So you want to invest in real estate?
Good! I don’t blame you…
More than likely, you have friends or family (people on Facebook?) who are making a killing from investing in real estate. And you, the overworked and underpaid bystander, can’t help but wonder what all the fuss is about.
Is it really possible to make millions of dollars by investing in real estate?
How are other people doing it? And how might I be able to get a piece of the pie?
Consider your interest peaked.
But there’s a problem…
You don’t know the first thing about investing in real estate. Sure — there’s money in it. But you’ve never done it before, you’re not even sure where to start, and frankly, you’re still a little skeptical.
Well you’ve come to the right place. At Call Porter, we serve hundreds of successful real estate investors around the nation and we know some of their secrets ;-). In this article, I’m going to give you a guide to investing in real estate — here’s how your friends or family are making a killing from real estate investing and how you can, too.
REI Step #1: Choose Your Type Of Real Estate Investment
The first thing you need to do is determine which kind of real estate investing business model you’re going to tackle.
There are a seemingly endless (and often, confusing) array of options. Some are better for beginners and some are more advanced or require more capital. Here, we’ll just cover the most popular types of real estate investments:
- Private Investor — This first option is hands-off. By finding other people who are already real estate investors themselves (the people who actually do the grunt work) and investing in their business, you can get up to a 20% return on your money without doing any hard labor. If you have a lot of cash-money to invest and aren’t interested in building your own business, this is the way to go. Reach out to the people you know who are already real estate investors and ask if they’re looking for private lenders.
- Wholesaling — Wholesaling is a great option if you have a small amount of startup capital for your real estate investing business. Instead of buying distressed properties, fixing them up, and selling them for a profit, the wholesaler finds motivated sellers with distressed properties, puts them under a temporary contract, and flips them to another investor, making $5,000 to $10,000 commission in the middle.
- Flipping — House flipping is similar (and less glamorous) to what you’ve seen on HGTV. The real estate investor buys a distressed property for cheap, spends money fixing it up (between $10,000 and $100,000, usually, depending on the property), and then sells it at market value for a profit ($30,000 to $100,000 is common profit margins).
- Buy-And-Hold — Buy-and-hold investing is when a real estate investor buys property, maybe fixes it up, and rents it out to tenants. This can be done with residential and/or commercial properties. This is a great way to build long-term wealth and will require a lot of upfront capital or loans, which aren’t necessarily a thing to avoid (check out Ryan’s — the founder of Call Porter — video about that over here).
- Vacant Land — This can be a great way to start investing in real estate. Vacant, residential land (i.e. land with nothing on it, but zoned so that it’s meant to be built on) can be an inexpensive, near-risk-free investment. These investors buy land at a big discount with aggressive marketing strategies and then sell at market value without doing any fix up (it’s land, after all). With this, you don’t have the same risks of owning a property or dealing with tenants and the prices are often cheaper (as low as $500 for a lot, depending on the market).
REI Step #2: Determine How You’ll Secure Capital
No matter what type of real estate investing model you choose, you’ll need startup capital.
Some people claim that wholesaling requires no money upfront, but that isn’t really true — you’ll still need funds to build a website and send mailers. You can start out pretty minimalist, to be certain (by using bandit signs and not using a website), but that method will only be sustainable for a few deals.
In the end, you’ll need money. And you really only have 3 options for securing real estate investment funds:
- Use Your Own Money — This is only an option if you have the money to get your business up-and-running. Most of you don’t, and that’s perfectly fine. Many people now making a killing in real estate started without using any of their own money.
- Private Lendors — For most people, this will be the most appealing option. Know friends or relative with a lot of money who want to get a better interest rate than their IRA provides? Get a few deals under your belt as proof of concept (maybe just wholesale or flip land since it’s cheaper) and then reach out to these people, showing them your success and promising 12%-20% return on their investment. You’ll have the money for taking your REI business to the next level in no time.
- Bank Loans — This might surprise some of you, but bank loans can be a great way to get your real estate business up-and-running, particularly for buy-and-hold investors. Because of real estate appreciation and the fact that you can write off mortgage payments on your taxes, you can make a pretty penny from using bank loans to secure business capital… if you have good credit.
REI Step #3: Choose Your Market Of Operation
The truth is, investing in real estate can work anywhere in the U.S. if you buy at the right price and market aggressively to find buyers. BUT… and that’s a big “But”… starting your business in a healthy, lucrative market will move things along much quicker. And just because you live in a certain place, doesn’t mean that that’s where you should do business. I personally know lots of real estate investors who operate primarily outside of the state they live in.
But what determines whether a market is healthy or not?
Here are 3 basic statistics to look at for any market you’re considering going into (call a real estate agent in the area if you need help getting some of this info).
- Average Days-On-Market For Inventory — What’s the average amount of time that a piece of real estate sits on the market before it sells? This will help you determine the supply and demand of the market.
- Median Selling Price — What’s the median price that a piece of property goes for in the market? This will help you determine how much investment capital you need to enter the market… and how big profit margins might be.
- Market Trends — This one is hard to quantify, but you’ll not only want to get a feel for where the market has been over the last few years, but also where it is now and where experts think it’s headed. Call investors or agents in the area and ask them what the market is like.
REI Step #4: Build Your Marketing Strategy For Sellers
There’s two sides to every real estate transaction: finding buyers and finding sellers. First, let’s talk about the sellers. In the case of most real estate investment business models, you’ll be looking for distressed properties sold by motivated sellers. These properties are cheap to buy, but have loads of selling potential (and profit!) if fixed up or wholesaled to another investor.
How do you find those sellers?
Well, here are some of the most common and effective strategies:
- Direct Mail — Direct mail is a tried-and-true strategy for real estate investors trying to find motivated sellers. You can use a tool like AgentPro247 to pull mailing information for a specific area and then use a bulk mailing service to send out your offers. If you want to differentiate your business and send hand-written mail, check out Ballpoint Marketing.
- Driving For Dollars –Want to create your own mail or cold calling list? Drive around the neighborhood and write down the address of properties which look like they’re in distress. Then mail or call the owners. This is an all-time favorite marketing strategy of startup hustlers with little money and a lot of time. But even looking for distressed properties on your drive to work or when you’re going to the grocery store can be a supplemental marketing strategy that’s well worth bringing a pen and paper along on your drives.
- Business Cards — Hand em’ out whenever you can. The more business cards you put out there in your community, the better chance that one will fall into the right hands.
- Cold Calling — Most real estate investors don’t cold call since it’s time-consuming and gets met with a lot of rejection. But those who do can build their businesses faster and differentiate themselves in a crowded market. Here’s our guide on cold calling.
- Referrals — Don’t forget about referrals. People are 4 times more likely to convert when they are referred from a friend. The more deals you do and the more people who know your name in the community, the bigger opportunity for getting referrals that you have. If you’re lacking in seller leads, call up some friends and ask if they no anyone who could benefit from your services.
REI Step #5: Build Your Marketing Strategy For Buyers
It’s never too early to start building your list of buyers.
Who are these buyers?
In the case of buy-and-hold investors, this might be a list of potential tenants. If you’re a house flipper, than you’re looking for typical consumer house-buyers. If you’re a wholesaler, than your buyers list will likely be full of other investors looking for properties to invest in. If you’re a land investor, then you’re looking for consumers interested in purchasing land.
In addition to the strategies listed in Point #4, perhaps the best strategies for building a list of buyers are…
- Interacting On Social Media — Social media is wildly powerful for branding your business, meeting new prospects, and introducing yourself to people who might be a fit for your buyer’s list. Post regularly, interact with other people’s posts, and reach out to people who might like to get on your list. You’d be shocked at how beneficial to your business using your social media account can be.
- Calling Other Investors — If your buyers are other real estate investors, than calling up investors who you met on Facebook or heard about through the grapevine is a great way to introduce yourself, build a relationship, and offer to put them on your buyer’s list.
- Offering Affiliate Commission To Local Agents — If you’re looking for typical consumer buyers, call up local real estate agents and tell them you’ll give them a 10% or 15% commission for anyone they refer who purchases. Why do your own marketing when you could have others do it for you?
REI Step #6: Create Your Business Plan
Most entrepreneurs just wanna get started building their business, but having a plan is an important first step. Write down your marketing strategy for buyers and sellers, which market you’ll operate in, what will happen to your profit (re-invested in business or take-home?), and any other pertinent details.
We have a full article about drafting a real estate investing business plan over here. Check it out!
REI Step #7: Coordinate And Close Your First Deal
We hope this guide to investing in real estate has helped!
With those previous 6 steps, you’ll be ready to coordinate and close your first investing deal. 🙂
It might seem like a lot of work to get started, but that’s why not everyone does this; because it’s a lot of work. But plenty of investors have gone through the motions and come out on the other end as millionaires, proving that building a business as a real estate investor is completely possible.
All you have to do… is get started.
Off you go!