No, not to a new physical location… but a new online place! But more on that in a second!
This post contains all the answers for the questions that were asked both in email and on my previous blog post, “What’s Your Biggest Real Estate Investing Question.” I received a ton of questions (thanks!) and I’ve spent the past week answering them. The results are below, all 7000+ words! However, before you read it: I want to share some really really exciting news:
“The Times They Are A Changin”
For those of you who have been following my blog for a while – you probably know I’m a huge fan of a real estate investing website called “BiggerPockets.com.” I even wrote a post here called “How BiggerPockets Saved My Life.” I have been writing a Sunday post each week for the past six months and as of today I am officially joining the BiggerPockets team as Senior Editor and Community Director.
Basically – I am going to get to do the same thing I do for RealEstateInYourTwenties.com on a MUCH larger scale. I will be creating amazing content, writing blog posts, answering questions in the forums, and engaging with real estate investors both new and seasoned. This is going to be awesome.
If you aren’t familiar with BiggerPockets.com, it is a social network for Real Estate investors. There are forums, blogs, articles, deal-making, networking, and a lot more going on there all the time. It’s an amazing source of free information and with over 100,000 members it is the biggest community I know of.
However, the thing that makes BiggerPockets stand out is not their size but their integrity.
You all know that the real estate investing world is filled with sharks and charlatans who are just looking to take advantage of newbies and charge tens of thousands of dollars for training that could be found for free in a book or online. I have always tried to keep RealEstateInYourTwenties away from that mentality because honestly – you don’t need it. If you want a guru – there are plenty to find. I wanted to be different. BiggerPockets has the same belief.
Yes, I’ll still keep this site open for the information that is present already but will be focusing my writing efforts to build the BiggerPockets brand instead. It’s a sad moment but also one that is exciting because of the great possibilities that lie ahead.
And yes, I’ll still be investing in real estate, like always. I’ll even keep you all updated on the Marcy Flip via email (be sure to sign up for updates above and you can still get my free eBook) which is set to close in less than a month, as well as other future deals.
I hope you’ll come with me and help me grow with BiggerPockets! If you aren’t yet a member of BiggerPockets, come on over and sign up. It’s free info, free networking, and free deal making. The content is unbelievable and most importantly: pitch free.
- There is no “secret” that we are going to sell you.
- No “Buy Now before the price goes up.”
- No “Just $999 a month training.”
Just good, honest advice and a community that exists to help strengthen the ability and reputation of real estate investors.
I hope you’ll come visit me over there! Once you sign up (if you haven’t already) please send me a “Colleague request!” We’ll chat anytime over there. Ask questions on the forums and you’ll get dozens of responses from real, seasoned investors.
Here are a few ways you can keep in touch:
Twitter (my new best friend!): @BrandonatBP
BiggerPockets Profile: http://www.biggerpockets.com/users/brandonatbp
And now for the FAQ page. This post is seriously the longest I’ve ever written – or maybe even the longest I’ve ever seen. Take your time, scan, comment, enjoy. If you have any questions related to these, I encourage you once again to come join me at BiggerPockets and ask in the forums. Instead of the answer from one person (like just me) you’ll get answers from dozens of real real estate investors. It’s a beautiful thing. And I don’t want to belabor the point, but one reason I wanted to do this FAQ page is to emphasize how awesome BiggerPockets is- because of the forums.
The following is the advice from me. On the BiggerPockets forum – you can post a question (totally free) and get dozens of responses from a variety of investors. It’s truly an incredible thing. Check it out here!
So, without further ado: The answers. (please forgive any typos… at 7000+ words I’m not gonna go edit this beast!)
The Real Estate In Your Twenties.com FAQ (and my responses!)
I recently came across your website and read your 7 years 7 figures ebook. Thanks for publishing it and I thought it was very insightful yet simple. I am from the Houston, TX area and have a couple of properties I am currently rehabbing to flip. I’ve always thought that flipping for the faster way to acquire cash over rental properties. I was curious to know how many people you know have retired on having a portfolio of rental properties and/or apt complexes? -Michael N
Thanks for the question! I’m glad you liked the book!
I agree – flipping is a much faster way to get cash. However – flipping is a job like working at McDonalds, being an engineer, or teaching math. What you put in your get out. You are trading time for dollars. Now, there is nothing wrong with that (in fact, 99.9% of the world operates that way just fine.)
Acquiring rentals, however, is about creating passive income. For example, I make $100 per unit, per month cashflow as a bare-minimum requirement for any property I look at (but prefer $200 per month, per unit). That’s cashflow after maintenance, expenses, property management, everything. Rentals then just become a game of collecting units that fit my standards. So, if I wanted $10,000 per month in passive income – that’s just 100 units. I could get that in 100 single family homes, 50 duplexes, 25 quads, or two Fifty unit complexes. It’s just numbers. Once I reach that – I’m retired. So, yes – flipping may be a better way to build cash (which is why I do it) but it’s a whole different animal from the “buy ‘n hold” strategy.
I know a few people who make enough from passive income on rentals to retire. Go to any landlord meeting and you’ll meet a lot. I’m the youngest that I know to do this (most of my friends don’t even own their own home) but a lot of older people have a really nice retirement set up from their rentals.
The problem, however, for most when they get into this game is that they buy property for too much money, it doesn’t cashflow, they manage poorly, and their rentals turn into a job. Not good.
What are your thoughts on debt? The only problem I have with your way of investing is that I do not believe in ever borrowing money. Borrower becomes slave to the lender. I understand that paying cash slows the process but it also increases the returns by not having to pay interest on loans. It is a slow process of saving up in the beginning but later on it pays off with the increased returns. Also, is it correct that a bank can recall the loan at any point? – Lance
I actually agree with your borrowing money thing – about the slave/lender thing. I think I read that from Dave Ramsey and he’s great. Plus (as you pointed out in another email) it’s not just Dave Ramsey – it’s actually in the Bible (which, being a Christian, means I obviously respect and believe.)
I tend to run my personal life like that, but I run my business using smart leverage (I know, Dave would hate that statement.) For example, I put $0 dollars down into a 24 unit apartment complex (seller financed) that gives me like $4,000 per month in cashflow. Yes, I have a $3500 mortgage payment each month – but the apartment brings in like $12,000 so I don’t see it quite like a credit card. I can’t imagine even a guy like Dave Ramsey refusing that deal. Granted – that’s a once-in-a-lifetime deal, but they do exist.
I would never put my own money in serious risk from debt, or anyone else’s money. I invest very conservatively, and don’t over leverage. I also make sure that no matter what happens, I could always get a job and make the payments if bad stuff happens.
That said, your view on debt is definitely not wrong – but actually admirable in today’s world. Sure, it takes longer but if you aren’t in a hurry- that doesn’t matter. It really comes down to your personal choice.
As for your other question, the simple answer is no – a bank can not just call a loan. When you have a loan, it’s a legal contract on both sides, so as long as you are following their rules – (paying on time, not selling it to someone else, keeping up repairs, paying taxes, etc) you cannot be forced to pay it back. This is why I advocate ONLY getting fixed rate, 30 year mortgages (or 15 year if it makes sense, especially for primary residences). Hope that helps!
You mentioned in your book that you should force 10% appreciation in the first year of owning a building. What are the best ways to do this, including projects that add the most value for the least amount of money (projects that give the most “bang for your buck”)? -Dan
Hey Dan – off the top of my head:
1.) Buying under-valued because of smell &/or paint color
2.) Paint the exterior
3.) Paint the Interior
4.) New Home Depot Carpet.
Those things should easily increase the value quite a bit – much more than 10%. Buying under-valued is the biggest way. If you spend $200,000 on a 4-plex, you simply pay $175,000 because it’s ugly and spend $5k on those other small repairs. It should be worth $210,000 at least and you have just $180,000 in on it.
Brandon, Great blog – keep up the good work! My biggest questions as a newbie investor are about building your network. How do you find the best agent, lender, attorney, CPA? Any tips on assembling your real estate go-to team? Cheers, -Tanya
Thanks Tanya! I think the best way to find those members is from referrals. However- not just from anyone. I like to find out who other real estate investors are using. For example, I use the same attorney, maintenance guy, lender, and agent as most of my real estate investing colleagues.
Hi Brandon, I just read your ebook and I must say it was awesome. Inspiring to say the least. I’ve never seen anyone break down wealth building over time that way. My only question is when it comes to repairs and values. One is how do you know if a place needs too many repairs and if so, how does that affect those numbers? Also, do you look at cap rate and cash on cash returns. I don’t really understand cash on cash returns too much. Anyways I’m going to surf your blog now and I’m looking forward to learning from you helping you anyway I can. Thanks again my brother. -Deshone
Repairs can be tough to estimate if you aren’t involved in contracting. I had my own contracting company for a short time and even I tend to be way off sometimes. However, that’s where estimates from trusted contractors come in handy, as well as inspections. I guess, I look for properties that smell and are outdated – but have good structural bones. Smells are usually easy to fix but drive away most people.
Those things should easily increase the value quite a bit – much more than 10%. Buying under-valued is the biggest way. If you spend $200,000 on a 4-plex, you simply pay $175,000 because it’s ugly and spend $5k on those other small repairs. It should be worth $210,000 at least and you have just $180,000 in on it. Same applies for a $100,000 4-plex or a $500,000 4-plex. 10% is not too much – but it is much easier on the cheaper properties.
The best answer, really, I can give you is to get connected with a local investor who is wheelin’ and dealin’. Older, successful guys love to show what they have and what they’ve done. Almost all my contracting connections have come from older real estate investors who want to help me along. It works really well.
As for cash on cash returns and cap rates – I don’t worry too much about them in this sort of plan. Cap rates come in real handy when doing apartment buildings (See this article)
Finally, cash-on-cash basically just means what kind of return (percent) are you getting on the money you put in. For example, if I spent $10,000 on a down payment and made $2,000 in cashflow over the whole year – I’d have a cash-on-cash return of 20% on my money (there are other issues there too, like taxes, but that’s the gist). Basically, it’s just a way to compare apples-to-apples when comparing to stocks, bonds, etc.
I’m a seasoned investor that does flips as well as holding income properties. I have a nice monthly residual income but am wanting to make the leap to full time investor so I can quit my job (or at least greatly reduce my dependency on it!) I’m assuming this is something you’ve already done. I know that by adding 5 more income properties (and essentially adding $1,000/mo after PITI and maintenance costs) to my portfolio I could make the leap- however, I still want to do investing even after I’ve quit my job and am falling short on how to make the follow through after I quit- I know I need to develop (or purchase or create) a marketing system to find new leads in order to perform wholesaling (to provide cash flow and income to continue to acquire more income properties vs. consuming the passive income for living expenses.) On top of this all, I’m a little fearful about making the leap- I want to do it but don’t want to jeopardize my family. And every day that goes by, the burning desire intensifies for me. Where’s a good place for an investor (not a newbie) like me to look to turn my hobby into a business and take it to the next level? – Blake
Hey Blake – this is a great question and I’m sure I could write quite a bit on it so I’ll probably do so more in an upcoming post for BiggerPockets.com. I think its super admirable what you’ve accomplished so far, and taking it “to the next level” can be tough.
I’ve mentioned this before many times: real estate can be an investment, a career, or both. Often times that gets confused. I use it as both, but it doesn’t need to be. I believe better results can be found from simply from holding a great job and investing on the side, snowballing cashflow and profits.
So, if you are fully convinced you don’t want to work your day job anymore – there is an obvious problem (that I know you already see): How do you keep doing deals when you need to live off the income? How do you get mortgages, etc?
The best way I’ve found is to use partnerships on specific properties. You may cut your profit in half, but you’ll be able to use your partner for qualifying for mortgages. Also, you’ll need to make sure you have several months of living expenses set aside and plan on making twice as much as you think you’ll need to survive. Build a well-oiled system and then make the plunge!
Again, I’ll write more on this soon!
Hi Brandon, I’ve come across your website and sincerely enjoy what you have to say. I’ve read through some of your articles, and in one you suggest that new investors (I am just beginning – 21 y.o.) ought to find a mentor to learn from. However, you also said that there are a lot of ‘sketchy’ people out there to learn from. Do you have any great tips or ideas for finding a legitimate mentor? -Joseph
Mentors can be tough to find – but invaluable. I’d say the best mentors are not going to advertise as being a mentor. The benefit of a mentor isn’t in their knowledge as much as it is in their motivation. The knowledge you can get from a book or the BiggerPockets.com forums. So, what you need is motivation.
I’d start with trying to “intern” or something for local investors. You can find them simply by asking some local real estate agents who the big investors are. They will be the best mentors, especially if you can become good friends. Old guys LOVE to share knowledge and wisdom with us younger guys – so capitalize on that.
If you want a paid mentor, I would search for reviews on the BiggerPockets.com forums (Are you on there yet? It’s a great, free resource.) Most of the paid mentors out there just seem so sleazy it’s hard to justify recommending anyone and since I haven’t used any – I am hesitant to do so.
Just curious if you have ever come across the idea of building business credit and if it works for real estate. – Roselynn
I use to work at a bank and learned a lot about business credit. I guess it’s an okay avenue for two major reasons:
- Most Business Credit doesn’t show up on your personal credit report unless you are delinquent. I have probably $25,000 in available business credit on Credit cards that doesn’t show up on my credit (thus -no one knows I have it
- When you build business credit (on cards) – it builds your “business credit score” and helps you qualify for future credit like Business Lines of Credit and the like. I know a guy who has a $250,000 business line of credit, unsecured – and uses it to flip houses. It’s great.
However – one major downside: It’s still credit, and still a high interest rate. Which means it’s generally a bad idea. I’m generally pretty “anti-credit” except mortgages. Credit cards are like gambling – the companies know that people are going to spend too much and get into trouble. So I don’t like using them.
Those are my thoughts. The best bank I know for Business credit is USBank, so it’s not a terrible idea to begin building your credit. You can apply for one at any USBank, and don’t even technically need a business (your name can be your business) but I’d recommend setting up a business first, with an EIN number, so you can start building that business credit.
What is the best way for deciding which improvements to make in a home?
What is the best way to approximate the DOM your renovated home will sit before selling?
What are the best ways you have found to find investment properties? -Brandon (another Brandon!)
The best way to decide what improvements to make is to look at the competition. Are other properties like yours putting in granite counter tops? Swimming pools? Hardwoods? It can be easy to over-improve because we watch flipping shows or HGTV and want to make the properties look great. However- this can be the downfall of a real estate investor.
Estimating DOM in rough. I mean, you can look at the average for the area and get a fairly good idea – and if you are priced lower than the competition you’ll probably be under the average. However, in the end – it’s never predictable.
The best way I find properties is simply the MLS. I know a lot of investors do heavy advertising, but in my area I find there are great deals just by offering low-ball offers on the many REOs that exist. Banks are VERY willing to negotiate!
How do I estimate the cost-to-rehab a property without lots of trial, error, and (potentially) costly mistakes? As a new investor I’ve found that the scariest part of purchasing my first property is fear of hidden costs and some knowledge to combat this fear would help a great deal. -Ryan
This can be a scary thing, so I’d be sure to bring a contractor along with you to investigate. Either that, or perhaps partner with another investor on the first couple deals and have them come with you. Most things cost more than you’d think – so be liberal in your estimates and conservative in your math. Always add an “overage” budget of at least 10% (maybe 20%).
Not much is available on NNN leased properties – would like more info on this subject. -Dale
For those of you who don’t know, a NNN lease property is a lease that the tenant pays EVERYTHING, including insurance, taxes, and utilities. This is most common with stores like Best Buy, Starbucks, etc. They usually don’t actually own the buildings they are in, but instead just rent them with a NNN lease (often called a “Tripple Net Lease). They often do this for tax reasons (apparently it’s tax-advantageous not to own the building the work in) I’ve only done one thing with a NNN lease, and that was an apartment building that I did a NNN lease with briefly before actually purchasing (which is a GREAT way to invest in big apartments without spending any money.)
I wish I knew more about them Dale! I’ll see what I can scrounge up!
It would be interesting to hear what was the most important thing you learned that you didn’t know a year ago? -Rene
Hey that’s a great question. I kinda used this question as the basis for my BiggerPockets.com blog post from last sunday (find it here) but I’ll add that a year ago I didn’t know how much I love blogging and interacting with investors online. I always thought I would just be an investor – but as of yesterday I’m officially the Senior Editor and Community Director of BiggerPockets.com – which I am SUPER stoked for. I never thought I’d get this opportunity to meet so many great investors and teach what I know. It’s been a CRAZY year.
How do I find properties that I can flip? (What tools are use?) How do I determine cost of a flip? Is there something I can use that will say X amount of hours in labor, and Y amount in material for this size or this utility? – Joe
I use Realtor.com to find properties to flip – just be sure to get a killer deal or you’ll waste a lot of time and money. I sell a spreadsheet here on the blog (go HERE) that will help to determine how well a flip will do. But also, check out the BiggerPockets.com FilePlace for a lot of great files.
Okay, I’m not sure if this really is a legit question, or just something that I have a hard time dealing with…I am no expert in real estate investing, and there are still many things, and always will be, to be learned. At times, I feel like I can go out and get started and do alright. Other times, I feel half confused when a question comes up, and it makes me think, wow, maybe I need to set back and study this whole deal a while longer. My family and I had invested a great deal of money in the whole Flip this House Armando Montelongo deal, and then another great deal of money with what was the James Smith Company, and changed to Wealthrock. However, I guess what I am trying to say is how do I know that I am ready to go out and take a project on, and be prepared to convince someone that I can help them, or that I am the right answer, when I am not 100% confident myself? Does this make sense, or am I babbling on like a crazy person? I swear I am not, just somewhat confused. I really want to make this my life, and not have to worry about a 9-5, answer to a boss type of life. When did you know it was time for you to make the 1st move and dive into your 1st investment? Thanks so much, I value all of your advice friend!!! -Sabrina
Hey Sabrina – this question is so deep and awesome I could write for the next two days on it! (I’ll try to be brief!)
For one thing – you are never going to feel ready. I never did. I was nervous as could be when I started. However, one thing that helps is having a financial cushion before jumping in. This could be your own money or perhaps a partnership with a family member or friend.
I think next you need to have a road-map on where you want to go and exactly how you are going to get there. Like, step by step. Define what kind of investing you want to do, what kind of house you want to buy, when you will sell it, how you will finance it, etc. Then your plan just becomes “fill in the blank.”
Also – it’s okay to start small. Your first “deal” could simply be an internship with a local investor, or perhaps your primary residence (a duplex, triplex, or 4-plex would be a great start.)
I guess what I’m saying is: you don’t need to start huge. Baby steps.
Hope that helps, and again – I’ll be writing more on this in upcoming blog posts for BiggerPockets.com. Look for them!
I recently graduated with a management degree and I am nowhere close to knowing much about real estate investing. Yes, getting a mentor would be ideal but when do I know that it is the right time to stop reading about investing and actually start with it? Besides that, how can I get in touch with a successful investor and get him/her to teach me? How easy/ difficult is it to move to a new city and start investing there? -Crista
I think most of this question was probably answered above, but I’ll expound a bit. Finding a good mentor is all about being open, honest, willing to learn, and personable.
Here is a secret no one talks about: successful investors WANT to teach other people. And not even just investors. Everyone loves to teach what they are good at. You just need to be receptive to that. For example, if you were really into horses – what would make you want to teach someone about horses? What would they have to do in order to convince you to teach them everything you know? Probably very little except be excited about it and look up to you a lot. Flattery goes a long ways!
Also, what do you bring to the table? No one wants to be inconvenienced. I did a lot of maintenance for my mentor and that’s what made us friends and eventual occasional business partners. I also helped show units for him, signed leases, etc. Find out how you can help them – and market yourself that way.
As for moving to a new city – I haven’t done this (I’ve lived here since I started investing) but I imagine it would take a bit of research. I know my area like the back of my hand. I know every good place, bad place, and how much things are worth. This would be tough in a new area, but not impossible. I’d start with research, then build relationships with local investors, then buy a primary residence (like a duplex or small multi-family), and then worry about investing in that area.
How to I do investment property valuation without comparing to other sales? -Terillius
This answer supplied by Ali from AliBoone.com (Thanks Ali!)
I often use the income-to-value approach. If you are working in an area that can’t provide good comps (ex. Atlanta where the appraisal system is broken), you can judge the value of an investment property by working backwards. Do this by using the cap rate. What would you consider to be a cap rate of a “good” investment? Let’s say it’s 10%. Then make sure the price you are paying on the property will give you a 10% cap rate. -Ali
I want to know how you found such inexpensive contractors, and their names! LoL Exterior house paint job for $1500??? Send him over, I’ve got half a dozen waiting in the area! – Elizabeth
His name is Brian! He’s my resident manager at my apartment complex and does an excellent job. He’s licensed/bonded/insured as a general contractor, does good work, is quick, and a nice guy. Email me for his contact info! I’ve used a lot of guys (and most are terrible) but I really like Brian. I keep giving him work, he keeps his prices low, everyone wins.
What are some of the surprises you weren’t expecting? I.E. 90 day rule for FHA buyers, 2nd appraisal requirement in some instances for loans or similar roadblocks that a newbie might learn the hard way? Also, should I become an RE agent/broker? Why/why not? And what are your experiences in negotiating on an REO? Have you been able to further negotiate after your offer is excepted and you find surprises after doing a thorough inspection, or do you just back out at that point? -Paul
Hey Paul, check out my article over on the BiggerPockets.com blog about my reflections as a real estate investor (click HERE).
Additionally – I did not expect properties to be so hard to sell. Yes, the 90 day rule for FHA buyers was also a surprise when I first learned of it, but I don’t flip that quickly usually so it was okay. I also didn’t realize that the more loans I got – the harder they would be to get. Debt-to-income get’s messed up over time – so be aware of that.
As for the Real Estate license: Four years ago I paid the money and took the class- but never took the class. Then last winter (before starting this blog) I paid the money again to take the class and ended up doing one lesson before stopping to do the blog instead. So – my short answer is yes, I think it’s a great idea if you can do it. I think Realtor’s have tools that you and I could only dream of having – which would make things much better. But only if you are serious – unlike me Check out this article on BiggerPockets.com for more great info on this.
Finally, Reos: I’ve actually never really found anything in a property that made it a deal killer. Perhaps I should have, on a few occasions, but generally I offer so little that it’s okay to have some unforeseen things. I’m also pretty good at looking at a property and knowing what needs to be done – and that just comes from experience.
As for experiences- almost every REO negotiation comes down to some kind of “bidding war” though I’m fairly convinced it’s just a marketing ploy. For example, a property is listed at $50k. I offer $30k, and they say there are several bids and they want me to resubmit my “highest and best.” So I resubmit the same bid or lower- and I almost always get it. It seems like a scam
Hi Brandon! I’ve been reading your blog ever since this summer and I really appreciate all the detailed posts (especially the 5-point marketing plan)! I’m just starting out, but I’m living in a very expensive real estate market (San Francisco). As such, my budget mostly calls for buying fixer-upper homes. How do you determine which contractors to hire (how do you interview them or research them?) and what do you look for when determining the quality of their work? Also, what are the easiest renovation projects for a homebuyer to tackle (as opposed to hiring a contractor)? Thanks so much for your help -Feng
I think the best way to find contractors is to talk with other real estate investors and house flippers (find them through Realtors.) They will generally be happy to give recommendations – since it makes them look better in the eyes of their contractors. Everyone wins.
As for best projects? Stay away from drywall, but painting is pretty easy to learn if you are patient. Flooring, plumbing, electrical, and roofing is for the pros. Caulking, finishing touches, etc are easy enough. And if you are artsy at all – I recommend learning how to tile. Tile is MUCH easier than you’d think and it’s like a big art project.
My question is I am from Malaysia and would like to Invest in US Buy to rent properties, in most of the websites they recommend that you stay in the area that you invest. !!! Since I am new to the country how do I know that I am buying in the right location, other than take the word of the property agent who is recommending the property. -Rajan
(I’m going to combine these two questions)
I’m NOT a US citizen, but my wife is. We both currently working abroad and save around $4000 per month and would like to invest in real estate for the long term and would like to get out of the rat race. I have read all the books, have $100 000 in cash. My BIGGEST QUESTION: which state should we focus on, what kinds of properties, should you buy when you are overseas – just focus on the numbers? and can it work if we are not physically present, in other words, can it be done with a property manager? -Nick
Another great answer from Ali at www.AliBoone.com
I would love to help you out! I work with international investors every day from various countries. You are in a great position if your wife is a US citizen because you don’t have to worry about going through higher hoops of tax and legal structuring, and you can qualify for better financing options than with the private lenders who most internationals use, if they finance at all.
The absolute key for buying from such a long distance away is your property manager. They will make or break your investment. You can also use your property manager to check on the quality of a home if you are buying sight unseen, in conjunction with a trusted inspector.
If you are interested, I can tell you all of the key markets internationals are focusing on for long-term investment properties, and I can get you connected with all of my resources. email@example.com
To me, here is the absolute cliche and most ever Real Estate Investing question:
1) How I can start doing this with NO money?, or
2) How I can start doing this without enough or significant money? (to at least being able to come up with the 35% down pmt. now required by hard money lenders).
3) Let’s say also that both questions are from the perspective of a new investor that has little or no probability of finding a partner or an angel investor to fund their ventures.
Even when I have read many of articles, books, newsletters, from a wide a variety of different authors, all doing their best to prove that you can start investing in RE without significant money, I simply don’t see it in today’s lending market!. The reality is that you do need money to do this. You certainly don’t need to be a millionaire, but you need some cash in the bank to start doing this. The other day, I was negotiating a deal with a Hard Money Lender and this is what they required to me to pay up front: 1) The 35% down payment ($35k in that case), 2) 5% up front fee which cannot be included in the loan, 3) All closing costs, like mtge deeds, stamps, attorney fees, etc. At the end, I had to come up with approximately $40k to fund a $100k deal. Even with a partner, you still need $20k. To me, that’s the major and most recurrent questions of new investors. But, that’s the beauty of our business, it’s force and push us to be creative if you want to fulfill your dreams -Alex
Hey Alex – good question (and you are right – probably the most pressing). Check out this article. The best way, I think, to do “no money down” deals is to use a partner who can get a 20% loan from a bank (or hard money lender) and pay the repairs and holding costs (like I did on the Marcy Street Flip) The partner ponies up the entire 20% – so you have nothing invested. The only way to do this, though, is to find a partner willing to do it. That can be tough unless you are bringing something to the table – hard work, sweat equity, knowledge, etc. It can be done, though, as I have done it many times.
Also, there are hard money lenders that won’t require quite what the guy you talked to did. Most lenders want to see you have something invested (it makes you more serious when you have something to lose) but their main concern is equity. For example, most HML will fund 60% of the after-repair value. So – if you can buy a property for $40k that needs $20k but will be worth $100k (conservatively) – a lender may fund the entire thing.
By the way Alex – thanks for downloading my ****spreadsheet calculator! I hope it’s working well for ya!
How do you get past paralysis by analysis? I’ve read tons of books, been to local investment club meetings, looked at several properties and can’t seem to pull the trigger as I study the property for so long to make sure I’m not missing any costs I end up losing the deal. Thanks! -Austin
Another great answer from Ali at www.AliBoone.com
I have an engineering degree, so I know all about paralysis by analysis
My recommendation, and what I do for myself, is to run the exact same numbers for every property. For example, for a rental property you are going to hold, write out the monthly taxes, insurance, property management fee, a % for vacancies, a % for repairs, and the mortgage if applicable. If all of these numbers combined, subtracted from the monthly rent received, show a positive return, believe it. There are other factors with buying of course, like what market you are buying in and the potential of that market, but you still use the exact same numbers. Keep it simple, run the same numbers every time, and it will stay more clear.
Coming from one who loves her spreadsheets! – Ali
What state or federal regulations do I have to follow to borrow money from my parents or friends who live in other states to invest in real estate? I’m not advertising or asking for their business. They are asking me! If they were in my own state, it would be no big deal, but they are not. -Camilla
Hey Camilla – I honestly don’t think you’d have to worry about anything. I’ve borrowed money from my parents many times for real estate stuff and it’s usually okay. The rub comes when you start “soliciting” money. That’s a no-no.
However, I’d check with an attorney (sorry, I gotta say that!)
There is a lot of big money (private equity, hedge funds, etc) that is buying up foreclosures in bulk in certain markets in the country. How can the small investor compete? -Craig
Interesting question, Craig. I haven’t seen that around my parts at all – so I assume its located in certain areas. So that’s my first thought – go to where they are not! Perhaps also it would be better to stay away from the foreclosure market and focus more heavily on FSBO and finding people who are struggling to keep up with their mortgage (motivated sellers.) Thirdly – perhaps you could shift focus to properties like multifamily or apartments or whatever else the big guys aren’t focusing on.
What is the best book and/or course that you would recommend to get started in real estate investing that would help someone start part time and grow into a full time business? -Braden
Best books: check out my list of “Seven Must Read Books for Real Estate Investors” as well as the post “Seven More Must-Read Books for Real Estate Investors.”As for courses – I haven’t ever taken one, so I can’t recommend one. I’d search the BiggerPockets.com forums for reviews though!
I currently have equity in a rental house that I own and would like to use that to buy another investment. How do I tap that equity? Is it smart to use that equity to purchase other properties? Would I still have to put a down payment on my next property? -Brian
There are some banks that still offer financing on investment properties, if you can qualify. Perhaps you can re-finance to pull out that equity. You could also sell, obviously, but it’s just never fun to sell in a down market.
I don’t think it’s a bad idea to use the equity to buy more – but at the same time that is the strategy a lot of investors got themselves into trouble for back when the market fell. I’d focus on, instead, using money from either a job, flipping, wholesaling, or the cashflow to buy more property.
For a more detailed look at this, check out the strategy I talk about in my free eBook “7 Years to 7 Figure Wealth” – I give it away when you sign up at the top (or bottom) of this blog post.
I’m not a creative person. Is it wise to use my real name or parts of my real name for my LLC’s name. -Devon
I wouldn’t – but not from a legal standpoint. I simply wouldn’t because I don’t want my tenants knowing I am the owner. I am just a property manager. It makes managing 100x easier. See this post for more on that strategy!
When buying multifamily properties what are the main things you look for? What do you do when these properties already have renters? Stan
Cashflow and cashflow potential. I want to make sure the property shoots out money like an ATM. Obviously, location is key also and it does help to have tenants already in – but cashflow is the primary question for me.
What are the essential math formulas needed in analyzing properties/deals? -CM
Check outthis post.
Where can you find financing for single family rentals held in an LLC? -Cliff
This can be tough. Anytime you try to finance a home held in an LLC you have to go commercial, which means higher fees, shorter terms, higher rates, bad news. Most investors simply transfer the properties OUT of the LLC for a day, then back in again. Some banks, especially local community ones who understand this issue, are okay with this and do it often.
I’m thinking about taking advantage of a first time home-buyer FHA 3.5% down payment to purchase a multi-family unit, then live in one and use the cashflow from the others to cover the mortgage / insurance / maintenance expenses. I have no consumer debt, just a pile of student loans. Would this be viable strategy to further reduce living expenses while I’m still aggressively paying down debt? -Nomoreuntdebt
This is a GREAT strategy. I love it. Check out this post for more info: Your First Investment Property Should Be…
Hi Brandon, I really enjoy your blog. I am still very much in the educating myself stage of investing. However, I do have a few questions I would love to know your take on. 1. I believe I read that you do not recommend renting to friends or family. Can you elaborate on why? I would ideally like to start in real-estate by owning a owner occupied duplex or a single family home and rent out rooms to friends/acquaintances. 2. What is your take on buying rental properties outside of the market you live in? Blair@LifeDollarsandSense
Another great response from Ali, from www.AliBoone.com and myself:
I hope I’m not stepping on toes since you asked these questions specifically to Brandon, but I’ve been reading through and trying to answer questions when a topic hits on things I have experience with.
1. Brandon may have some other input on the friends/family issue, but the problem with renting to people you know is that you are much more willing to accept excuses for delays in pay, skipping pay, etc. You’ll feel bad for them, or you’ll know their situation and forgive them, etc. I think it was Rich Dad who said ‘never become emotionally attached to your tenants’. For exactly that reason. You’ll buy their excuses, feel bad, and not put your foot down. Typically, at least.
2. I only invest outside of the market I live in (I live in Los Angeles…eeek). Not only outside of my market, but states away. I’d be happy to talk to you about how I do that, why, and how it can work. -Ali
(Brandon’s response as well:)
Ali hit the nail right on the head. Renting to family and friends puts you in a master/slave relationship and you will ALWAYS be the bad guy. Seriously- every time I’ve done it (and I’ve done it waaay too many times… it took me a while to learn) I ended up getting screwed. EVERYTIME. The situation always came down to either. 1.) I screw myself or 2.) I lose the relationship. Each time I allowed myself to be screwed – but no more. It’s one of my “Seven Deadly Sins of Real Estate Investing.”
When do you think the real estate market will turn around? -Terry
I think it’s on it’s way up now, but it will be a slow climb. However, I believe appreciation (prices going up) is just the icing on the cake. I’m making great cashflow right now, and will next year, in five years, and in ten years. If the market comes back – great! If not – that’s okay too. That’s true investing.
In wholesaling what is the best strategy advice on closing on the deal? And if we find a house owned by someone to sell how do we go about doing it so we get paid as the middleman w/o the owner and buyer communicating or are they. -Kenyon
While I don’t do a lot of wholesaling, the most important part is making sure to sign the right “assignment” documents to the buyer. Then, you hand the whole thing to the Title Company or attorney and they handle the rest. Check out www.BiggerPockets.com for more info, as there are some great wholesalers on there!
How to talk to sellers and not being afraid to make offers? -Chris
I don’t generally talk to a lot of sellers, since I focus on REOs a lot. However, in the times that I do I just make sure I’m super prepared, I know what I’m talking about, and I pretend I’m more confident than I really feel.
The key is not being “guru-y” or sleazy. These are people who are probably going through a rough time -so develop a good relationship through small talk and seek to find a win-win way to make everyone happy.
That’s it! Come visit me at BiggerPockets!