Probably the most commonly asked question among new investors is
“Where do I start?” We have heard of lease/options, flipping, (a.k.a.
wholesaling), rentals, multi-family, retailing, etc. With the large number of
courses and strategies available, the new investor may feel overwhelmed and
confused. This month I will attempt to give you some specific first steps.
| In my opinion, business planning is the first and most critical step. You really need to think this whole thing through. There are numerous web sites that feature detailed information on business planning. There are numerous books on business planning available at both the library and local book stores. While there are lots of details to consider in your plan, the number one question you must ask yourself is “How much time will I really be able to devote to this business?” The more time you can spend learning and doing this business, the better you can expect your results to be. If you are already working a full time job, be prepared to work as many hours extra each week as possible. If you cannot dedicate enough hours to produce results, don’t start. |
Most importantly, your planning stage should be used to define your investing objectives. Knowing where you want to go will help you determine the best way to get there.
| Check on your financing options. I know all about the “no money down”
strategies, and I know that it is possible to buy a property with no money
down and no credit, but I also know that very few of the deals you ever do
will be done this way. Regardless of what you have heard or read, you should
not assume that you will make this a full time business with no money and no
credit. There is no question that access to financing and good credit will
get you farther faster. It does not have to be YOUR money, and it does not
have to be YOUR credit, but if you have it, it will be easier to get
started. Talk to some lenders, be it hard money lenders, typical mortgage
lenders, your local bank, or get referrals to lenders from other investors.
Find out from a lender where you are and what you will have to do in order
to get proper financing. The best cash deals go to the guys with money or
access to money. That is just the bottom line. |
| Focus on one strategy that you understand thoroughly. If you don’t
understand any of the typical creative strategies, don’t do a deal until
you have studied at least one and understand it well. Whether it be
wholesaling, retailing, rehabbing, etc., it is difficult and confusing to
learn all of them at once. Pick one to focus on. The area in which you live,
or plan to work your real estate business may have an effect on which
strategy you choose. If you will be working a newer area, lease/options may
be the best choice. If you will be working an area of older homes,
wholesaling or rehabbing may be the best choice. When you do your business
planning, you will have to identify the ideal strategy within your business
territory. Or locate those geographic areas that are the best prospects for
the strategy you wish to use. |
| After you have completed the above steps, you are ready to start looking
for your first deal. Finding motivated sellers is the name of the game.
Whether you will be placing classified ads, putting up signs, flyers, etc.,
locating those sellers who, for whatever reason are motivated enough to make
you a good deal can be a challenge. This is the step that will take most of
your time in the beginning. The key here is to develop a marketing plan that
will lead sellers to contact you. |
| Once you have found your motivated seller, it is time to evaluate the
numbers to see if there really is a possibility for a profitable deal. If
you are not comfortable with this process, be sure to seek help from another
investor, your accountant, your real estate attorney, or someone who is
qualified to help you. You also need to have a good idea of what your exit
strategy will be. You will want to make your offer based on what you intend
to do with the property after you get it. Remember you make your money when
you buy. If you don’t buy it right, you will not be able to sell it for
the profit you were hoping for. |
| A good rule of thumb is the following: Exit Strategy determines the areas you have to work in, or choosing a particular location will dictate the exit strategy that can be used in that area. |
Ultimately, it all boils down to deciding first, “Where do I want to end up?”
Then you figure out the way in which you would prefer to get there.
If you want to end up with income that comes in each month so that you no longer need to work, then you need a strategy that will generate cash flow.
If you want “fast” cash, you need to buy really low and sell quickly to another investor or owner occupant.
Either way, you will have to select areas that fit the strategy, or you have to pick strategies that fit a particular area.