I’m sitting down here at the beautiful Riviera Maya Unico Resort, and nobody here wants to talk about real estate, so I thought that I’d just talk to you.
What I want to talk to you about your first two years in real estate as a real estate investor. Some of the things you need to do, and the first thing you need to do is find a motivated seller. Because that’s the crux. That’s the whole key to getting a start. If you can find one motivated seller, and get their property under contract for a really good wholesale price …you’re in the game. Suddenly you’re the prom queen. Everybody wants to talk to you, everybody wants to shake your hand and everybody wants your deal. You’ll be able to pick up a good wholesale assignment fee on it, and it’ll get you in the game. It kind of gets you in the club, because people will immediately figure if you did that one, then you can do another one. So that’s the key to getting started, that gets you in the door, especially if you don’t have a lot of money.
But what if you’ve got money?
Now, if you do have a lot of money, that’s great. But, I find that a lot of people want to jump to the head of the line, so to speak. There’s a defined step-by-step process to become a real estate investor the right way and keep yourself out of trouble. That process builds your investor intelligence. It gives you the experience to know what to do, what not to do, how to know a scam from a good deal. And it all starts with wholesaling. The very first thing to do, once you decide you want to do real estate investing, is to focus on finding a really good wholesale deal. That’ll give you experience in working with a contract, working with a seller, finding a buyer, and marrying the two together without you investing a lot of money to get the deal done. You’re pass it off to somebody else to close, so money isn’t an issue.
Jumping the gun.
A lot of people want to just jump right in to buy a rental house as their first deal.
Let’s say you’ve got a good job. You’re making good money and you’ve got some money in the bank and you think, okay, I’m gonna buy rental property right out the gate, or I want to buy a rehab property, a fix and flip right on the gate.
If you don’t spend the time to get to know the people to steer you in the right direction, you’re very liable to wind up with a shark who’s going to try and take your money. By doing the wholesale deal first you’re going to find out who the players are and who the sharks are.
Flushing out the sharks.
An old investor once told me a great story about flushing out the sharks.
He said,“When you go to a real estate investor meeting for the first time, take a notepad with you. In the middle of meeting, stand up and tell everybody that you’re a brand new investor, that you’ve got money to invest and you’re looking for deals and you’re looking for people to learn from. After the meeting, if people come up and talk to you, write their name down. Write their name down and then don’t ever do business with any of those people without checking them out thoroughly first. Because the sharks circle you first. There’s new blood in the water, and the sharks are going to be the first to circle.” I think that’s great advice for a new investor. By getting your feet wet with a wholesale deal, you’ll learn to spot the difference between people that are trying to take advantage of you, and the people that seriously want to deal.
Once you get that first few wholesale deals under your belt, then you can move on to looking for rehabs and rentals. One reason you wait is because you’re going to meet the contractors and hard money lenders that you’re going to need, because they’re going to kind of show up while your doing these wholesale deals.
Someone else is going to bring a hard money lender in to your wholesale deal and show them the property. You’ve got to home in on the hard money lender, get their name and their phone number, because you’re gonna need them. Any of the contractors they show up with, get their name, get their phone number. You’re building your Rolodex, if people even use that any more, your “database”, let’s use that name. You’re building your database of people to call when you get ready to do your fix and flips, and to repair your rentals.
When you head into the fix and flips realize that it’s going to take some money on your part, and you’re probably going to have to bring in a hard money lender or another investor to either partner with you, or finance the deal, but it’s going to take some money on your side. A hard money lender does not want to pay for the whole thing. He’s going to want you to have some skin in the game. He’s probably only going to want to spend 80% of what it’s going cost, so the rest has to come from somewhere. If you get to know him in advance, you can sometimes get up a hard money lender to pay for the whole thing, as long as you’ve got the fix up money, or you can find it. The next thing they’re going to look for is to see if you have any other income, so if things start getting a little shaky, you’ll still be able to make the interest payments. That’s important to the hard money lender. Once you get into your fix and flips, you’re going to get a big database of contractors and repair people. You’ll need them on the next level too.
Build recurring monthly income.
Doing the fix and flips produces large chunks of income, but you need to do something smart with it. Don’t crank up your lifestyle to try and impress people. It’s time to build those rentals, because that’s the juice. Those rentals are going to build you long-term wealth, long-term cash flow. You can buy a rentals with your flip profits, but first I would recommend doing some master (or sandwich) leasing. Find somebody that’s a bad landlord and master lease their property. Now it’s also called sandwich leasing. I just liked the master lease because it’s a lease that gives you control of the property without taking on the maintenance and repairs. You’re doing is the day to day operations. You’re going to lease it and then you’re going to find somebody to pay more. Then that bit in the middle, that’s what you take. It may only be $100 or $ 200 maybe even $300 a month if you pulled off a great deal. But these are the ones that don’t cost you anything.
That’s a way to build a rental portfolio without it costing you any money. You’re trading your, you’re basically sweat equity, you’re doing the hard stuff and they’re getting their property rented and they’re covering their mortgage. They are looking for the future payoff of property appreciation and debt payoff. You’re taking some of the cream off the top and it’s not costing anything. This can work extremely well with medical professionals. They have lot’s of money, but not lots of time to deal with toilets and tenants. And like I said before, $200/month x 10 = $2,000 a month. Now you just replaced a week of income. It’s very important that you realize you can this slowly. It’s not about making a bunch of money right out the gate and then trying to stretch it. Ass you add these building blocks of income, they will eventually build a fortress. That’s how you build a house, one block at a time. You don’t just go, Hey, I want a new house, and suddenly it appears, you build it one block, one board, one brick at a time.
Next Step, Mailbox Money!
Soon you’ll get to the point where you’ve got your rentals in place, you’ve built your cash flow, your portfolio and you’ve got some money in the bank. Then if you want to start hard money lending, you can, but those are the steps that you work through. You’ll have the experience to make it happen. Start with smaller deals, loaning $20,000 to $50,000 to get your feet wet and gain confidence and expertise. You won’t get rich quick doing these smaller loans, but you can go broke quick doing the larger ones if you don’t have your act together.
Here’s what a 12 month $50,000 loan would look like.
3 points (percentage points are additional interest paid in a single payment, usually at payoff)
12% Interest rate
$50,000 x 12% annual rate =$500 interest per month
3 percentage points at payoff = $1,500
So your total income from a $50,000 loan is $7,500 for the year.
Compare that to putting that money in a bank CD at 3%.
$50,000 x 3% compounded quarterly = $1,516.96 Here’s a link to a CD calculator to check other amounts.
CD Calculator | Calculator.net
That’s a HUGE difference in income from only $50,000. $7,500 vs. $1,516, that’s almost 5 times as much.
The goal is to one day replace your entire income with lending income and other labor free investments. To learn more on how to do this, and how to create a tax free income check out my Retire Early blog posts.
I’ll wrap it up.
You start out with wholesaling. You don’t really start out wholesaling because you want to be a wholesaler. You started out with wholesaling because you want to learn the ropes.
You can take any,course or training, you can take my class, you can take any class in the world, but being in the class isn’t gonna make it the same as you actually experiencing it. I’ve put everything in my EZ Real Estate Cash Program that you need to know. Starting from zero knowledge, right up to where to sit, who to talk to, and what to say to them. Everything that you need to know about finding and completing a deal, what to do, how to negotiate, and how to get it closed.
I’ve included all that, but there’s nothing like doing it yourself and getting that first wholesale deal. I can coach you on your way through it, but experiencing it yourself makes it real. It gets you comfortable with talking to people. It gets you prepared to deal with the little things that get thrown at you. The great thing is that you haven’t got a lot invested in it other than just your time. If it blows up in your face, big deal, go find another one. NEXT!
There’s a hierarchy to how you play this game if you want to make money, not lose money, and be successful. It’s like learning a sport. You’ve got to listen to the coach, and learn the plays, so you don’t get in trouble. I’ve seen too many people walk into this game with a bunch of money in a savings or retirement account and just say, “Hey, I’m a hard money lender.” The best way to make $1 million as a hard money lender, if you don’t know what you’re doing, is start with 2 million. Because that’s what you’re going to be left with after you lose a million $.
I’ve seen it happen over and over and over.
You got to know what you’re doing in this business or it’ll kill you. If you know what your doing, it’ll set you free.
See you later.
Disclaimer: I am not an attorney or CPA. The content herein is merely opinion, and should in no way be considered legal or financial advice. Please seek professional legal and financial advice for your specific situation.