You’ve done it, you built up a little cushion in your savings account, I bet it feels good, doesn’t it? But now you’re thinking of investing. And you’re in the right spot. Because believe it or not, you don’t need a lot of money to start investing in real estate, you just need a lot of knowledge and guidance in how to achieve that.
Real estate is a leverage business and a knowledge business.
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And that’s why - I am here to teach you along the way and be an inspiration for your journey.
In today’s article I'll be going over all of your options and what would you need to do to get the ball rolling, and how some of the wealthiest people in real estate achieved their wealth, and how can you, FOR once... stop inventing the wheel, and do what others have done already. Success leaves clues if you pay attention to those. It’s that easy!
But first you need to understand that real estate is not a get-rich-quick method. It takes time for it to become a huge wealth. It’s not way too easy, because if it was, everyone else would be doing it.
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Without further due, let’s begin!
Well, how else can we start off without some powerful inspiration from the richest Real Estate billionaire that exists in the US right now with a net worth of 17.4 Billion dollars with a "B". And we’re talking about Donald Bren.
Now you might be asking, how in the world could one person achieve so much real estate wealth in a lifetime. This might sound surprising to you but, believe it or not, Donald started his real estate empire at the age of 26 in 1958, with a $10,000 loan borrowed from his family. Born in Los Angeles, Donald grew up working as a carpenter’s helper for his father’s buildings. He almost made it as an olympic in 1956 if it wasn’t for his ankle injury. He then went 3 years in the marine corps which taught him the most important lesson in life:
"MISSION first, then the TEAM, then the SELF"
Now I’ll be real with you, Donald did come from a wealthy family. Unfortunately his parents divorced when he was 16. So you might say he had an advantage. But we are talking about the 50’s here, where opportunities were a lot more limited than they are today. Having wealth is one thing but maintaining and growing it, is a whole different ball game. What Donald did, he focused on buying land in great locations and developing them later on, which got him on better fields and creating this massive wealth along the years.
Let’s look at Carl Berg - a net worth of $1.3 Billion who started with nothing. At an early age his father died and he grew up in New Mexico with his schoolteacher mother. Berg financed his college by repairing vending machines and working as a clerk in a hotel. He started his real estate journey by working as a mortgage broker for a top-tier builder that he met after college.
And so on, there are many people like them and the examples can be countless. It does not matter where you're coming from and what you are doing in life right now. If you put your mind and sould to something, you can achieve it.
Throughout history we know there was a lot of wealth built from real estate, but how did they do it? What type of real estate they focused on? What were their strategies?
Real estate is an area where everyone thinks that they are an expert. In reality most do not understand how real estate markets change over time.
Many investors lose money on their first two investments, mostly because they either pay too much or they overspend on a fixer upper. Some think that whatever updates are made will be reimbursed at selling, which is not really the case. These are common mistakes made by investors and if you are against the idea of losing money and If you are completely new at this, you might want to partner with someone who’s done it before.
However, the real estate industry is huge, and sometimes you get lost in the layers and it is not all about investment. Real estate is part investment, part business. For those people who have the “staying power” You can start from residential, commercial, office, industrial but then you might consider the advantages and disadvantages of being a landlord, a builder, investor, broker, lender, property manager, service provider, and so on that are all related to real estate. Which one are you or want to be? Until you try you will never know which one suits you the best and brings you the most benefits.
Obviously, being the owner and having the property is the ultimate goal and benefit, but that’s up to you.
If you decide to become an investor these are the things you might consider:
- First! Start saving as much money you can, so you can have set aside for the down payment on your first deal.
- Second, if you do not have it already, get your credit score above 620 so you can afford a better mortgage.
- Unless you are affluent you will need funding. Leverage is the primary means of creating wealth. Basically you can buy a property way more expensive than you have money for. Typically 3-4 times more. If you can’t qualify for a 20% down conventional loan, try to get an FHA 203k loan, and then hire contractors to fix the place. You can do it yourself too if you’re handy, it will save you some money. The goal is to keep your down payments as low as possible. You don’t want to waste all your cash in one deal.
- Always Invest long term, Most of the flippers ultimately declare bankruptcy. The wealthiest in real estate never sell. Never.
- Consider investing in a property that can bring you a cap rate of at least 15% with a net positive cash flow of 30% for each property. if you can’t find that yet, keep looking.
- Buy only as much as you can manage. You could expand by delegating to a property manager, but then it requires more capital and you overlooking their job. Is this something you would want to do? Is there someone you could fully trust in this? In the beginning you might want to manage it yourself. As you grow, you grow with it by hiring more people.
- Decide what kind of property you are going to invest your time and money in. Is it single family, multi family, mixed use, commercial? Do you want to build them from scratch? Will it be for the short or long term? Which is it? Know what you want, make a strategic plan and go for it.
- Don’t be afraid to buy land and hold for 20-30 years or develop on it. Land does not depreciate, typically goes up in value, rarely down, unless the water source dries up or something.
- You need to know your numbers, you have no idea how? Be open minded because knowledge is how you will create cash flow. Learn people skills, learn to negotiate, leasing, building codes, local zoning laws, property management (have a software for that, it is easy to manage 3-4 units, it gets harder once you start growing). Work with mentors and industry experts. Education is key. Go study, listen to podcasts, read books, use google the free engine. In this day and age there is an infinite amount of education in this regard. Pay someone to show you how it’s done. After you study, apply and take action on what you were taught. Sounds simple but actually requires a lot of work.
- Always have a reserve. You never know what can go wrong once you make the investment, and you want to have a backup. Just in case.
- Make sure you buy low, sell high if you have or want to sell it, whenever you will sell it. Know your market, not what you think the market is, but how it actually is. There’s a very big difference.You need data, lots of data. And here your numbers will come in handy, plus a good realtor that you can consult with. That knows the area. Make sure there is something you could renovate that would bring value and attract tenants. Always buy in areas that, after the repairs, your property will be worth “just below the average price” - this way it will ensure that you will have tenants in any market. Search in the neighborhoods that are underpriced. Sounds easy, it’s a little bit more complicated. GET A REALTOR!
- Try to concentrate your deals in an area. You’ll have more influence on the future of that area if you own a large portion of it. Acquire all that you can within 40 miles range of any successful Walmart for example. This mostly applies if you have partners with more cash in the game.
- Have a very strict application and tenant screening. This way the bad tenants won’t apply or come back. Let the application scare them away. And have a late fee that applies when rent is late. Also sign up for a service that will report payments to credit bureaus. It will help your tenants out, this can be at a choice of the tenant before renting.
- You will need a very good marketing plan to promote all your units for rent. A savvy realtor with a marketing background can be in handy right now.
- Use the 1031 Exchange program for tax benefit after each property is 2 years old if you plan on selling and buying more. All until you have all the assets you need, then donate the property to charity with all the accrued taxes. This way it becomes a write off and you won't be obligated to pay those taxes anymore.
- Start developing a stable of private investors. Always pay them on time, never risk their capital, and have your money first before theirs in any deal you do.
- Know the things you are good at, and the things you’re not good at. If you are not good at numbers, and you most likely hate it. Well… get a partner who is. If you don’t know how to spot good deals, partner with a knowledgeable realtor, most likely they can help you with numbers too, and possibly save you a ton of money and risks. Build a power team of lawyers, accountants, real estate agents, contractors, and others that you think you might need.
- Keep records of each and every project you do and have. So you know and have all the numbers in place with profit and loss, all the operating costs, and many more.
- Attend events and network, you never know where your next deal might be coming from. In today's reality, you don’t even have to network in person anymore. You literally can find people on facebook, linkedin, twitter, google, group chats, other blogs and forums, the options are endless, you just have to be open to it. Feel free to connect with me, I’m here and I’m more than glad to hear from you, especially if you are still here reading this article. Tell me your story, ask for help. That’s why I do this, to connect, help and inspire.
- Help anyone you can along the way. Treat your team and the tenants fairly and you will be on the wealthy path. Realize that you deal with people after all. Let everyone win in the game, and you will win too.
Well after all the above now you realize that real estate is indeed slow and steady, but still very much worth investing in.
There are tax advantages, potential for appreciation, and while you provide someone else with a safe and comfortable place to live, they are the ones paying for your mortgage.
No wonder real estate is and remains the oldest way to build wealth because of the overall financial gains over time.
I hope this information was helpful to you. If I missed anything or if you have more questions, leave them in the comment section below. I usually go over it and reply to each and every one of them.
If you have a topic suggestion you would want me to cover in the next article, l would highly consider it.
Broker Associate | LPT Realty LLC
Miami FL, 33131
+1(305) 306-0375
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