Where do you start?
Do you start looking for properties yourself? Do you start talking to the bank for a mortgage? Do you start scouting for a property manager?
You start with four things and four things only.
- Know your real estate boundaries & financial objectives.
- Educate yourself on one geographical area.
- Start collecting your down payment on a place.
- Understand how the numbers will work.
The good news is none of these things costs you a dollar. Don't kid yourself: you're not investing $100 or $1,000. You're probably going to put much more than that down, no matter where you invest. So get yourself comfortable before you spend anything. Let's review each.
Know your real estate boundaries & financial objectives
You need to know what you will and won't tolerate. You also need to know where you're heading.
Here's mine: "I want 15-20 properties within 5 years all returning 12%+ per year not including the value of the property going up. I want a total portfolio value of $10 million or more within that time. I want to put no money in after the initial deposit is paid. I want to spend less than an hour a month on this business. I want no interaction with tenants. I want buildings I can see myself and be proud of - no 'slum-lording'. I want to have buildings only in two cities that I know well."
Go write your real estate boundaries and financial objectives. How many properties do you want? What value? What return? What time frame? What geography? What time investment? What down payment?
No, you won't get it right first time. Yes, you do need to write it down. You're itching to start browsing Zillow or Redfin. But you'll get lost in a sea of possible places if you don't set some basic goals and boundaries.
Educate yourself on one (or two) geographical area(s)
Like a writer, I recommend you start with what you know best. Probably your home town or nearest city. Of course you may have heard that Boomville, NY is the next Austin, TX. But it helps to know something about the place you're about to sink some serious dollars into.
If you're looking in a mid- to large city, pick one or two areas that will likely meet your criteria in #1 above.
Find 7-12 properties in 1-2 narrow geographical areas you think meet your criteria. Go to Zillow, Trulia, or Redfin. Take a snapshot of the property: image, address etc. Get a spreadsheet ready (Google sheets works great) to collect purchase price, property taxes, utility costs, rent, maintenance and other fees. This will start giving you a 'feel' for the area you're considering.
Start collecting your down payment on a place
It's tempting to tap friends and family up as 'co-investors'. It saves you putting as much down. But more people involved means less control. Your decisions are not yours alone. Your taxes are more complex.
Your default position should be to invest yourself or with your married spouse.
Open a dedicated high interest savings account to save for your down payment. You're telling yourself you're serious about investing in real estate when the time is right.
Understand how the numbers will work
There's (almost) no such thing as a bad property, just a bad deal.
Real estate investing is all about how the numbers will work. Everything else is secondary. You want to know what your profit, your cashflow, and your ROI look like for the first three years of buying and owning a property. (Don't worry, all this is covered in a separate blog post). It sounds hard. It really isn't. It's just practice. Once you've figured out the numbers for three properties, the next three will take you ten minutes each. The next three after that will take you five minutes each.
Build your confidence in evaluating properties correctly and quickly. Training wheels: use a free online rental/mortgage calculator. No training wheels: build your own real estate calculator in a google sheet.
Once you can evaluate a potential property in a few minutes, you free up your time. You increase your confidence. How? Because you'll instantly scrub 90-98% of listings. Seriously.
You'll see bad numbers. (There are lots of these properties).
You'll see numbers that are too-good-to-true. (There are more properties like these than you'd imagine).
You'll see solid numbers that fit your objectives. (These are the properties worth a closer look).
You've read this far. You've two choices. Go get outraged on Twitter about something you can't control. Or go do the four actions you just read about. Only one gives you the first steps to freedom.