Getting started in any new business can be overwhelming. Getting started in the real estate investing business can be downright terrifying. You don’t need a license or certificate to get started. There is no franchise fee or training that you have to go through. All you need is the willingness to learn and the drive to succeed. However, drive alone will only get you so far. Because of the many ways the investing business can be done, there is often plenty of advice on the best way to go. The more people you listen to, the more confused you can get. If you are just starting out and looking for guidance, there are only three areas that you need to focus on. If you can master these areas, your transition into the business will go as smooth as possible.
1. Education: Everything starts with your education. Before you do anything else, you need to know the business you are getting into. It is almost impossible to talk to realtors and hard money lenders without a grasp of the business. Fortunately, we live in a day and age where there is more education available than ever before. Going to a weekend boot camp can give your education a quick jumpstart. From there, you can pick up one of the dozens of books dedicated to real estate investing. If books aren’t your thing, there are real estate websites (such as this one) where you can pick up something new every day. You can also accelerate your education by joining local real estate investing groups and networking clubs. In a matter of a few weeks, you can go from a complete novice to someone who is confident they know the business. There is an argument for learning from experience. Experience is great, but it is better to learn from other people’s mistakes rather than your own. You don’t need to be an expert in every area of the business, but you need to understand the parts that pertain to you. The education you have directly leads you to everything else you plan on doing in the business. Don’t do anything until you have knowledge of what you are going to do and how you are doing to do it.
2. Financing: Once you know the path you want your business to go on, you need financing to help you get there. The most common form of financing is traditional lender financing. The mortgage market took a hit after the collapse, but has been on the rebound over the past few years. Investment loans are difficult to close, but far from impossible. The two biggest hurdles for loan approval are credit score and down payment. The guidelines for investment loans still require credit scores north of 700 and a down payment of anywhere from 15-25 percent. If you don’t have access to the down payment money, you are not out of luck. In the past five years, there has been an influx of hard money lenders in most areas.
A hard money lender is an individual or group of individuals that lend money based on their own specific guidelines. Credit score is important, but it may not be the most important factor for them. They look at the total credit profile in addition to the property. Here is where your education is put to use. By knowing which markets you want to focus on coupled with your exit strategy you can find hard money lenders to work with. You can also reach out to friends, family and co-workers and see if they have funds they may want to invest. Seeking out private money may be uncomfortable but there are often more people in your inner circle that want to invest than you may think. The bottom line is that you need financing to get started and you have multiple options to choose from.
3. Lead Generation: Having financing won’t do you much good if you don’t have deals to work on. One of the common mistakes with new investors is thinking that deals will just fall on their laps. The reality is that you need to generate deals to work on. There are many ways you can do this. The most popular method is to find a good realtor and wait for your phone to ring. Even the busiest realtors only get access to so many investment deals that you are interested in. You need a plan A, B, C & D for how you intend on getting leads. Between mailings, bandit signs, postcards and networking there are multiple different ways to build a pipeline. Most of your actions will be based on your budget. Whatever your budget is there is lead generation for you. Over the course of your career you will most likely experiment with several different types of marketing until you settle on a few that work for you. As an investor you are only as good as the leads you bring in. Before you get going think about how you are going to get your phone to ring.
Everything you do in the real estate business will be based on these three areas. Instead of trying to master every area of the business, keep it simple. Education will give you an idea of what types of deals to pursue and how to structure them. Financing allows you to make offers and get deals to closing. Lead generation will keep your pipeline full and active. If you focus on these three areas alone when you are just starting out, you will avoid the massive learning curve and close your first deal in no time.