This is a common question. Real estate is such a big field and there is so much to know. It can be confusing. Below is a guide to help. It’s not designed to answer all your questions but it should help you decide what you need to learn and in what order.
Decide what you want to do.
This means learning the strategies and techniques, and finding the ones that fit your personality and your resources. “Your resources” is key. Two key resources are time and money. Some methods need more time than money, some need more money than time. Make sure you are pursuing a strategy that can work for you.
Learn the skills, and techniques you will need.
If you want to be a rehabber and you don’t know how to estimate repairs, you are asking for trouble. Likewise if you want to be a landlord you better have a clue how to screen tenants and know the local landlord tenant laws. If you don’t have any money, you need to know the no money down techniques and understand creative financing.
Learn how to evaluate deals.
You need to know how to run the numbers. If you don’t know what makes a good deal, how can you make an offer? If you could consistently buy at 85% of fair market value, is that a good deal? Probably not in most cases. You should know the formulas that investors use to decide if a transaction is worth doing.
Learn the market.
Simply knowing the formulas is not enough. Valuing property is as much art as it is science. Do you know your neighborhoods? Are values going up or down? Are other investors buying there?
You have to know your neighborhood inside and out. What are the expectations of buyers and tenants. Will buyers expect granite counter tops, hardwood floors and ceramic tile in this neighborhood? Or maybe you can get away with vinyl floors and Formica counter tops. That’s a difference that could make or break a rehab.
The same goes with tenants, how nice does the place have to be to be rented? Overspending is obviously bad but underspending may keep your place vacant for months and ultimately cost more.
There is something called the “100 House Rule.” Until you have gone in and checked out 100 houses you really don’t know the neighborhood well enough to answer the questions above. You should be checking out listings, open houses, for sale by owner, auctions, and deals from wholesalers. This will give you an idea of both the retail and wholesale markets.
Line up the financing necessary for your strategy.
This business takes money. It doesn’t have to be your money but you better have a clue where the money is coming from. Some investors with great credit come into this business assuming they could get financing. But they don’t understand that different types of deals need different types of financing. They go to the wrong lenders and get turned down.
Commercial properties, rehab deals, buy and hold, and whether in your name or held by an LLC would all require different types of loans and perhaps from totally different lenders. You need to build relationships with lenders and learn what they will and just as importantly what they will not finance.
Caution: Most mortgage brokers primarily lend to homeowners. They will say they can finance anything when there is no way they can lend on your deal.
Learn these things to become ready.
Earl Nightingale said “Luck is when preparedness meets opportunity” Will you be prepared?
If you look at what I have said above it is basically; know what you want to do, know how to do it, know where the money is coming from, and most importantly know how to evaluate the deal. Until you know those four things you are not ready to invest. Your number one goal should be to learn those things. If you try to buy before you get to that point, you are not investing, you are guessing.