’re making $10/hr (before taxes of course). You can go down to the local supermarket and have a nice no risk, easy job scanning groceries for that much money and you might even get health benefits and a 401k.
For example, I'm not interested in being a landlord for a bunch of apartments or condos - seems like a lot more work and hassle than I care to deal with, with too many variables.
Being a landlord is certainly not for everyone. Unless you have the right personality, dealing with tenants can be a trauma that many people can not handle. However, I’m concerned that you think that any part of real estate is easy. It is not.
Every REI strategy has its advantages and disadvantages. The advantages of landlording is that you don’t have to be finding deals all the time. When the market is difficult, the rent still comes in and you can literally go for years without finding a new deal to buy. The big disadvantage of landlording is dealing with the 10 percent of tenants that are trouble and the 1% that are a nightmare.
Wholesaling offers the possibility of getting fast cash without risking much of your own money. However, with wholesaling you have to be hustling every day to find deals. When the market becomes difficult, your business is in jeopardy. Wholesaling is also a low paying strategy that offers a relatively low payout per deal. Is it possible to make a living wholesaling? Maybe, but I personally don’t know a single person that has done that. Usually, wholesalers either give up or graduate to rehabbing or landlording.
As AJ said, options are another way to do deals with lower risk. Options have nearly the same advantages and disadvantages as wholesaling. In fact, it’s the same basic strategy except you are tying up the property in a different manner.
Lease options are another matter entirely. There would be no reason to “buy” a property with a lease option if you are wanting to sell it quickly. A simple option would be the better way to go. Sandwich lease options are much more risky for a variety of reasons and I would not suggest them to newbies.
My point in this entire post is that you should expect to work VERY HARD if you intend to start ANY type of real estate business. Landlording is difficult. Wholesaling is difficult. Rehabbing is difficult. Options are difficult. You will work very hard and face a lot of frustrations if you are to succeed regardless of the strategy. It is not all sitting on a yacht with the beautiful people as money falls from the sky (although I did see that on an infomercial).