So You Want to Get Started in Real Estate. Now What?

Just as the title suggests, I’m sure that plenty of you reading this have likely thought the same thing: “How can I get involved in Real Estate?” Whether it be in Real Estate sales, wholesaling, investing, etc., many people dabble with this idea frequently. We see it as a way to gain a secondary source of income, or as a way to pivot out of the mundane 9-5 lifestyle we so often grow to despise. “Why not” you think. After all, plenty of people you follow on Instagram say to do it!

Being as though I’ve been asked this exact question quite a bit recently, I thought it best to kick off my blog series by addressing this very topic. So, what should you do if you want to get started? To actually make this decision, you need to have a better understanding of what exactly you can do in Real Estate first: 

The most simple, tried and true way to get involved in Real Estate is by purchasing your own primary residence. While it might seem boring, unsexy, or frankly unobtainable for you, this can be one of the most powerful ways to take advantage of what the world of Real Estate has to offer, and is something we’ll all likely do at some point in our lives. 

 

So why is it so “powerful”? For starters, the equity you build up while owning your home is key. And what exactly is equity you might ask? Well, the simplest way to understand it is by looking at how much you owe on your mortgage versus how much your home is worth. The less you owe and the more your home is worth, the more equity you have. Your equity increases over time as you pay down your mortgage, and as your home appreciates, or increases, in value. This is what makes it such a solid long term investment. You’re paying down debt and holding onto an asset that (historically) increases in value over time. The long term returns can be fantastic, and can also be very useful for you later in life. 

 

For example, as your equity in your home increases, you can use this to serve as credit (most often referred to as a home equity line of credit) to either acquire more real estate, or to finance other large purchases in the future. 

 

And perhaps best of all, if you don’t sell your home after you move out and instead decide to hold onto it, you can rent the unit out and increase the amount you earn each month!

 

Of course there will be things that you need to consider if you decide to purchase your own home. First, when you own a home, assuming you don’t purchase it in cash, you will need to obtain a mortgage to help pay for the property. A mortgage is a form of carrying debt. Whenever you have debts, you must be able to pay them (obviously…right?). If you over leverage yourself and purchase something that will cost you too much each month, you put yourself in a sticky situation financially. So, before going this route, you must consider whether or not you’re able to afford this purchase. 

 

You’ll also need to have a plan in place, and the capital reserves necessary, to address various maintenance issues that may arise. For example, if your heater blows, it’s up to you to fix it! Factor this in with the costs of utilities each month and you’ll realize that your monthly payments may be even higher than you expected. Make sure you’re aware of this and can address these issues when they arise. 

 

Call me biased, but this is often the route I recommend most for those looking to get started in Real Estate. “Real estate sales” itself is a very broad term, but it can be broken down more specifically into 4 categories: residential home sales, commercial sales, investment sales, and leasing. 

 

Residential home sales are what you think of when you imagine what a prototypical realtor does. It involves representing buyers and sellers to either purchase or sell their homes.  

 

Commercial sales is a bit more niche. This typically involves selling commercial units, including apartment complexes, shopping centers, office spaces, and even brokering the sale of businesses. 

 

Investment sales involves specifically working with real estate investors, or with sellers who would be selling property to those looking to make a profit off of it. Such sales may involve representing a mom and pop type landlord on the purchase of a turnkey rental property, or helping to aid a massive corporation in its acquisition of hundreds of units in a particular submarket.

 

Leasing involves representing landlords and tenants as they attempt to rent their properties. Examples include leasing office spaces, or leasing a single-family home to a young couple who just moved to the neighborhood. You'll often hear about Property management companies when it comes to leasing. These companies often market themselves as leasing specialists. 

 

All of these options are exactly why I often recommend this avenue to those looking at getting started in RE. If you already have an idea of what you’d like to do, you can always get your license and park it at an office that specializes in the field you’re interested in. This provides you with the opportunity to grow your network, learn the ins and outs of the business and generate a source of income, all without some of the overt risk you’re subjected to in other areas. 

 

Of course, you’ll also find challenges that come with a career in sales. First, if you are just starting out and do not have any other consistent way to make money, it can take quite some time to build a large client base and generate consistent income. This is precisely what knocks a lot of agents out so early on. I’ve witnessed firsthand people pass their test, get their license, and then expect to immediately start making money. This unfortunately is rarely the case. The reality is that it can be tedious and frankly challenging to grow your business and generate an extra source of stable income.  

 

Even for those that do have another source of income, such as a primary 9-5 type job, it can be very challenging working with and devoting full attention to clients who are certainly going to require it while you’re working your 9-5. 

 

And last but not least, depending on where you choose to park your license, many offices have their own fees you’ll be responsible to pay for out of pocket. Couple that with things such as MLS fees, advertising fees, etc. and you’ll find yourself paying for quite a bit before making that first sale. 

 

If your primary aim is to get started in real estate investing, but don’t feel you have the capital necessary to purchase your first property, this could be a great alternative for you. Real Estate Wholesaling is the process of finding a property and negotiating a purchase price with a seller, then flipping the property to an end buyer at a higher price than what you had originally negotiated. Wholesalers profit directly off of this difference in price.

 

Let’s use an example to illustrate this. Say I know my neighbor is moving out of town after his job relocated him, and he needs to sell his house fast. I may be able to negotiate a deal with him that would allow me to purchase his house for $300,000. Now, I know that properties in my area are worth closer to $350,000. But my neighbor doesn’t have time to find a realtor, get his house ready to sell, list it, wait in escrow and then sell his house, so he’s ok offloading it to someone like me. I agree that I’ll buy it quickly, in cash, with no contingencies and offer a quick closing. Once we agree, I call a friend of mine and tell him that I have a great house I’m willing to sell to him for $315,000. This friend of mine also recognizes that homes in my area are worth $350,000 and realizes he’s getting a deal himself, so he’s happy to pay $315,000 for it. I then flip the original agreement (in the form of a contractual agreement between myself and my neighbor) to my friend for $315,000. That $15,000 difference between the end buyers purchase price and the original agreement between myself and the seller is my direct profit, due to me at the closing table. 

 

That, in its essence, is wholesaling. It may seem confusing, but don’t worry. There are plenty of resources online that go into much more detail on the ins and outs of the wholesaling process. 

 

Becoming a successful wholesaler can be very beneficial for you for a few different reasons. First, it allows you to control deal flow in whichever submarket you operate out of. It is also a good way to improve your capital base, which can allow you to use money you’ve made wholesaling to start buying the deals you’ve been flipping to other people! This is where real wealth can be created. 

 

You’ll also learn a ton about Real Estate in general. From negotiating with sellers, to marketing (wholesalers are generally excellent marketers above all else), to learning rehab costs, the lessons to be learned from wholesaling are vast.

 

And, because it is up to you to negotiate a price that works for the seller, your potential profit per deal can be even higher than you would make in commission as a realtor. In fact, I’ve personally seen assignment fees eclipse 35,000 dollars on a 60,000 house!

 

But again, there are downsides to this approach. First, because the barrier to entry for wholesalers is very small, it is a very crowded field, with many people doing what you’d be trying to do. More established wholesalers have large marketing budgets that allow them to reach a vast audience of prospective sellers, with teams in place to convert these leads directly into contracts. Without money to spend on advertising, a good database to track leads, and avenues to reach sellers, it can be really challenging to find a deal on your own. But that shouldn’t deter you from trying. As always, if you put the work in, the opportunities are tremendous. 

 

Perhaps the biggest draw to Real Estate of them all, RE investing is something many of us consider over the course of our lifetimes. So what exactly is it? In its simplest terms, real estate investing is the process of owning property - whether it be a house, land, commercial space, etc. - to profit off of it. 

There are many different ways to do this, so I’ll dive into some of the most common forms of Real Estate Investing I typically see people start off with.

 

a.    Residential Real Estate Investing

Simply put, residential real estate investing is how it sounds - investing in residential housing. This includes flipping houses, or buying rental properties. One has to do more with the short term, while the other typically involves a much longer approach.  

 

FIX AND FLIPPING

The first of the two main types of residential investing strategies is flipping houses. As a spoiler for all of you, this is how I got my start in Real Estate.
Flipping houses involves the process of buying a property under its fair market value (FMV), likely upgrading the unit, and reselling it for a profit. Typically, this takes place in the short term (i.e. < 1 year), though can be drawn out over a few years. 

Flipping houses, when done right, can be a great way to earn a significant return on your money in the short term. If you are able to find deals significantly below their FMV, put the necessary repairs and upgrades in to add value, and resell them for higher than your purchase price and renovation costs, you can make a large profit. 

That being said, there are numerous obstacles to generating these profits. First, you need to find a deal that you’re correctly purchasing significantly below FMV, with enough wiggle room to complete upgrades and still be able to sell for a gain. 

Second, you need to properly, and ethically (and I stress this) complete your rehab. Many cut corners when attempting to flip homes to ensure larger profits. The result is a product that gives flippers a bad reputation. Your quality of work must be sufficient for your end buyer. Completing rehab work is NEVER easy. It can be challenging managing contractors to complete your project on time, and on budget. But this is paramount to the entire process. If this is mishandled and your project goes haywire, you’re putting yourself in a very tough position financially. 

The third obstacle is time. When you flip, you’re on the clock. Both literally and figuratively. Some loans you can use to obtain fix and flip financing have a life of less than a year. This means you need to complete your entire project and sell the home in under a year. You’re also on the entire markets “figurative clock.” What happens if interest rates rise while you have a project going on and it tanks the resale value of your investment? Unfortunately, you’re looking at one of two options: either hold onto the unit and keep a significant amount of your money in the deal (if this is even an option for you), or sell the unit at a loss. Neither is very favorable if flipping was your original exit strategy. 

So, what if you still want to flip? My recommendation for anyone looking to flip houses…find people who are doing it at a high level and try to partner with them. Find deals that flippers may like, and bring it to their attention. Learn the ropes from them. See the ins and outs of the construction process if you do not have a background in it. And most importantly, take time to build relationships with reliable laborers and lenders to ensure that you have the proper team in place to help you when the time comes. 

Rental Property Investing

The second type of residential investing strategy is rental property investing. This involves buying a home, whether it be a condo, a townhome, or a single family detached home, and renting it out to somebody. 

 

Most often it is the goal of the investor to generate rental income each month that exceeds expenses. These expenses tend to include mortgage payments, property taxes, insurance, vacancy, and maintenance expenses. 

 

There are an abundance of ways to finance the purchase of a property to subsequently rent out. For example, you could purchase a property by putting 20% down and obtaining a conventional mortgage. You could also pay for a property in cash, or negotiate seller financing to aid you with your purchase. 

 

One of the most popular things now for investors to do when purchasing rental property involves buying a property below its fair market or appraisal value, making upgrades on the unit (if necessary), then refinancing into a long term loan that allows you to pull out money you originally invested into the deal. Popularized widely as the BRRRR method (buy, rehab, rent, refinance, repeat), I strongly recommend this form of investing for those looking to get started themselves. It’s possible in theory to purchase a unit, put some minor work into repairs, then refinance and pull out all of your individual investment. This means you’ve purchased a property with essentially no money out of pocket after your refinance is complete, and are now earning income each month from rent. It’s an extremely powerful strategy for those looking to build a large portfolio.

 

While this all sounds great, rental property investing does to have its downsides. First, it’s a VERY crowded space. There are a ton of people looking to do the same thing you are. This means they’re analyzing the same deals as you, and frequently making offers well above what a property is truly worth. This makes it challenging to find a great unit to buy. 

 

Depending on the area in which you invest, landlord-tenant laws can make the process of renting to a tenant very challenging as well. Many local governments make things much more favorable to your tenant than to you. This means that you have to be extremely careful how you screen and select your tenant, what your lease terms look like, and how you treat your tenant while they are living in your unit. Selecting the proper tenant is pivotal to your success.

 

And then of course there’s the issue of maintenance. We’re all aware of the stories of landlords getting those 2 AM calls that the toilet is clogged. I’ve always found stories like this to be a little overblown, but dealing with maintenance issues as they arise is certainly an unsexy part of the business you should be aware of. Make sure you have a system in place to handle maintenance requests, and the necessary people in place to rectify these issues. Property managers are always an option to help handle these issues for you, but as is often the case, they’re not a guarantee that things will always run smoothly. There are PLENTY of questionable property management companies out there who could end up derailing your investment completely.

 

Vacation/short Term Rentals

 

Another form of rental property investing can come from doing short term, Airbnb style renting. Many do this with their vacation homes. Others elect to Airbnb standard single-family homes. For example, if you know that you have a home close to an airport, and can rent it out to travelers coming to your city, it may not be a bad idea to put your home up for rent in the short term on a website like Airbnb. Ditto for that vacation home that sits idly throughout the year with no one there. 

 

Oftentimes the rate at which you can charge for rent per night is significantly higher than would be obtained if you were to rent your property to a long-term tenant. 

 

However, I always caution individuals with this approach. It is paramount that you understand short-term rental laws in the area you plan to invest in. Many municipalities have regulations in place that can make your life very difficult. It is also more difficult to screen your tenants, and, given the high rate of turnover and need for constant upkeep, can make managing your property more challenging.

 

Commercial Real Estate Investing

 

Like residential property investing, the primary aim of investing in commercial real estate is to generate a profit through property ownership. The difference is the type of asset you are choosing to invest in. Examples of commercial properties you may invest in include strip malls, office buildings, large multifamily complexes, restaurants, and even industrial units such as warehouses. 

 

Commercial tenants are also quite different from residential tenants. Apart from large apartment buildings, commercial tenants typically house businesses rather than people businesses rather than people. This changes lease terms, pricing, and rent. 

 

As rent is usually higher, so too is the income generated from a commercial unit. This, plus the fact that the buildings typically are much larger, increases the price of most properties. Larger purchase prices lead to a larger barrier to entry for most. Commercial RE is often thought of as more risky form of investment as well. Big prices, plus big returns can lead to big losses. This makes lending criteria more stringent, further reinforcing the large barrier to entry already created by higher purchase prices.

 

To the savvy investor however, this is exactly what makes commercial RE so attractive. The higher rate of return, and difference in tenants, makes it an enticing alternative for those not interested in residential property investing. 

 

Land + Development

 

I decided to group land and development together because I felt the two go hand in hand. Investing in land, and subsequently developing it, are the last of the direct forms of real estate investing I feel people can get started with. 

 

Buying land is exactly as it sounds. Identifying, purchasing, holding, and then either reselling, or developing, land. You can also purchase land with the intent of subdividing or rezoning it. If you are able to identify creative ways to zone a piece of land, you’ll provide maximal developmental value for someone else, and can increase the resale value of the land.

 

Developing is the next step after purchasing land. Once the land is acquired, zoning is finalized, the necessary plans are in place, and an exit strategy is identified, the development process can start. Many developers either choose to hold onto property that they build, or sell it after completion to make a profit. 

Both approaches can be beneficial to you, but both are typically subject to prevailing market conditions. For example, if you are in a high interest rate environment, with a surplus of building going on, and you are trying to develop and sell single family housing, you are at a major risk of taking a loss on your project. Increased supply from overbuilding and lack of demand from high interest rates lead to lower buying demand, which leads to a decrease in the price of real estate. Unless you’ve accounted for this in your original projections when first purchasing the parcel of land, you’ll find yourself in a sticky situation. 

 

While development may be risky, the potential for success is there and the returns can be tremendous. And perhaps most enjoyably of all, unlike rehab projects in which you face many unknowns during the construction process, with newbuilds you don’t experience these issues as often. Everything you’re doing is brand new. It’s typically simpler for contractors to work from a blank canvas in proper sequence than it is to try to jumble everything together when rehabbing a property. 

 

Also, if you do decide to hold onto your piece of development, having all new equipment/materials and utilities typically means decreased capital expenses and maintenance requests incurred during the life of ownership. This directly saves you money each month, decreases operating expenses, and ultimately increases your bottom line. 

To simplify the concept, if you are someone who has cash saved up and are looking to invest in Real Estate, but don’t have the experience or time necessary to do so, you can provide it to other real estate investors to go out and acquire deals. In essence, you act as the bank for that investor. In exchange for doing this, you may receive “points” for providing the loan. These points, which may range from 1-3% of the total loan, are formulated as a return to you as the investor just for providing the money. You’ll also receive interest back on the money you provided. Rates typically range from 8-12% for private financing, but may run much higher depending upon where market rates currently stand.

 

As always, there are many things you’ll want to consider when providing private financing. First, if you decide to lend on a deal, you want to make sure that you have sufficient collateral in place if a deal goes south. Collateral is typically an asset that a borrower can pledge to secure a loan in the event of default. In this case, it’s a physical asset in the form of the property in which the investor is acquiring. You may also request collateral in the form of a borrower’s personal property. For instance, their primary residence may be deemed sufficient, and you can seize their home in the event of a default as well. Most wouldn’t agree to this, but it is possible. 

 

As you’ll likely be requiring the investment property as collateral, you’ll want to be very sure that you’re lending on an asset that you would be ok owning. This makes it extremely important for you to know what your investor is purchasing, and how you’d be able to handle owning it if it came to that point. 

Perhaps most importantly, you’ll want to ensure that the person you’re choosing to lend to is one you can trust. Investors that are reputable, ethical, and have a consistent track record of success make this option very attractive to those who have capital to invest, but lack the necessary time and experience to do it themselves. 

 

Given that there are so many options for you to choose from, I understand that this is likely the question you’re asking yourself. In my experience, for those looking to get started, their situations typically boil down to one of two scenarios. As such, I’ll address the answer to this question based upon each situation:

If any of you find yourself in this position, you’re not alone. This is exactly the situation I was in when I started, and to be honest, for those hungry enough, I envy those that are in this position. Although it might not seem like it, this situation tends to be ripe with opportunities. You can explore a majority of the avenues I’ve mentioned above by offering your greatest asset…TIME. 

 

If you’re dead set on investing in RE, time can be a very valuable thing in partnerships. For example, the way in which I was able to perform my first flip was by partnering with an individual that had some money, but no time. I was able to do a lot of the things that my partner was unable to, such as finding the deal, finding a source of financing to supplement the money we were bringing to the deal, checking in on the work, and designing the way the home was going to look when completed. This was all deemed to be valuable by my partner, as it took a lot of the heavy lifting out of his hands. As a result, we were able to complete a project that I don’t believe either one of us would have taken on had it not been for our partnership. 

 

If you find that you’re someone with little money, but a drive to get started in real estate investing, find great deals, then partner with somebody to help you purchase them.
 
For those less risk averse, or with minimal interest in investing in real estate, I’d recommend getting started either as a realtor, or as a wholesaler. Both are beneficial for different reasons. 

 

As a realtor, having a general knowledge of many parts of Real Estate is key. You’ll learn about the sales process, negotiation, contract law, etc. You’ll also learn how to find properties to purchase, and determine fair value for them. All of this can be extremely helpful as you grow. As you learn more, spend more time in the industry, and attract more clients, you’ll complete more sales and thus earn more money.

 

There’s also minimal risk of loss when working as a realtor. When you make a commission on a sale, other than the time you have to put in, and the minor marketing expenses you may incur, there is essentially no risk of financial loss at all. The same can’t be said about investing.

 

If you know at some point you’ll want to invest in Real Estate, even if you start out as a realtor, you’re setting yourself up for success. Before investing, you’ll have given yourself an education on the entire industry and the opportunity to build a great team around you. From lenders to contractors to title reps, etc., all of these individuals will be paramount to your success in your investing career. 

 

If you know that the world of Real Estate investing is all you want to focus on, or you’re just not interested in becoming a realtor, then wholesaling also offers a great alternative. By finding deals to source to investors, you can earn great money on each deal. This profit can then source future investments. Just like you would as a realtor, you’ll also educate yourself on the industry, learn all about evaluating the price of properties, and afford yourself the ability to establish a great team around you. Couple that with the fact that you’ll likely have a great system that creates a constant stream of deals, and you’ll find your transition into Real Estate investing to be seamless.

 

On the opposite end of the spectrum, if you find yourself in this position, I’d recommend considering private funding, partnerships, or buying rental units instead.  

 

Two ways to make RE almost completely passive for you would be by either offering private funding, or by forming partnerships. Private funding could be a great way to get a quick return on your cash. If you are able to finance projects for reputable investors, with mutually agreed upon terms, this could be one of the most passive forms of investing in Real Estate you’ll truly find. That takes the experience and time part out of the equation. 

 

I’d echo this same sentiment for partnerships. Unlike private funding, partnerships may allow you to be a more actively involved, depending upon the terms of the partnership agreement. Again, as long as you’re working with someone reputable, your partner can teach you the ins and outs of the entire process. Once you have a better understanding of how everything works, you can branch out and find your own projects. 

 

If private funding or partnerships are not of interest to you, I’d recommend slowly acquiring property for yourself. Whether it be your primary residence, a vacation home, or standard rental units, all of these options are not going to require a ton of experience or time. You’ll receive all of the positive benefits Real Estate can offer without having to put too much time and effort into things. 

 

I know it might seem like a lot, but I truly do believe that getting started is easier than you think. Realistically, it all comes down to making the conscious decision to act. It may seem cliché, but there’s a reason clichés are clichés. It’s because they’re true. Real Estate is no different than anything else you’ll do in life. If you decide to act, and are diligent in your approach, you’ll be successful.

 

Before beginning, consider why you’re electing to choose Real Estate as a career, or as a form of investment. Are you more or less risk averse? How much time and money do you realistically have to spend on it? And most importantly, do you have the experience necessary to be successful in whichever avenue you choose to pursue? Spend time thinking critically about these questions before diving in.

 

Once you’ve decided which avenue is right for you, be flexible in your approach. Things change. This could be with which asset class you choose to invest in, or with which career you’d like to pursue. I know many realtors turned wholesalers, and vice versa. I also know many investors that started out with one single family home, who are now doing very large mixed use development projects. This is exactly what makes Real Estate great. There are many ways to success.

 

What works for one person may not work for you. But that’s ok! As long as you make the conscious decision to start and remain persistent in what you do, you WILL find success.