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Getting started in real estate investing questions from a newby

Getting started in real estate investing questions from a newby

 

I recently got a series of questions from a new investor.  I get a lot of questions that look like these, and to be honest, he asked a great group of questions and I thought I would share with the group.  His queations are in black, my answers are in red.

 

 

Questions on Processes: Getting started in real estate

1. Should we try to find someone to shadow as they undergo an actual wholesale deal, so we can see the process in motion in the real world for ourselves, and/or have someone mentor us step-by-step for our first wholesale deal to make sure we’re doing everything right?

Shadowing someone is a really good idea, I can do that for you.   A bit of hand holding will help your confidence.  The process is simple.  Wholesalers buy and one price and sell at some price that is greater than the first one.  The math couldn’t be easier.  The safest way to wholesale property is to use an option contract, an option contract gives you the option but not the obligation to buy a house.  With that contract signed and registered, you can then decide if you want to keep the property for yourself or pass it on to a buyer.  This buyer will either be another real estate investor or someone who want a house for themselves.   There are a few exit strategies that you can use here, but that is another topic. 

 

2. Is the best approach to finding wholesale deal finding people who want to buy specific types of properties in specific areas first (reverse wholesaling), or search properties locally and then attempt to lock buyers onto what we find?
Making money as a real estate investor is not the same thing as Olympic gymnastics, we dont get extra points by adding a degree of difficulty. 
If you start with a buyer and try to find a property that fits that buyer, you will quickly notice two things.  The first is that there is a reason that you buyer couldn’t find the property that they are asking you to find.   The second is that it is much easier to find a buyer for a house than to find a house for a buyer.  follow my logic here, there are a lot more buyers out there than there are specific houses to fit this one buyers preferences.
I actually invert this process a bit.  If a buyer approaches me to look for a house for them, I make them do all of the work.  I make the buyer bring me leads on houses, with the understanding that I am a much better negotiater than any novice negotiator,  I will negotiate the deal, and build in a spread for myself.  If nothing else, I may find a buy a hold property along the way, and owner finance if to my waiting buyer.
3. What common mistakes should we avoid for first time wholesalers, i.e. dealing with houses with liens, or any other red flags?
Try to avoid all of the mistakes.  That is where a real estate mentor comes into play. There are so many mistakes to be made that I couldn’t even list all of the ones that I have personally made let alone the ones that others have made.  In general, if you are unsure then ask another investor.  That is why Pittsburgh REIA meetings have a networking segment, so that everyone can build a team of other investors to bounce ideas off of.  Learning can happen two ways.   You can learn by screwing up your own deals, or you can learn from the advice of people who have already screwed up before you,.  The second option is less painful  
4. Would a good starting strategy be to just go out, find and crunch the numbers on some local properties, and then bring the good ones to the table at both the monthly meetings and the Saturday mentorship meetings and offer the wholesales to the people present there, or would they be unlikely to deal with us, as we have literally no completed deals under our belt yet to show our credibility?
Nobody gives a rats ass what your experience is.  All buyers care about is the deal.  If you bring a good deal forward, people will flock to you.  The main meeting and any of the sub-group meetings are good places to present deals to hungrey investors. 
The trick here is to present the property in a way that tells your pool of buyers why its a good deal for them.  Dont get so hung up on crunching numbers, present the deal in its best possible light, never lie, tell the truth, and see how the market reacts.  Too many wholesalers get caught up trying to guess at what the market wants.  You will never guess at what motivates someone else to take action, stop trying to think for strangers. 
Startup Costs:
1. When and how should we actually start our business?  Should we do it before anything else, or wait until we actually finish a few deals, and should we form an LLC, or follow a different method?
You can form a legal business anytime that you wish.  You do not need to do this before you start making money but I would look for form an entity before you buy anything that you want to keep.   In the process of marketing for wholesale deals, you will trip across some houses that you want to keep.  Many of these will be subject-too type purchases that will require no money down and no risk to your credit. 
2. How much capital should we have on hand before we attempt to start out, i.e. for marketing, starting an LLC if necessary (my mom and brother already have an LLC for real estate, but they had no guidance and thus never did any deals with it, but we could probably join them for free), etc.?
Well you are going to need $10 for option consideration, not much else.  Beyond that, you need an internet connection and a phone.  You can do everything that you need to do with an internet connection and a phone. Beyond that, you can spend money on things that make your job easier and bring deals to your faster but that is just a luxury that you earn by being successful.  The quickest way out of you financial freedom track is to spend money on things that you dont need before you know how to use them. 
When you are ready, I can teach you how to get to the next level where you dont even operate your own business anymore. 
3. In terms of marketing, how big should we start out, i.e. just simple stuff like word of mouth and bandit signs, or should we focus on marketing a little in a variety of ways, i.e. word of mouth, social media, yellow letters, etc.?
There are two types of marketing, active and passive.  Active marketing is you calling people who have places for sale advertisements somewhere.   Start looking at the Pittsburgh Craigslist, the local newspaper ( I prefer The Pittsburgh Tribune Review), and FSBO signs in yards.  Active marketing is free, you can never run out of free.  the trouble with active marketing is that it takes your time.  Social media marketing falls into this category. 
Passive marketing is marketing that sits there in place and waits for someone to trip across it.  This is where you spend money.  Passive marketing brings sellers to you.  In general these are better seller leads. Yellow letters are great if you are mailing to a good list.  Web sites are fantastic if they are done correctly.  Bandit signs can run your entire business,  I suggest that you take a portion of your profits and spend it on your marketing machine.   Grow the machine with each deal.   . 
4. Should we consider making a web site starting out, and if so, should we look into a free blog site, or look into paying for a more professional site?
Treat the free sites as an expansion of your internet marketing.  The world of internet marketing is defined by two things, quality and quantity.  The free sites are generally low quality but the more quantity that you have out there, the better the chances that someone will accidentally stumble upon you. I dont want to go too far down this rabbit hole or we will be in a discussion of back link strategies and that is for much later. 
What you really want is a custom web site.  We have a presentation on this exact subject at the next Pittsburgh REIA monthly meeting.   

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