Time to Read (using avg wpm): 12 mins
*Press play for a read-along*
The rest of the Intro to Real Estate. We just have a few more topics to cover:
- The Players
- Best Practices/Potential Pitfalls
- Final Words
So without further ado, let’s get back into it!
These are the people that you may want to know, or at least have a contact for, if you are going to be pulling some weight in the real estate world. Starting with:
- A Realtor – Also known as a real estate agent or a real estate broker. These are the front line infantry that are in the know about properties in your area, both what properties are on the market and why they’re there. Having a realtor in your Rolodex is important if you are looking for properties to buy or sell.
- A Property Manager – This is your guy/gal or company that takes care of all the hooey that you want to avoid because you are busy — and you are an investor. You pay these people a fee and they take care of all sorts of property management stuff such as collecting rents, evicting tenants, paying bills, keeping records, fixing things, etc… They are a must if you are an investor who is land lording over rental property
- Accountant – A tax guy! With all the tax stuff going on with real estate, it would be wise to have an accountant to go to with questions and to ask advice from. Hire one!
- Real Estate Attorney – A lawyer. Having one of these in your back pocket is helpful when buying or selling property, when dealing with tenants and evictions, for entity advice such as if you should form a corporation or a LLC, and for help with writing up a rental contract.
- Loan Officer – Also known as a mortgage broker and typically is a banker. Develop a relationship with these peeps and show them that you can be trusted to make them money. The status of your relationship usually follows the same curve as the favorability of your loans.
- A Contractor – A general contractor is someone who will take care of all of your construction needs and will get the tools and the trucks and the peeps together and be in charge of your construction project. Hire one if you are building a house or have a larger project that may require a team.
- Insurance Agent – When owning something as large as a home you will want to have some insurance. Homeowner’s insurance or Landlord’s insurance, introduce your tenants to renter’s insurance — there’s all kinds of insurance out there and you may want to know someone who is insurance-ly inclined.
- Appraiser – Get a friend who knows how to estimate asset values and roll them from house to house in a wagon. These guys will tell you if a house on the market is worth the asking price. If you can’t find an appraiser you can use a free service like Zillow, which is as good as a robot can get and is generally (according to a Zillow study) rarely more than 20% off from the actual value.
- A Handyman – If you’re not going to go the property manager route, or you are but you don’t wan’t them to get involved in the maintenance, then you’re going to want to cahoot with a handyman/woman. These folks fix appliances and plumbing and electrical, whatever maintenance problems you may have.
- A Mentor – If you don’t get any of these other peeps in your contacts, make sure at the very least to seek out and get a mentor. Go to different real estate meetups in your city by checking BiggerPockets meetups, searching real estate on meetup.com or join the Real Estate Investor’s Association and find your mentor. Mentors are people who have already done it and can help advise you and answer your questions.
Now, you’ve introduced yourself to all of these peeps, you got yourself a crew and you got a wagon. Time to figure out the best things to know and do throughout your real estate millionaire process.
Best Practices/Potential Pitfalls
Starting with the best practices.
Always be watching for houses popping up in your market. Decide what you want, i.e. are you a flipper and you want ugly houses that need remodels, are you mainly an appreciation investor and you want dumpy houses in good neighborhoods, are you a landlord style investor and don’t want to get your hands dirty so you look for nicer properties that you can negotiate for? Now scour your market as often as you can and always be looking for your style of property. You can get your realtor looking for you as well and you can hand out business cards that tell people to call you if they want to sell their house or they know someone who does. Use something like Zillow or Trulia to see new properties on the market or try the MLS (multiple listing service).
Know Your Cost of Operations.
Now, if you’re going to be a landlord you are going to want to know what rent to charge. I went over most of these things in part one in the cash flow section. That’s where I listed all of the things that go into the price of rent that you have to charge but we’re going to skim over it again here. In your rent you will typically charge for the mortgage, the property insurance, the property taxes, property management fees, maintenance, attorney and accountant fees, etc… those are all of your operations. When you calculate them all you will have your cost of operations. There is a term called NOI; that is your net operating income. That is the income you net after the cost of operations.
So to break this down, let’s say you charge $1,500 a month for rent. Let’s say your cost of operations, your mortgage and insurance, etc… is $1,400. So your NOI, or net operating income, is $100. Now I think you should always shoot for an NOI of $50-100. I like to also call NOI contingency funds because I just like to be safe. I know you already have a maintenance fund accumulating but better safe than sorry I say. Any more than $100 and you may be overcharging and any less than $50 and you may be undercharging but that totally depends on your location and what type of property you are renting out too. Always make sure that your numbers work before you make any purchases and calculate all of your possible costs of operations before you even come to the table to negotiate.
Never stop learning! I’m going to give you some suggestions for what to start with in the next section but I will say that you can start making deals whenever you want but I would recommend to have read at least three real estate books and be subscribed to a real estate podcast or two before you make your first deal. You can always be learning and you can be finding deals and bringing them to your mentor to get his or her take but it’s recommended to be just a little read-up and prepared before signing that first deal.
Now don’t get caught up by the notion that you need to know it all before you get started. Any good real estate investor, from what I’ve heard, will tell you that you can never know everything and that they are still learning too. So take a dip in the knowledge pool and then cannon ball into the investors club!
My real estate plan.
How shall I strategize?
Real Estate Newbie, a Haiku by Doug
End of Intermission.
Potential pitfalls now.Not Knowing Your Criteria
You must know what you want out of your properties. I’ve heard before of those who see a property that is a “good deal” but doesn’t fit their criteria. They make it up as they go to fit the unfamiliar essence of their “good deal” and usually make a mistake or miscalculate.
Ex. For me, my main focus is the cost of operations. The rent that I would have to charge to match the other properties in my area, within reason, has to cover all of my costs of operations and still net $50-100. If I found a run down house in a good and growing neighborhood and I saw some capital gains potential, selling potentail, in a few years but I couldn’t get the rent I would have to charge to cover the costs of operations but still went for it anyway because it was a “good deal,” I might run into all kinds of problems and end up having to sell early or take a loss.
Figure out what you care about in your investments, set yourself some criteria and stick to it!
Going it Alone
The entrepreneur mindset. You’re the person who can get it all done and do it all yourself. That’s the kind of person I always paint myself to be. But, as I’ve read in every real estate book, and every self-improvement book at that, you need a team. Collect those individuals from above and grab yourself a mentor or two. Use your team and get them to believe that you are serious about investing and that you can all make money.
Going it alone isn’t necessarily a path to inevitable disaster, but slashing through the brush with a team will almost certainly get you better results.Being Lazy
The final pitfall is laziness. So, your numbers work for the market you are in and you’ve driven by the house and things are good. Okay, buy it. No! Go in the house and check it out, make sure there is nothing wrong with it. Go through your checklist and look through everything. The basement, the plumbing, the electrical, the backyard, the garage, the attic. The bathrooms , the bedrooms, the kitchen. Don’t get in the habit of just running the numbers and checking up on the computer, go by the house before you go buy the house.
A good way to try to avoid being played by a crummy house with a bow on top is to make your contract contingent on passing every inspection.
Sweet! Follow these rules for good performance and avoid these pitfalls and the only thing that can stop you is a moon sized asteroid hitting the earth!
Here I’ve got my favorite types of real estate content for you to bite into, starting with my three favorite books.
For books, if you are new, I would start out with Rich Dad, Poor Dad, by Robert Kiyosaki. This is the book that gets most modern real estate investor newbies into the game and is a major motivator. This is a book that can teach you about the real meaning of the word asset and will introduce you to the world of entities and 1031 exchanges. I’ve got it linked up here with an affiliate link if you want to buy it.
Next, after you have been motivated, I suggest The Millionaire Real Estate Investor, by Gary Keller and a few others. I like this book because it’s a good intro to real estate and it goes into some of the nuts and bolts of the beginning investor, mostly valuating properties as rental homes or flipper homes. I also like the author, Gary Keller, who wrote The One Thing. I’ve also got it linked up here with an affiliate link if you want to get it.
Okay, now for your final book before I let you off the chain and you sprint after the “real estate” mailman. This book is actually only available on audio and is The Weekend Millionaire’s Real Estate Investing Program, by Roger Dawson and Mike Summey. Now that you’ve gotten the motivation and gotten the introduction along with some numbers help, get down to the front lines where Mike Summey tells you all about how to structure creative deals along with examples and Roger Dawson teaches you some real estate negotiation tactics which he calls gambits. I did a 3 Things You Can Use Show for this one, with the links to purchase it if you want it. Click here to go to that 3 Things Show.
Okay, you’ve got your three books, now I’ve got just a few more miscellaneous suggestions.Bigger Pocket’s Podcast – I’m a big fan of this one. Each week these guys interview someone else who has been successful in real estate. Every episode is practically it’s own stand-alone resource and they’ve got episodes from any strategy you could come up with. If you are a podcaster, check this show out. If you are not, check out my resources page to see what you need to become a podcaster. They did not pay me to say any of this, I just think their show is super helpful.
You may also want to consider joining a real estate group or community, like I mentioned above, to find like-minded individuals and/or mentors.
Careful with courses and Gurus. There are people who will charge you big money to teach you the same stuff you can get from books and mentors.
This was just a taste, there is so much cool stuff to the real estate investing world. Real estate investing will play a huge part in The Third Chute.
One last tip to mention here is to watch out for low-end properties, watch out for foreclosures and watch out for low-end auction properties. The low price may look good but they are priced low for a reason. There is usually something very wrong with the property that you might find out about six months after your purchase.
And if there isn’t anything wrong with it, you will still have to deal with tenants. Lower priced rents notoriously relate to unruly tenants who don’t pay on time and require more upkeep. Now you may get a good tenant who you never hear a peep out of who pays the rent on time every month, or you may want to be more involved. That’s just something that I’ve heard that I thought would be of interest to a new real estate investor like yourself.
Now, go read those books, go get a mentor, and start building your real estate empire!
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