The Beginner’s Plea! “Where Do I Start?”
“I’ve been to all the seminars and read all the books. I’ve even listened to the CDs, but I just don’t know where to start my investing career!” Ah...the all too common beginner’s plea for help!
Knowing how and where to begin investing is a valid concern. Though, I’m 12 years into my own investing career, I remember as though it were yesterday my feelings of uncertainty about how to take the first steps in what would become my livelihood. Anyone who was around 12 years ago in this business will tell you there was a scarcity of information about real estate investing compared to today. Investor clubs? I sure couldn’t find one in my area in those days. Also unlike today, where major book stores dedicate entire business sections to real estate investing, I had to scrounge the shelves of local libraries for real estate reading materials.
The person seeking a career as a real estate investor today is faced with a bombardment of information and strategies. This overwhelming information is the main reason so many become confused. Believe me, I’ve been there and I feel your pain!
Here’s my suggestion as to what you do prior to choosing any one strategy over another. First, go home or wherever it is you plan to invest and figure out what’s going on in your market. Too many “newbies” attempt to bring a supply of goods (strategies) where there is no demand.
Here’s an example of what I mean. Let’s say you’ve just returned from a workshop all about renovating houses only to find out that in your small town of neatly kept homes, there are few properties needing renovation. Instead, upon further research you discover there’s a bigger market of investors looking for rental properties. Your strategy is to supply that demand! In this case your approach should be to locate properties to either wholesale to other investors looking for rentals or keep a few for your own portfolio. Hey, you might even place buyers in your properties on a lease option program.
Here’s another example I learned two years ago in my own market. At the time the Washington, DC real estate market was one of the hottest in the country. Housing prices were appreciating monthly – sometimes right before your very eyes. The first time I heard the concept of “short sales” I was beside myself with optimism only to have my bubble abruptly burst.
In the situation of a property in pre-foreclosure with little or no equity, I was encouraged to believe the banks would be wise to reduce the amount of the mortgage payoff to prevent the property from going to auction, thus avoiding a huge financial loss. Well, this even made logical sense on the surface until I discovered the banks that held deeds of trusts (mortgages) on DC real estate were willing to play hard ball. You see, they (the banks) know about the outrageous appreciation of housing prices in DC. So, weighing in on their options most simply prefered the property to proceed to auction where the chances where great someone would pay near full retail price for it. Few of these houses even made it to auction.
There have been some successful short sales in my market, but they’re few and far between. I network with hundreds of investors in my area and very few of them are successful with short sales. And even fewer are interested in trying. I’m not knocking short sales, for I know it’s an awesome strategy to have in you investing arsenal if you plan to stay in the business. However, you must decide the time value and your opportunity costs with anything you do. In DC, CA$H is chasing the abandoned and rundown properties as the city has been making a comeback for the past 6 years. Unless you are familiar with the DC market, you wouldn’t know this about short sales. When things cool down a bit in the DC market, investors will regain some leverage with the banks.
It’s important to travel a path of least resistance especially when starting out in this business. If you spin your wheels you'll risk being discouraged.
That’s just two examples to illustrate my point. My intention is not to bash anyone’s investing strategy. The point here is it’s better to know your market before setting out on any one path. If you want to buy on lease option ask yourself, “Is it possible the market is so hot the FSBO seller can get his price?” You want to buy properties on land contracts? You may want to research this to find out if it’s legal in your city or state. Land contracts are illegal in Washington, DC. So, roll up your sleeves and get out of the safety of your cocoon and see for yourself what’s going on in your area.
Here’s another tip to get you started, join a real estate investors association. They’re everywhere these days. Be sure to look for an association where there are active investors doing real deals. Beware of the fakes and phonies who are only out to impress you with theory…oh, and also to collect your money with little training in return. You should be able to join a group where membership is less than $200.00 annually, per person.
Next, go out and take inventory of the housing stock in your area. Note whether there’s mostly new construction or 50-year old properties in need of their 2nd or 3rd major face lift. Then make note of the action you see such as how many renovation projects are going on in the area. Perhaps you live in a rural area where vacant farmland is beginning to receive the attention of out of state shopping mall developers and big box retail stores ie. “The Walmarts.” Whatever is happening in real estate there’s always a strategy for making money. You just have to know what to do in any given situation and in any market, especially your own. Even in a flat market there are strategies for making money. I made some of my best money buying houses in the slow resale market of the mid 1990s.
First, go out and conduct a reconnaissance of your market. Keep your ears and eyes open and the market will speak volumes to you. Remember, this is a public service we provide as investors. What we do, when done correctly, contributes greatly to the financial well being of our communities. And finally, be on purpose!
Ken WIlliams aka The Wholesale Wizard
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