Advice For the Beginning Real Estate Investor.

First, recognize that it will probably take several years of real estate investing before you will reach your personal financial goal. Assuming that you want to have enough income from your investments to not have to work for money, I estimate about 10-15 years, if you work part-time at it while having “a day job.”








If you get to a point where you can do it full time, it may take a few years less. There are some investors who disagree with me on this. They apparently are very success in a much shorter period of time. If you can imitate them, fine. But, the average investor will take, it seems to me, the kind of time that I just indicated.





Some people have other suggestions about how to get started. They often say, “just do it.” Go out and start trying and learn as you go. Maybe that will work for you. My opinion is that it is better to know more before you start paying out your money. You might try to avoid mistakes by reading many books before you start—I did—but you will still make your own mistakes—I did, anyway. However, you will probably avoid a lot of the more common mistakes.





The “secret of success” is persistence. If you want to reach a goal, you have to keep going until you reach it. Financial independence with real estate means you have to keep going for years, usually. Thus, while you want an investing approach that makes you money, you also want an investing approach that makes you happy as you go along. If you do not get emotional rewards, you will probably stop before you are successful.





YES FOR SUCCESS:





Y----You---------------Enuff said about that


E----Environment-----Where you invest, and when


S----Strategy-----------How you extract money from the environment





The strategy you employ has to suit you. My strategy could be completely wrong for you, unless you are a lot like me. If it is comfortable, you will continue with it. If it is not comfortable, you will chaff and will want to quit. And might quit, long before you get to your financial goal.





The strategy has to work in the environment in which you invest. Here is a strategy: buy 200-acre farms and subdivide them down into 5-acre “ranchettes” which you sell to homebuilders or people who will live on them. Now, try using this strategy in San Francisco or Manhattan. Not going to work. What might work in San Francisco is to build a 15-story condominium complex and sell the condos to the owner-occupants. But, would you expect success if you were to build another 15-story complex 12 miles east of Winnemucca, NV? I don’t think so. Maybe 5-acre ranchettes there? Possibly.





If you are not doing too well with your investment program, you can change the strategy, or you can move it to a different environment, where you expect it to perform better.





Your strategy has to give you a competitive advantage, as the economists say. Investing in real estate is competitive. If there is a good deal to be bought, there will be several people interested in buying it. You need to develop an approach that takes advantage of your strengths, and hopefully requires few activities at which you are weak. You need a strategy that uses the resources you have.





What are the resources you can bring to bear on real estate investing? They will vary from person to person. They include such factors as: amount of cash you have saved, how good is your credit rating, amount of income you have, particularly that above what you need for living expenses. How much time do you have, and in what part of the week, month, or year? Resources include the contacts you have—people you can call on for advice, money, help, or encouragement. Your knowledge is important—what you know about the environment in which you invest, the market value of properties, what your customers want, either renters or buyers. What experiences can you bring to bear? How about repair skills, decorating skills, sales ability, imagination, guts, cautious evaluation? All these can be part of your resources. Go with your personality, tastes, beliefs, values, interests, and passions. Do not get involved with approaches that irritate you or make you feel unhappy. For instance, suppose you think landlords are s*****-sipping rip-off artists. Do not become a rental property owner. There is no law that you must. Instead, consider rehabilitating rundown properties and selling them to poor people with special government loans.





As an example, I like helping people. I like to invest in lower-income areas, helping people have a clean, nice, safe, comfortable house in which to live. I rent properties to them. When I sell some property, I am happy that I am able to help a first-time homeowner get into a part of the American Dream. Some other people like to find rundown homes in higher-income areas. They spiff them up to be beautiful and then make a profit selling for much more than they paid for the properties. That does not interest me. The buyers of those properties could buy many different properties. They don’t need me. And I don’t need them.





I also like to do research. I do not like to negotiate. I buy bargain properties at auctions, usually delinquent property tax auctions. I do not have a real estate agent to show me properties and to assure me that the property is in good condition. I have to do research on the location of the property, the condition of the property, the liens and loans against the property, the market value in the area, how much it will cost to fix up the property, and much more. My negotiating is raising my hand at a public auction and saying “Four thousand and one.” Then “four thousand and three.” Easy negotiating for me.





One thing I consider important is that you know how real estate works. What is the importance of different types of deeds? How do you know what loan is the first loan and what does that imply? And there is so much more you can learn. After over 20 years of real estate investing, I am still learning. It is not boring being in real estate.





I think you should expect to spend about six months to 18 months studying about real estate, real estate investing, and the real estate market where you plan to invest – the environment, as I put it. As you study, notice the different types of approaches that different people use or advocate. Ask yourself “how does this fit me?” Imagine the different steps of the process, the activities that have to be taken. With what kinds of people will you be engaged? In what neighborhoods will you be investing? How well will you be able to accomplish that particular strategy of investing? What might prevent you from enjoying it? Being successful at it? What psychic rewards might you get out of it.





If you are considering becoming an investor in long-term rentals, as I am, I suggest you read a couple of books on property management. This may give you some notion of what you will face and you can consider if it is to your taste. If you plan to rent properties, learn to calculate expenses of owning them—they will be worse than you imagine. Figure out what kinds of properties will provide you with profit if you own them. Learn about taxes, especially income taxes and how real estate can help you. Plan to learn about the laws related to the approach that you take. If you are doing rentals, know the “landlord-tenant” law for your state.





How do you learn about real estate? My suggestion is to take classes at community colleges near you. There are probably classes for people who want to apply for a real estate license. You can take them too.





Read books on real estate investing. Most RE books are mediocre. A few are good. Almost none are excellent. But, you can still learn if you read them. Start at the public library and borrowing books from friends, neighbors, coworkers, relatives, etc. Buy used books, audio-tapes, and video tapes at bookstores or online at such sources as e-bay and half.com. I consistently pay less than 1/2 original price for the materials I buy there. Some is terrible, just like many real estate books. But some are good.





Talk to other, more experienced investors. See if there is a local real estate investors group that meets once or twice a month. Read newspaper articles and columns about real estate. If your local paper does not have nationally-syndicated real estate columnists, find one that does, even if it is not nearby. Get a subscription to the Sunday edition mailed to your home.





Go on the Internet to see what you can learn there. There are many different sites devoted to real estate investing and to real estate for sale or rent.





While you study these things, learn about the area in which you want to invest. What are the different neighborhoods like? Where are there vacant, run-down properties if you want to do fixer-uppers? What are the trends of prices and where are people moving to or moving away from? What kinds of properties make good rentals in your area? What are the prospects of making money by buying low and then selling high, not carrying rentals?





I like Bill Greene’s suggestion from his "Think Like a Tycoon" book that you look at 100 houses before you make a single offer. And that is of properties similar to those you plan to buy. If, as you go along, you change your mind about the types of houses and neighborhoods in which you will invest, you may have to look at many more than 100 houses. The idea is to learn market values and what the competition is like—either rentals or other properties against which you will be competing for buyers. When I started out investing seriously, I did this and my knowledge of values increased greatly over a few months of time. Study the multiple listing service properties and the newspaper advertisements for properties. Read realtor.com listing for your area. See them and then follow up to find out for what they sold.





Meanwhile, get your finances lined up. If you have a poor credit report, start cleaning it up. Pay off outstanding debt and put explanations into the credit file. Get erroneous information removed. Cut down your expenses. Save money for investing. Yes, it is definitely possible to buy properties with no cash out of your pocket—I have done it. However, you have more opportunities for profit if you are prepared to pay cash or at least make a down payment. This is increasing your resources with which to operate.





Depending upon your investment approach, you may want to get an equity line of credit secured by your home. Or you may want to ask banks for unsecured personal lines of credit. You may want to stop throwing away all those credit card solicitations and actually apply for some. Naturally, try to get those with good terms. But sometimes it is possible to make so much money with just one property transaction that you will be willing to use high-priced money to enable you to get into the deal. Use high-priced money for properties you plan to resell soon, not for long-term holding.





Some people talk about getting a “mentor,” an experienced real estate investor to personally train you in real estate investing. If you can find somebody who is willing to spend time helping you, fine, go ahead and give it a try. But, you don’t need a mentor to work in real estate investing. Very few investors have ever had a mentor. I call it “self-mentoring.” The approach that you take to investing will be very personal. Do get to know lots of different investors so you can get help with the local “nuts and bolts” of investing: referrals for good attorneys, cleaning people, repair people, learn where to get carpets and plumbing supplies, discover the good escrow and title companies, and all the other services and goods that you will need to be successful. Ask about difficulties you have and individual problems of people you know and on the on-line real estate forums. I don't think you need a "mentor."





Try to understand the approaches that these different investors have and their thinking about different aspects of investing. Ask what they like and don’t like, what works for them and what doesn’t. Then you can borrow some of their ideas and approaches in formulating your own direction. But you probably will not find a formula that somebody else uses that will suit you to a tee. Mix and match. Take a little bit from here and a little bit from there. Make them into a coherent program that will generate money for you.





There are many, many different ways to make money with real estate. With a little imagination, you may even create a new way to do so that nobody else thought of. But, most of these ways can be put into three categories, which you can remember if you can say “CAT.”





C is for CASHFLOW. This means you get more money in from a property than you spend owning it.





A is for APPRECIATION. There are three types of appreciation, remembered by FIN: F is for FORCED, such as fixing up properties, moving them, getting rid of title problems. I stands for INSTANT, which you get from buying bargain properties at least 20% below market value. Then there is N for NATURAL. Over time, property values tend to go up, the amount and rate varying with locale, the economy, and market conditions. Held long enough, most properties will go up unless everybody is moving away for the town or you do not maintain the properties.





T points at TAX SAVINGS, or tax benefits, which means that you may reduce the amount of taxes that you pay on your other income, non-real estate income. This is over and above the tax write-offs for your investment properties that reduce your taxable income from the properties.





Some people mistakenly add to this list of categories “pay down” or “amortization” on the loan. This is actually a sub-category of cash flow. It is the “forced savings” aspect.





Before buying properties, ask yourself which benefit you want to maximize. In general, you can’t make all three categories big with any one property. You might make one big, one moderate-sized and the other one small. So choose the investment strategy and the property which fits your goal--C, A, or T. For instance, when I buy bargain properties at tax sales, I get very little tax benefit. If I want tax benefit, I will buy a house at market value, but getting financing terms that allow me to get a break-even or slightly positive cash flow. I can also speculate on appreciation with this type of property. Normal appreciation is irrelevant for the bargain buys; the profit is built-in upon purchase with the Instant Appreciation..





Some people advocate getting a "team" together before starting--attorneys, CPAs, loan brokers, maybe real estate agents. I don't think that is necessary. I would certainly suggest that you not delay your investment actions until you get a "team" together. I advocate learning a lot about the local real estate laws and the federal tax rules as relates to real estate investing. Then you can be your own team in part. People make a lot of mistakes by not consulting with attorneys. They sell properties and have to pay terrible taxes—unnecessarily—because they do not understand and consult accountants.


So, do not hesitate to call upon professionals when needed. When you run into problems that a professional can help with, then is the time to find one. One--not a team, in my opinion.





To be successful in real estate investing, in my opinion, you need both movement and guidance. You have to get out and actually invest in properties to make a profit. So you have to be active. Go and do it. But don’t do it blindly. Learn a lot before you start making deals so that you don’t make too many mistakes and so you have a strategy that will fit you and the environment in which you invest. Some people get stuck in the learning phase. You will never know everything about real estate investing, so get started even when you don’t feel you know it all.





There are two major mistakes that can lead to real estate investment failure, I think. One is doing nothing – there is no profit in that. The other is rushing out too soon and making expensive mistakes. I once read a magazine article about a couple in Chicago that bought, as their first investment, a run-down apartment complex in a very poor neighborhood in Chicago. I forget the title of the article, but I think it should have been “How we lost a million dollars with no money down.” They did not know how to manage rental properties at all and this property was an extremely difficult one to operate. They made many mistakes, lost the building in foreclosure, and lost all the money they had invested.





So, become active, yes. But do it with caution. There is a lot of money to be made with real estate. Because real estate can cost a lot, there are a lot of ways to lose a lot of money with real estate. The sellers and real estate agents selling a property are not always honest about that property. Nobody will look out for your interest as well as you do. Learn enough to be realistic about properties and how investing works.





Expect to spend about 10 to 20 hours a week studying real estate during your learning months. Even though that sounds like a lot, believe me, there is a lot to learn. If you thought it would be easy to get rich, I disagree with you. However, it is possible to get rich with real estate. The average individual can do it. And it is easier than most other businesses in which you could invest your time and money. And, because you can tailor your investment program to fit you, your chances for success are high. Also, real estate is a "forgiving" investment. You can make mistakes, possibly a lot of them, and still make a profit from a property. I've made some very serious errors. And still my wealth and property holdings build up.





Just recognize real estate is a business. It will take time and effort. Some people might say it takes that four-letter word “work,” however, if you have a program that fits you and gives you enjoyment, you can convert that word into another four-letter word: “play.” Many people treat real estate investing as a game and play it to win not only money but also freedom to lead the life they want. It can do that for you.





Good Investing******************Ron Starr**********