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Real Estate Investing How Do I Start

Are you investing in real estate?  Have you thought about flipping, renting, or wholesaling homes?  Lately I have been reading a lot about how to make money from real estate.  It got me thinking that this is something that I really want and need to do if I want to gain more wealth.

The problem is that I’m not really familiar with what I should do.  Sure I have done more than my fair share of reading and asking questions but we all know that’s not the same as taking action.  Though we just purchased a home a few months ago I feel like there is no better time to get started then now, like right now.

Why Investing Real Estate For Wealth

One of the reasons I thought about investing in real estate is simply because it seems that most wealthy people gain wealth from owning a business, stocks, and/or real estate.  Since I am already invested and stocks and just started my business I figure real estate is the only thing left.

That and the fact that there are so many ways that I can make money from real estate.  From buying and flipping homes to wholesaling to even becoming a landlord it just seems that the possibilities are tremendous.  Real estate in some cases could give me a large lump sum of cash or even the semi-passive income stream for years to come. We all know there is nothing better then passive income just ask Pat Flynn.

So Here’s What I Have Found So Far About Real Estate

Like I said, for awhile now I have wanted to get into real estate and either was just to scared or didn’t have the knowledge to do anything about it.  However, I have heard about people with no credit or money still getting into the business.  What that meant is that I had to stop making excuses and do something.

There is a lot of information out there and most of it is free.  People are genuinely welling to help you if you ask questions and are willing to listen to advice.  Just like blogging you need to find your niche and become good if not great at it.  Money is being made by the millions and people are getting wealthier each day all while I sit and wait.

My Options for Getting into Real Estate Investing

Here is what things are looking like for me these day when it comes to becoming a real estate investor.  I found to people that are willing to front me money so that I can get into the business.

One guy is an investor and he is willing to loan me up to 70% LTV (loan to value) of the property at 14% interest only with four points at closing.  That was the first option and it was better than nothing. My second option is a real estate investment club and they are willing to loan me up to 65% (with no points on top) of the LTV and a rate of 10%.

What I would like to do is find short sales with my area that require little work and then put them back on the market for a quick flip.  In my area homes are going quick especially for the homes under 100k.  I would need to find a general contractor (GC) who can do the fixing up and make the house look great.

What About Flipping the Homes After

See is the thing is that I have that part almost figured out and set up already which is way I really need to get started.  I have several realtor friends who have approved buyers but the are FHA loans.  Most of the homes here that are being sold, the seller wants to deal with cash or conventional loans only.

My plans would be to buy the home fix it and then flip it to one of my friends who already have clients waiting.  Not that they are any guarantees that they would get it but at least I would start out with potential buyers before the general contractor even finishes the home.

Not Ready to Be A Landlord Yet

While I could certainly make money in real estate by being a landlord I don’t want to start with that from the jump.  With so much going on and the money that would be required to buy, fix up and then rent it would make it almost impossible for me to do.   On top of that the only way I would be able to get a home would be if I bought it cash.  Since I no longer work the normal 8 to 5 it will be two years before I could get approved for a regular bank loan.

Are You Investing In Real Estate?

If you are currently invested in real estate do you have any suggestions?  I don’t know if this is the best way and I know for sure its not the only way.  This is just what I have come up with that doesn’t require me to spend too much cash up front.

I am looking for a way that will allow me access to real estate as I really believe that as David Carlson mentioned – Want to Be Wealthy? Own Something!  Now DC could have been talking about businesses or other things but I still think it holds true in this case as well.  Owning real estate is definitely a way to building wealth.

My plan is to flip a few homes, stack the cash then buy properties that I can then rent and become a landlord.  This will give me cash on hand for other deals later on down the road and the rental properties will give me the passive income stream I need and want monthly.

What do you think about my plan?  See any flaws that I need to fix?  Any suggestions on how to get into the business another way?  If you are in real estate how did you get your first deal done?

63 comments

  1. 14% sounds way way too high. I wouldn’t rush into real estate investing. It’s a huge commitment. And flipping houses sounds easy and glamorous but it’s so much work and it doesn’t always work. People talk about the wins but there are plenty of folks out there who have lost a lot of money too.

    • Hey Sydney – From what I have found hard money lenders (HML) charge between 10-14% and usually points on top of that. Anywhere from 3-6. I know its not easy and that is one of the reasons I wanted to blog about it. I know there are people out there with both good and bad stories about real estate that could probably give me specific advice. Thanks for stopping by and commenting!

  2. We own two rental properties and they will be paid off in about 13 years. It sounds like a long time…but it really isn’t that bad since we’re only 33 years old at this point. I would’ve done a few thing differently but I’m happy with the overall plan we came up with.

    • Hey Holly nice two rental properties! How did you first get into the rental properties? And with only 13 years left when did you buy them or are you just making larger payments on the mortgages? I love to hear more about how you and Greg did this. Thanks for commenting!

  3. I am partnered with a guy who buys foreclosures or auction houses. His plan is that he tried to divide the space into 2-3 units, then if he is unable to sell quickly, he gets a refinance on the renovated place’s value. Usually at 70% LTV he already gets more than what he put in.

    • Hey Pauline thanks for the information! That was how I was planning to do it as well but since I just started my own business I wouldnt get approved to the loan. Did you have to invest anything at first or was the guy like your mentor and you were learning the ropes? Thanks for commenting!

      • I had already invested in a couple of properties so when he showed me his numbers I saw it was sound, and so far so good! But I have learned a lot to apply to my own RE investments.

        • Thanks for coming back and answering Pauline. I really appreciate the information. I am trying to see if the wifey would like to buy some real estate in Guatemala. I really like what you are trying to do there with the land. Well you just be selling the lots and is it difficult/expensive to get homes built there?

  4. First of all – thanks for the mention! I actually was talking about real estate in part, and starting Monday I have a series that piggybacks on my Monday post and one of those posts in the series is about real estate.

    I don’t think you have been around my blog long enough to have seen my post about us becoming landlords. While it has been quite the experience with a lot of work and money put into it, I still think we made the right choice.

    We wanted to buy a house last Summer because the sooner we did the sooner we could start building equity, and I thought the interest rates were (and still are!) artificially low. So we locked in a 30 year loan at a rock-bottom rate, but also we bought a house that was already set up as a basement rental. Additionally we bought an outdated house that was “stale” on the market after being listed for 60 days and dropping the price twice for a grand total of 26k drop from original list. We got a good location and we put some money into the rental right away and got a tenant. She is moving out this month actually, but we have another locked in. I think having someone live in your house through a basement rental is the easiest way to start making money on real estate versus buying a stand-alone property or condo, though that is my ultimate goal.

    • Hey DC! Yeah you are right you have so much valuable information I usually don’t know where to start. I see something that I want to read then I find something completely different. As for real estate it would have been nice if the wifey and I thought about doing what you did and having a rental space at the bottom. I see that a lot on “Income Property” but thats out of the question now. I need to find some “stale” properties in my area and get to work. Did you go through a realtor or find the homes yourself? If so which sites did you use? Zillow, Realtor, Trulia etc? Thanks for the help much appreciated.

  5. It sounds like you’re looking into various options, which is good. I can’t advise on hard money lending but the rates do seem much higher than with bank loans. So the question has to be what advantage do you have using a hard money lender as opposed to a conventional lender, and is the juice worth the squeeze?

    The risk with flipping seems to be holding the property too long or not getting a price high enough to justify the flip. We’re aiming for the landlord route (and have dipped our toes in by renting a room).

    For what it’s worth, my wife and I are using BiggerPockets.com to do research now — maybe it’ll be helpful to you too. All the best!

    • DonebyForty you are right those rates are going to be a lot higher than bank loans but thats how the investor get there profits. They know most people are not going to get approved at banks. I have check more than a few places and the interest rates are about normal from all the people I talk with.

      In my case I just left my job to start my own Digital marketing firm so I cant prove income. I just purchased a home two months ago so getting a normal bank loan is out of the question. I would like to eventually do the landlord route after a flip or two to increase cash on hand for future deals.

      I just signed up for BiggerPockets.com as well. Did you do the pro membership and how is it working out for you? Brandon was in the comments as well from BP.

  6. Hey Thomas,

    Great article, and thanks for the link to mine over on BiggerPockets!

    Flipping can be an exciting way to get into real estate – but be careful – a lot of people struggle on their first few deals. I’m pretty sure the first-time odds of succeeding are worse than black jack (for those who jump in blindly, that is!) That said, those who develop a solid plan, treat their business as a business (systems, processes) and get really good at analyzing a property tend to do really well. J Scott from 123Flip.com is a good example of that – follow him if you haven’t yet. Also – if you want to see the not-so-fun side of flipping – check out my recent article on BP about “How NOT to Flip a House: an Embarrassing Story of Wasted Time, Money, and Opportunity.”

    Reach out any time and let me know if I can help or at least point you in the right direction! I love to see personal finance bloggers jump into the real estate investing world. Be careful though – it’s addicting! :)

    • Thanks Brandon! I really appreciate you stopping by and dropping some knowledge. I signed up for BiggerPockets but have no idea where to start. I know some people maybe thinking I am rushing but I have been researching this for two years now and its time I do something. Read the post and it just seems like you went against all the principles you speak about. When your HML says no and the person drops the price by that much somethings usually up. Thanks again for stopping by and commenting!

  7. How you enter the real estate market depends a lot on your location in my opinion. For example, in my area, there are no 100k homes. You might be able to get a busted down studio condo or something like that. Generally, prices for single family homes in my area start around 300k. And again, that won’t get you much. So for cash offers (to make things easier and quicker) you need a significantly larger nut than in other places.
    One of the keys though, is when everyone starts to do something, the trend is likely ready to change, so make sure you do your homework on any propoerty you buy.

    • Hey PensionRetirement I completely agree with your point. Where I am in south Florida its hard to come by any decent property that doesnt need a lot of work for less than 100k but 300k is out of my reach for a first deal. I have been thinking about wholesaling as well but even that has risks.

      So true, if everyone is buying then its time to sell. I still see some good deals on the market right now and I have some people who are approved for FHA and conventional loans. I just don’t have the funds to go all in and don’t want to take such a risk. Real estate investing is not for the faint of heart.

      Thanks for commenting and stopping by!

  8. I love real estate and think it’s a great investment, but you have to be very careful. Leveraging yourself as high as you’re talking about is pretty risky. With the way the market is currently, it may work out, but if the market double dips then you have big problems. What happens when you can’t sell (except for at an extreme loss), but you can’t afford the monthly payments of the houses? Just something to think about. 10% or 14% interest rates are pretty high in today’s economy, so I would think twice before signing up for that, even if you’re thinking it will just be for the short term.

    • Hey Jake thanks for stopping by and sharing! I really appreciate the input. What would you suggest? Most of the people in the industry say that 10-14 from a hard money lender or investor is common. Im not going to get bank loan rates and even at a bank it would be higher because it would be considered an investment loan.

      I have planned so that I can cover closing costs, points, and about 6 months interest payments only without and dipping into savings or hurting my family. Family first but there is no way to get into real estate without some risk.

      • I would literally start small. A small house with a small mortgage. Do as much of the fix-up, clean-up work yourself as you can. Rent it out and be sure you are taking in more than the mortgage payment and other costs. When you’re ready to buy another house, make it a small one again. Something that 2 people would like. And get plenty of references before you rent to anyone!

        • Hey Maggie thanks for stopping by and I appreciate the information. Right now I cant do the mortgage since I just purchased a home and left my full time gig to start my own business. Right now I either have to do wholesaling, get a partner, private investors or hard money. Right now hard money and wholesaling are my two top choices. I don’t mind a smaller property as long as the profit margins work for that deal. Don’t want to get in over my head on the first few deals. I don’t mind even breaking even as long as I am doing it and learning in the process.

  9. I am definitely a few years off from being able to invest in real estate, but I think it’s a fabulous idea. I can’t wait to have some disposable income to actually purchase a house and maybe a rental property along the way!

    • Hey Cat thanks for stopping by! You are ahead of the game in so many ways. Right now real estate is something that I want to learn more about and get my feet wet. Disposable income is one of the reasons I want to do a couple of flips first to pad my bank account. We got the location and home we are happy with but we want to get into the investing side of real estate with out having to move out of the home we currently have a mortgage on.

  10. I currently own a home, but had a ton of help from my mom and auntie with the down payment. I would love to invest in real estate eventually, but first I want to let my credit score recover (it was a recent purchase) and secondly save enough money on my own. I’ll also be looking into real estate investment books/resources heavily.

    Good luck with this! I’ll be reading your progress!

    • Hey Lisa you plans sound very doable and I understand what you are saying about the recent purchase. We just purchased in April and I no longer have my income from that job since I left to start my own company. It makes it hard to now get a second loan for another home as a rental which is why I am looking into hard money lending. I think I have read about as much as I can and now need to put something into action. Thanks for stopping by and sharing your thoughts Lisa!

  11. I made my first house a rental and we are shopping for our second. When we move out of our current house, I plan to make it a rental as well. So I am shooting for 3 to 4 by mid 30’s. I have had good luck so far, but with rentals, the experience is only as good as the tenant. If you do decide to go the rental route, I would advise against a property management company as they did nothing for me with my first rental.

    I think that flipping seems very fast-paced and exciting, but I don’t know if it is all that it is cracked up to be. Our plan is to continue with 15 year loans so they are paid off in our mid 40’s and sometime in between, we would pay cash for any others.

    • Greg you have a great plan going on. But doesnt it get a little hard to keep getting mortgages after the first one or two homes? What is the plan for the third home still a regular bank loan? I wish we would have thought about getting into real estate and buying something like a duplex/triplex and living in one and renting out the other(s) first. Or like DC and purchases something that would allow for a rental space at the bottom. Right now though those aren’t available options so its either flipping, rentals, or wholesaling. Wholesaling seems to be the best idea with less cash up front if any at all. Thanks for sharing Greg!

  12. We’re considering buying a second property. With the rates as low as they are right now we’d like to buy something before they go up again. Bf and I have been researching buying a multi-family 2-3 unit for the rental income. Because prices are still crazy high here in the nyc area (and going up daily) we’d probably buy something in Maine (where my folks are from). Houses there are much much cheaper and we’d make a pretty nice profit if we rented both units.

    • KK that sounds like a plan. Are you and the BF going through the bank for the loan? I thought about the multi family units as well but it still brings me back to hard money lenders or wholesaling. No way to get a loan through the banks at this point. NYC is very expensive. Would you move to Maine or just have a property management company take care of it for you?

  13. Yes in my local area here investment in real estate is a high yielding investment i must say, it has helped a lot persons come out of financial downfall. i love real estate business and i encourage everyone to go into it no matter how small.

    • Pst Bless thanks for stopping by. Where is your local area? What price range is the real estate being sold and how are the location? They say its all about location location location in real estate but I have seen people make money in not so great areas as well. Thanks for the comment.

  14. We bought a condo unit during a pre-selling stage. The building is not yet completed. We plan to rent it. Hopefully it can gives us passive income.

    • Nice Walt! Will you be buying a home in a few years of doing a condo and having two rental properties? Nothing like passive income the more the merrier! Thanks for coming back!

  15. I don’t have much advice to give, as I’ve only recently just bought a house (with my sister) and it is being built as we speak, but I did want to comment on your post. I found it inspiring in your determination to invest in real estate to build on/increase your wealth. You mentioned that you’re already invested in stocks, so I think it would definitely be a smart move to diversify into investing in other asset classes.

    It’s frightening making the first move, but like you said there’s only so much you can read, learn and prepare for, but there is nothing like taking the steps to making it a reality.

    • Madame thanks for stopping by and I did see on your site the plans for the new construction you and your sister are going to have something really nice. Do you plan to keep it or eventually rent it out? Reading has only gotten me to read more books and ask more questions. If I could find I mentor to teach me and learn the ropes that would be great. Thanks for commenting and good luck with the home and the blog.

  16. I’m a fan of real estate investment. We have a condo that we’ve successfully rented out for the last 3+ years. I hope to be able to purchase another in a few years!

    • Hey CF, did you already have a home before purchasing the condo or was the condo the first purchase? I would really like to know more about how you started. 3+ years is a new source of income. Thanks for commenting!

  17. I’d love to get into the real estate game and have thought about it many times over the last couple of years. Unfortunately, prices in NYC are too high. Between the monthly costs [mortgage, common charges ($1k+)], taxes) and frictional costs [closing costs (~4%) and eventual broker fees (~6%)], I just couldn’t make the numbers work. Good luck with your real estate experiments, it should be a good learning experience and make for some great blog posts!

    • Hey Roger will I hope that the learning experience doesn’t cost me a fortune. I don’t mind losing but with real estate you can stand to lose more the a few dollars. Some deals out there I have just not even bothered with the numbers as you said don’t work. I know real estate is the one thing I am missing and need to learn more about but reading just isnt cutting it. Time to get into action and I will definitely post about it. Have a great weekend!

  18. Jesus christ, 14% interest? That is crazy!

    Start your own LLC, get $5,000 startup money, and buy a small 2 bedroom 1 bath house to start with.

    • Derek the 10-14% is from hard money lenders not a normal bank loan. If you can tell me where I can get it cheaper I will happily contact them. The 5k startup isn’t a problem but how do you suggest going about getting the 2/1 if I don’t go through the hard money lender? Really looking forward to hearing your suggestions. Thanks for stopping by and commenting.

  19. I’m pretty much in the same boat as you. I want to invest in real estate but there are still a few things I need to get sorted first (like finding a new job). Best of luck!

    • Yeah it sucks doesn’t it? I know I want to do it but need to get into it with maybe someone more knowledgeable who knows the ropes and the connections. As for you good luck with findings a job. I am sure you will get one soon get looking and networking. Best of luck to you as well.

  20. Thomas, real estate is a great investment, I have two properties and would love more if I could get my wife on board. Listen to these two podcasts if you have itunes.
    Reiclub and Jason Hartman, I think you will find them helpful!

    • Thanks Jim for both stopping by and the comment. I have never heard of REIclub or Jason but I will be sure to check them out. I really like what you have going on over there at Critical Financials as well. How did you get started in real estate? My wifey is on board but I need to make sure I am on point with this. If I mess the first one up it will be very difficult to get her on board for another one.

    • Oh Jim you forgot the best real estate podcast of all – the BiggerPockets Podcast! ;) (ok… I’m the co-host… but I think it’s pretty good! Check it out sometime!)

      • There’s a lot of information over the Brandon. I am still learning my way around but will make sure to check out your Podcast as well.

  21. I currently own two homes and a warehouse on an acre of commercial property. I owe on all three but plan to pay them all off in 5 years.

    In the future I will only buy property when I have the cash to do so in full. Too much can happen that makes me nervous.

    I would never use a mortgage on a house to flip. Way too many “what ifs”. I’ve leveraged myself to the max before and am just now almost totally out of debt so I would never want to go back.

    I’ve dealt with private investors before. Only advice would be to borrow from someone you won’t see often or save up and pay cash.

    • Hey Nate thanks for the advice. So you took out mortgages on all three places? How did you manage that one? I am looking at private investors/hard money and wholesaling. None are easy but until I start doing it I will keep having questions. Investors I think are the best option but the rates are high and those extra points on top really mean the numbers need to work. Thanks for stopping by and sharing.

  22. I’ve often thought of becoming a landlord, but then envision all the horror stories and quickly put that idea far out of my mind. My one friends step-dad made good money flipping houses, but he was a former electrician so he could do most of the work himself or knew people who could help him out. Flipping would probably only make sense if you are handy yourself and can do most of the work, or if you are really good friends with plumbers, electricians, etc…

    • PotatoHead I am with you one the fear is there but it was the same when I started investing in stocks. In the beginning I had no idea but with time I started learning. I just know that real estate investing is something I want to learn more about and wont unless I try it. I have to pick a niche though just like with blogging and see how things go. I know a few people in real estate and who are general contractors. But I still have to get some experience under my belt.

  23. Where you live and where you want to invest certainly makes a big difference in whether or not you’ll be successful. I think starting with your own home is good because you learn a TON about real estate when you buy your own house.

    • Hey Daisy! Thanks for the comment. I already have my own home and now I want to move into investing in properties. I am not trying to make flipping the end goal but its a way to get a few thousand in the bank for a few other long term leasing deals. I dont want to go overboard so starting small will be key.

  24. Thomas,

    I think there is a lot less risk if you go the rental house route. But, maybe I’m biased since that’s what I’ve been doing the last 12 years.

    However, if you are going to flip, it’s important to have a buyer lined up as soon as possible. Ideally, even, before you buy the investmet property.

    I’d suggest connecting with a good real estate agent who has a sizeable list of buyers that you can tap into.

    Best of luck!

    • Hey Terry you have some great advice and tips on real estate! I like the idea of rental income. However right now that would me everything tied up in one deal. I cant leverage another mortgage loan so I would be stuck with private or hard money and I am sure you know with HML you want to pay it off as quickly as possible. Thanks for the advice!

  25. Hey Thomas, just thought I’d drop my 2 cents on this topic since we talked a little about it at Caffeinated Money. My dad has been in the rental business on the side since I can remember, and I’ve really enjoyed getting involved with that as I’ve gotten older. If your willing to put in some work on the property, buying a short sale is great for a flip or a rental. A house on my street was sold via short sale in December for $86,000 and was just flipped after about $20,000 in upgrades for $130,000. If you’re flipping, just be sure that your area has a robust real estate market; you don’t want to be stuck with that property for long. What my dad and I tend to do is look for short sales so that we can flip them for a rental rather than for a sale. This doesn’t make quick money by any means, but we’re able to keep rent at the market rate even though our payments are substantially lower.

    I haven’t had any problems being a landlord thus far, but my situation is different because I live in the house and lease the extra rooms, so I don’t have to worry about renters destroying my home and costing me thousands in repairs.

    Best of luck to you!

    Kent McCarty
    Caffeinated Money

    • Hey Kent thanks for stopping by and nice site you have over there! I checked it out a few days ago. I really will end up doing rental properties but right now I will not be approved for a typical mortgage. If I do hard money/private lenders the interest rates and points make it hard to rent for income. So my thought process is do a couple of flips, make some money, save some money and buy some rentals without needing the investors as much.

      • Thanks for the kind words. Totally understand the route you’re going, and it’s great that you have a plan. My house is in an older neighborhood that’s getting a pretty broad facelift, so I see people flip houses successfully on a weekly basis. My house wasn’t a foreclosure, but it was flipped by someone who has flipped 4 or 5 houses in my neighborhood in the last year. It’s definitely a great time to get involved in the housing market.

  26. I’ve invested in rentals in the past and have one rocking right now. Rentals I’ve had in the past were always profitable, but occasionally a total nightmare (like the time my straight-laced tenents took to dealing drugs out of the basement… nice).

    My current rental is a terrible investment, and I did for different reasons than strictly investment. It was our own home, and we left to pursue another opportunity. That being said, I’ll never buy another house without doing a complete workup in terms of rental value. It’s helped me avoid costly mistakes that amateurs make.

    I’m seeking different income sources and shying away from rental income because it’s a bit stressful. I used to swear by it, but I’ve had 2 trees fall on the house this year, and I’m getting pretty tired of dealing with it for the little money I do get out of it. You’ve got to be eyes open on these types of things… it’s a real commitment.

    • Hey Patrick thanks for stopping by and sharing. Sorry about the current rental and those dang trees. I know the rentals can be a real big commitment which is one of the reasons for wanting to flip one or two houses to make sure there is enough cash on hand to take care of problems. Plus I wont qualify for a traditional mortgage right now anyways so flips and wholesaling my best options.

  27. You have lots of good comments above from folks who have walked the walk – why not see if one of them will serve as a mentor – at least through your first property. You could do the leg work and they could advise, maybe they would even partner with you!

    • Marie thats true. I never thought about that one. Its easy to miss the simple things sometime. I have gotten a lot of good advice and there seems to be a lot of experience on this page alone. Thanks for point that out!