Table of Contents
CHAPTER 1: INTRODUCTION
Welcome To Your Real Estate Investing Journey!
Real estate investing is a great way to make money and build wealth. It can be a solid addition to your portfolio, providing both income and appreciation. But where do you start?
If you're new to investing, the world of real estate can seem overwhelming. There are so many different types of investments, from fix-and-flips to buy-and-holds, and it's hard to know which one is right for you.
This guide will introduce you to the basics of real estate investing, helping you decide if it's the right investment strategy for you. We'll cover the different types of real estate investments, the risks and rewards of each, and how to get started.
So whether you're looking to make a quick profit from flipping houses or you're interested in the long-term wealth building potential of rental properties, this guide will give you the information you need to get started in real estate investing.
CHAPTER 2: WHAT IS REAL ESTATE INVESTING?
What is Real Estate Investing?
Real estate investing is the process of purchasing, managing, and selling real property for profit. It offers the potential for both high returns and cash flow, making it an attractive investment option for many people.
Real estate investors typically buy properties with the intention of holding them for a long-term period, during which time they may make improvements or wait for appreciation or leveraging other strategies that allow for a quick turn of a property.
Real estate investing can be a very profitable endeavor, but it does come with some risks. Many new investors lose money in the real estate market, but with a little knowledge and experience, it is possible to be successful.
Real estate investing is one of the most used vehicles to build wealth over time and create a passive income stream. There are many different ways to invest in real estate, and each has its own advantages and disadvantages.
The most important thing for new investors to remember is to do their research and understand the risks involved. It is important to know what you are doing before you get started. There are many different books and websites that can provide more information on real estate investing, including the thousands of articles, podcasts and videos found here at REIClub.com.
What are the Risks and Rewards of Real Estate Investing?
Real estate investing offers the potential for both high returns and cash flow, but it's important to understand the risks involved before you get started.
The most common risks associated with real estate investing are:
Market Risk: The real estate market is subject to change, which can lead to changes in property values and rental rates.
Interest Rate Risk: Rising interest rates can lead to higher mortgage payments and decreased cash flow.
Maintenance and Repair Costs: Properties need ongoing maintenance and repairs, which can be expensive.
Vacancy Risk: If a property is vacant for too long, it can lose value.
Management Risk: If you're not actively involved in managing your investment, you may not be aware of potential problems or issues.
CHAPTER 3: TYPES OF REAL ESTATE
Types of Real Estate You Can Invest In
There are many different types of real estate you can invest in. Each has its own unique benefits and drawbacks, so it's important to do your research before deciding which one is right for you. Below you’ll find a brief overview of each of the major types of real estate vehicles.
Investing in land can be a great way to diversify your real estate portfolio and secure a piece of property for future development. However, it can be expensive and time-consuming to find the right piece of land, and there are no guarantees that you'll be able to sell it for a profit in the future.
Raw land is undeveloped land that can be used for a variety of purposes, from farming and ranching to residential or commercial development.
There are a few things to consider before investing in raw land. First, you'll need to do your homework to find the right piece of land. Look for land that is zoned for the type of development you're interested in, and be sure to check on things like water rights and easements.
Once you've found the perfect piece of property, it's important to get a professional appraisal to ensure that you're paying a fair price.
After purchasing the land, there are a few different options for development. If you're interested in farming or ranching, you can develop the land yourself or lease it to someone else. If you're planning on developing the land for residential or commercial use, you'll need to work with a real estate developer to get the necessary permits and approvals.
As an investment type, land development is one of the more expensive investments and rarely produces quick cash flow so make sure you’ve identified your goals for investing before investing in land or any type of real estate.
Single Family Properties
These are the most common type of real estate investment. They can be easier to finance and manage than other types of property. These types of properties can appreciate in value, provide cash flow through rental income, and offer many tax advantages. But they also come with more risk. If the property doesn't appreciate in value or generate enough rental income, you could end up losing money.
There are a few things to keep in mind when considering investing in a single family residence. First, it's important to have a clear understanding of the real estate market in the area where you're considering purchasing. It's also important to be aware of the potential risks involved in any real estate investment, such as vacancy and repairs.
Second, you will need to define your exit strategy before you purchase a property. I’m sure you’ve heard the old adage that “your money is made when you purchase”. That’s because if you don’t know your exit strategy and all your costs associated with getting to that point, it can be disastrous. Unfortunately, the popular real estate shows don’t show you all the “behind the scenes” scenarios where things can go wrong if you don’t have a plan from the beginning.
These can be a great investment, but they often come with higher risks and costs. They're also more difficult to finance and manage than singleFor many people, real estate investing is all about single-family homes. But there's another option that can be even more lucrative: multifamily properties.
Multifamily properties are defined as any type of property that has more than one unit, such as an apartment complex or a duplex. As you can see there is a wide range of what fits into a “multifamily investment”. And while they can come with some additional challenges, they can also be a great way to make money in real estate.
Here are a few things you should know about investing in multifamily properties:
- There's More Cash Flow potential
One of the biggest benefits of multifamily properties is that they offer more cash flow potential than single-family homes. This is because you're able to generate income from multiple units, rather than just one.
Of course, this also means that your expenses will be higher. But if you're able to manage your finances properly, the extra cash flow can be well worth it.
- You'll Need More Capital
Another thing to keep in mind is that you'll need more capital to invest in multifamily properties. This is because you're essentially buying more than one property at a time.
As such, you'll need to have enough money saved up for a down payment, as well as extra funds set aside for repairs and renovations. For those reasons, it is common to bring on partners or investors to help fund the deal who will also share in the success.
- You'll Need to be a Better Manager
Investing in multifamily properties also requires you to be a better manager. This is because you'll need to oversee multiple units, rather than just one or hire a management company.
As such, you'll need to have strong organizational skills and the ability to handle difficult tenants. If you're not up for the challenge, it's best to outsource or hire for the areas where you lack.
- You Can Make a Lot of Money
Despite the challenges, investing in multifamily properties can be extremely profitable. This is because there's a lot of money to be made in real estate, and multifamily properties offer the potential for high returns.
If you're willing to put in the work, investing in multifamily properties can be a great way to make a lot of money. Just make sure that you understand the risks involved before you get started investing in mult-family properties.
There are a lot of different real estate investment opportunities out there. But one option that is often overlooked is investing in mobile homes.
Mobile homes can be a great investment for a number of reasons. First, they are often much cheaper than traditional homes. This means that you can get more bang for your buck when you invest in mobile homes.
Another reason to consider investing in mobile homes is that they are often easier to sell than traditional homes. This is because there is a growing demand for mobile homes, especially among people who are looking for more affordable housing options.
Major investors like Warren Buffett are bullish on Mobile Home investing.
So, if you're thinking about investing in real estate, don't overlook the potential of mobile homes. They can be a great investment that can provide you with a nice return on your investment.
Commercial real estate investing is one of the most popular and potentially lucrative options. Commercial real estate includes office buildings, retail space, warehouses, and other types of properties that are used for business purposes.
Investing in commercial real estate can be a great way to make money, but it is important to understand the basics before getting started. Here are a few things to keep in mind if you are thinking about commercial real estate investing:
- Location is key
When it comes to real estate, location is everything. This is especially true for commercial real estate. You want to make sure that you are investing in a property that is in a good location, as this will make it more valuable and easier to rent or sell.
- Do your research
As with any investment, it is important to do your research before you get started. This means understanding the market and knowing what you are getting yourself into. Especially with how Covid-19 has affected this investment type. It is also important to have realistic expectations about commercial real estate investing.
- Have a solid plan
Before you start investing in commercial real estate, it is important to have a solid plan in place. This means knowing how much money you have to invest, what your goals are, and what you are willing to risk. Without a plan, it will be difficult to make money with commercial real estate investing.
- Be patient
Commercial real estate investing can take time to pay off, so it is important to be patient. Don't expect to get rich quick with commercial real estate investing. It takes time and effort to make money with this type of investment, but it can be very profitable in the long run.
- Work with a professional
When it comes to commercial real estate investing, working with a professional can be very helpful. A real estate agent or broker who specializes in commercial real estate can help you find the right property and negotiate the best price. They can also provide valuable advice and guidance throughout the process.
Commercial real estate investing can be a great way to make money, but it is important to understand the basics before getting started. By following these tips, you can increase your chances of success with commercial real estate investing.
Another option that you may not have considered is investing in storage units. Storage units can be a great investment for a number of reasons.
For one, storage units are always in demand. People are always looking for somewhere to store their belongings, whether it's for a short-term move or a long-term storage solution. This means that there is always potential for rental income when you invest in storage units.
Another reason to consider storage unit investing is that it can be a relatively low-cost investment. Storage units don't require a lot of maintenance or upkeep, so your costs will be relatively low. This can make them a great option for those who are just starting out in real estate investing.
If you're looking for a potentially profitable real estate investment, storage units are definitely worth considering. With their high demand and low costs, storage units can be a great way to make money in real estate.
Real Estate Investment Trusts, or REITs, are a popular way to invest in real estate. A REIT is a company that owns, operates, or finances income-producing real estate. REITs can be publicly traded on major exchanges, or they can be private.
Some of the advantages of investing in REITs include:
First, REITs offer investors exposure to real estate without the need to directly purchase and manage property.
Second, REITs are required by law to distribute at least 90% of their taxable income to shareholders in the form of dividends, making them an attractive investment for income-seeking investors.
Finally, REITs tend to be less volatile than the stock market as a whole, providing investors with a degree of downside protection.
There are a few things to watch out for when investing in REITs. First, many REITs are leveraged, meaning they have borrowed money to finance their real estate holdings. This can make them more volatile than unlevered real estate investments. Second, REITs are required to pay out a large portion of their income as dividends, which can leave them with less cash on hand to reinvest in their properties or pay down debt. Finally, the real estate market is cyclical, so REITs may underperform the stock market during periods of declining real estate values.
Despite these risks, REITs can be a valuable addition to any investor's portfolio. For investors looking for exposure to the real estate market without the hassle of directly owning and managing property, REITs offer an appealing solution. And for income-seeking investors, the high dividend payouts of many REITs can provide a reliable source of income. Just be sure to do your homework before investing, and remember that real estate values can go up and down over time.
Investing in tax liens and deeds can be a great way to earn a return on your investment and diversify your portfolio. Tax liens are liens placed on property by the government for unpaid taxes. Tax deed sales are auctions where properties are sold to the highest bidder to pay off the outstanding tax debt.
Investing in tax liens and deeds can be a great way to earn a return on your investment and diversify your portfolio. There are a few things to keep in mind if you're thinking of investing in tax liens or deeds.
First, you should research the market and understand the risks involved. Second, you'll need to have the cash available to purchase the property or the lien certificate. And third, you need to understand that the local government, depending on the state/location, mandates a certain interest rate which gets paid back to the investor.
If you're looking for a way to invest in real estate that is mostly passive and earn a good return, investing in tax liens and deeds may be the right option for you.
If you're thinking about investing in real estate, you may have come across the term “real estate notes.” But what exactly are real estate notes, and how can they be a valuable investment?
Real estate notes are essentially loans that are secured by real estate. When you invest in real estate notes, you're lending money to a borrower who is using real estate as collateral. If the borrower defaults on the loan, you may be able to foreclose on the property and recoup your investment.
Real estate notes can be a good investment for a number of reasons. First, they offer the potential for high returns. Because you're essentially lending money, you can charge a higher interest rate than you could with a traditional investment, such as a savings account or CD.
Second, real estate notes can offer greater security than other investments. If the borrower defaults on the loan, you may be able to foreclose on the property and recoup your investment.
Third, real estate notes can be a relatively low-risk investment. If you invest in a property that is already owned free and clear, there is no risk of the borrower defaulting on the loan.
Fourth, real estate notes can be a flexible investment. You can choose to invest in real estate notes for a short-term investment or a long-term investment.
Investing in real estate notes can be a great way to grow your portfolio and generate high returns. If you're considering investing in real estate notes, be sure to do your research and understand the risks involved.
CHAPTER 4: REAL ESTATE STRATEGIES
House hacking is one of the easiest ways to get started in real estate investing. House hacking is when you buy a duplex or other multifamily property and live in one unit while renting out the others. This can help you cover your mortgage payments and potentially even make a profit each month.
There are a few different ways to go about house hacking. You can buy a property that is already divided into units, or you can buy a single-family home and convert it into a duplex or triplex. You can also look for properties that need some work and then renovate them yourself.
If you're interested in house hacking, the first step is to find a good Real estate agent who can help you find the right property. You'll also need to get pre-approved for a mortgage so that you know how much you can afford to spend. Once you've found a property, it's important to do your due diligence and make sure that you understand all of the costs associated with owning and renting it out.
House Hacking Pros
- Easy to get started
- Little to know money out of pocket to start
- Your mortgage could be paid each month
House Hacking Cons
- Smaller profits than other strategies
- Tenants & toilets (repairs, maintenance, etc.)
- Doesn’t scale well or fast
Buy, Live, Rent
Another quick way to get started investing in real estate is to keep your home, when you move or upgrade and rent it out.
In this strategy, you will buy a home, live in it for at least a year (to avoid capital gains) and then move to another property but instead of selling your first property, you rent it out for cash flow.
You can then rinse and repeat.
Buy, Live, Rent Pros
- Easy to get started
- Little to know money out of pocket to start
- Easy to get financing
Buy, Live, Rent Cons
- This is a long term strategy that takes time
- Smaller profits than other strategies
- Tenants & toilets (repairs, maintenance, etc.)
- Doesn’t scale well or fast
Buy and Hold
Buy and hold real estate strategies involve holding a property for either rental income or appreciation.
One popular buy and hold strategy is to purchase a property and then rent it out on a long-term basis. The benefits of this strategy include stability of income and the potential for appreciation over time.
Another popular buy and hold strategy is to purchase a property and then rent it out on a short-term basis, such as through Airbnb. The benefits of this strategy include the potential for higher rental income and the ability to take advantage of appreciation if the property increases in value.
Which buy and hold strategy is right for you will depend on your goals and objectives. If you're looking for stability, then a long-term rental might be the way to go. If you're looking for the potential for higher returns, then a short-term rental might be a better option.
Buy and Hold Pros
- Plenty of inventory on the market
- Easy to get financing
- Great returns
- Long term passive income
Buy and Hold Cons
- May require more upfront investment
- Tenants & toilets (repairs, maintenance, etc.)
- Doesn’t scale well or fast
Fix and Flip
The fix and flip strategy is one of the most well known. It was made famous from the many flipping shows on TV. Fix and flip strategies involve purchasing a property, making improvements to increase its value, and then selling it for a profit.
Of course, fix and flip strategies are not without risk. If you don't correctly assess the value of the property or the necessary repairs, you could end up losing money. But if you do your homework and find a good deal, flipping real estate can be a great way to make some extra cash.
Here are a few tips to help you get started:
- Assess the value of the property.
Before you purchase a property, you need to research the current market value. This will help you determine how much you can realistically expect to sell the property for after making repairs.
- Determine the necessary repairs.
Once you know how much the property is worth, you need to assess what repairs are necessary to increase its value. These could be cosmetic repairs like painting or fixing up the landscaping. Or they could be more significant repairs like fixing a leaky roof or repairing foundation damage.
- Find a good deal.
One of the most important aspects of fix and flip real estate investing is finding a property that you can purchase for below market value. This will give you some wiggle room to make repairs and still turn a profit.
- Have a realistic timeline.
It's important to have a realistic timeline for completing the repairs and selling the property. If you try to rush the process, you could end up making mistakes that cost you money.
- Have an exit strategy.
Before you purchase a property, you need to have a plan for selling it. This could involve listing it with a real estate agent or selling it directly to a cash buyer.
Fix and flip real estate investing can be a great way to make money, but it's important to do your homework and understand the risks involved. But if you find a good deal and complete the repairs in a timely manner, you could be sitting on a real estate goldmine.
Fix and Flip Pros
- Most popular way to invest in real estate
- Easy to get financing
- Great returns
Fix and Flip Cons
- Requires more upfront investment
- Expenses generally are greater than anticipated
- Flips can take longer than expected
- Doesn’t scale well or fast
Wholesaling allows you to find and purchase properties below market value, put it under contract and then sell or assign them to another investor for a profit.
It's a relatively low-risk way to get involved in real estate, and it can be a great way to learn the ropes of the business. However, it's important to understand the process and the risks involved before you get started.
Here's a brief overview of wholesale real estate investing:
The first step is to find a property that is being sold below market value. This can be done by searching online listings, contacting a real estate agent, or working with a wholesaler.
Once you've found a property, you'll need to negotiate a purchase price with the seller. Once the purchase is finalized, you'll then find an investor to buy the property from you at a higher price.
With a little bit of research and planning, wholesaling can be a great way to get started in real estate investing. If you understand the process and the risks involved, you can be well on your way to making a profit in the real estate business.
- Very easy to get started
- No money out of pocket
- Very easy to scale
- Must have ironclad legal contracts in place
- Have to negotiate best deals
- No passive income
Money brokering, also known as “money connecting” is where you provide other real estate investors with funding to do their real estate deals and then receive a “broker commission” in return.
Most real estate investors say that funding is one of their largest hurdles and as a money broker you’d be solving their largest problem while learning the ropes of investing and making great money at the same time.
There are hundreds of lenders, like Cogo Capital, that are willing to partner with you and pay you broker fees for referring investors to them. Furthermore, you don’t need any licenses or certifications to become a money broker.
It’s one of the BEST ways to get started that literally has zero risk.
Money Brokering Pros
- Easiest way to get started
- No money out of pocket
- Zero risk
- Very easy to scale
Money Brokering Cons
- Need to be good at networking
- Income isn’t passive, must continue to work to grow
Real estate investing through syndications can be a great way to get started in the industry.
What is real estate syndication? A real estate syndication is when two or more people come together to invest in a property.
There are many benefits to syndicating real estate. One of the biggest benefits is that it allows you to pool your resources with other investors. This can make it easier to come up with the money needed to purchase a property.
Another benefit of real estate syndications is that they can help you spread the risk. When you invest in a property by yourself, you are 100% responsible for that property. If something goes wrong, you are the one who will have to deal with it.
However, when you invest in a property through a syndication, you are only responsible for your share of the investment. If something goes wrong, you will only lose your share of the investment. This can help you protect yourself from losses if a property does not perform as well as expected.
- Spreads out risk
- Allows you to pool resources
- Allows you to do bigger deals out of the gate
- Typically bigger deals means larger risk
CHAPTER 5: WHERE TO START
As we’ve stressed repeatedly, education minimizes risk. Before you do any investing, you should truly understand the ins and outs of the strategy you’re employing.
What are the Steps to Getting Started in Real Estate Investing?
If you're interested in getting started in real estate investing, there are a few steps you'll need to take.
1. Educate Yourself.
The first step is to educate yourself on the different types of real estate investments and the risks and rewards associated with each. There are a number of great books and online resources that can help you learn more about this topic.
2. Find a Mentor.
It's always helpful to have someone who's been through the process before to guide you along the way. If you know someone who's successful in real estate investing, ask if they're willing to be your mentor.
3. Set Your Goals.
What are you hoping to achieve by investing in real estate? Do you want to generate income, build equity, or both? Once you know your goals, you can start planning your investment strategy.
4. Choose Your Investment.
There are a number of different types of real estate investments, so it's important to choose the one that best suits your goals and risk tolerance.
5. Get started.
Once you've chosen your investment, it's time to get started. This process will vary depending on the type of investment you're making, but there are a few things you'll need to do, such as finding properties, negotiating deals, and arranging financing.
If you're interested in learning about real estate investing, there are a number of different ways you can go about it. You can read books, articles, and other written materials; listen to podcasts; watch videos; attend events; or take online courses.
Real Estate Books
Books can be a great way to learn about real estate investing, as they provide a comprehensive overview of the topic. There are many different titles available on the subject, so you should be able to find one that suits your needs and interests.
No matter what your level of experience or expertise, there's a real estate book out there that can help you learn more about the industry.
With so many different titles to choose from, you're sure to find a real estate book that can help you learn more about this fascinating industry. So what are you waiting for?
Real Estate Articles
Articles can also be a helpful resource when you're trying to learn about real estate investing. These shorter pieces can provide concise information on specific topics related to real estate investing. You can find articles in magazines, newspapers, and online. REI Club has almost 5,000 real estate articles covering almost every topic you can think of.
Podcasts are another great way to learn about real estate investing. These audio programs can be downloaded and listened to at your convenience, and they often feature interviews with experienced investors and other experts.
Videos can be a helpful supplement to your learning about real estate investing. There are many real estate videos available on the internet, and some of them provide step-by-step instructions for specific procedures or techniques.
Real Estate Training Events
Events such as seminars, webinars, and conferences can also be a great way to learn about real estate investing. These events provide an opportunity to meet and network with other investors, as well as learn from expert speakers.
Online courses are another option when you're trying to learn about real estate investing. These courses can be taken at your own pace and often provide comprehensive instruction on various aspects of real estate investing.
No matter which method you choose, learning about real estate investing can be a great way to start building your wealth. With the right knowledge and tools, you can be well on your way to financial success.
Wherever you get your training, make sure you are working with a reputable company and as a rule of thumb it’s always good to get multiple perspectives to ensure you are seeing/hearing the full picture. At REI Club we attempt to vet all of our content from our contributors to ensure you are getting the best content available.
CHAPTER 6: YOUR REAL ESTATE TEAM
Building a real estate team is one of the best ways to ensure success as a real estate investor. Having the right team in place can make all the difference when it comes to buying, selling, and managing properties. So who should be on your real estate team?
A good real estate team will typically consist of a mortgage broker, real estate attorney, title company, insurance agent, contractor(s), accountant, real estate agent, a property manager, and a handyman. Each team member should be chosen carefully, as they will play a vital role in helping you achieve your real estate investing goals.
Mortgage Broker: A mortgage broker can help you secure financing for your real estate investments. They will work with you to find the best loan products and terms for your needs and help you through the application process.
We’ve compiled a list of of investor friendly hard money lenders and private money brokers from across the country and you can find them by clicking on the respective links above.
Real Estate Attorney: A real estate attorney can protect your interests when buying or selling property. They can review contracts, handle closings, and provide legal advice if any problems arise.
Title Company: A title company can help to ensure that the property you are buying has a clear title. They will also handle the paperwork involved in the purchase and sale of real estate.
Insurance Agent: An insurance agent can help you secure the right insurance coverage for your real estate investments. This is important to protect your assets in case of any damage or liability claims.
Contractor(s): Contractors can be invaluable when it comes to renovating and repairing properties. They can help you get the work done quickly and efficiently, and often at a lower cost than if you were to do it yourself.
Accountant: An accountant can help you keep track of your expenses and income from your real estate investments. They can also prepare tax returns and advise you on financial planning for your real estate business.
Real Estate Agent: A real estate agent can help you find properties that meet your investment criteria. They can also provide valuable insights into the local real estate market and assist with the negotiation and purchase of properties.
We’ve compiled a list of investor friendly real estate agents across the US and you can find them here.
Property Manager: A property manager can take care of the day-to-day management of your rental properties. This includes tasks such as marketing the property, screening tenants, collecting rent, and dealing with repairs and maintenance issues.
We’ve compiled a list of investor friendly property managers across the US and you can find them here.
Handyman: A handyman can be a valuable asset when it comes to maintaining your rental properties. They can handle small repairs and maintenance tasks, as well as larger projects such as renovations.
We’ve compiled a list of investor friendly handyman services across the US and you can find them here.
Choosing the right team members is essential to success as a real estate investor. Be sure to carefully select each member of your team, based on their skills and experience. With the right team in place, you can achieve your real estate investing goals.
CHAPTER 7: FINDING DEALS
There are many ways to find real estate deals, and the best method depends on your goals and resources. The Multiple Listing Service (MLS) is a good place to start, as it gives you access to listings from real estate agents. You can also ask around or search online classifieds websites like Craigslist or LoopNet.
If you're willing to do some legwork, bird dogs and direct mail can also be effective. Bird dogs are people who find properties and then sell them to investors, while direct mail involves sending letters or postcards to homeowners in a specific area.
Of course, you can also find deals by networking with other investors or attending real estate investment seminars. Whichever method you choose, make sure to do your research and always be on the lookout for good deals.
The 25/25/2 Formula For Finding Deals
Here’s how it works. We want every single one of you here committed to sending out 25 pieces of mail a week, making 25 phone calls a week, and writing 2 offers per week on real estate deals. This is the mathematical formula for success. If you do 25 letters a week, by the end of the year, you would have sent out 1300 pieces of mail. If you make 25 phone calls a week, by the end of the year, you would have made 1300 phone calls, and if you make 2 offers a week, you have made 104 offers by the end of the year.
Look at how this breaks down. If you’ve identified a mailing list, but you don’t have a preexisting relationship with them and your letter is relatively generic, a 1% response rate is considered good.
1300 pieces at 1% means you’re going to get 13 contacts. Now my question for you is, do you know what the value of these 13 leads are?
This is how you would figure that out. If we invest $100 to produce a quality lead that we know will generate $300 in revenue, what’s our rate of return on investment for that single lead? That’s a 300% return. Do you know what your return on investment is on the leads that you are generating for your business? If you don’t, you better because this is how you can make your projections moving forward.
If we know we can drop 1300 pieces of mail at $1.00 a piece and generate $10,000 in revenue, am were making a profit? Can we invest more? The answer is, of course, yes. But, what if it costs us $15 to produce leads to drop 1300 pieces? $15 times 1300 is $19,500. If we spend $19,500 to get $10,000, we’ve now lost $9,500. We see this a lot in beginning business owners and would- be entrepreneurs, they never stop to calculate the cost of their lead generation. This is why we like Craigslist. It’s free. This is why we like the Private Money Ex- change Craigslist ads. This is relatively free marketing except for the investment of your time.
As you become more seasoned as an entrepreneur and as a business person, your time becomes exponentially more valuable. At this point you have to make sure your return on investment of your time is substantially higher.
What is the value of your time? If you’re doing menial functions that you could be paying an assistant to do, you are probably wasting your time.
Please understand we are sensitive to the beginning, budding entrepreneur. There was a time that we did everything. Now we have a customer service team to make my outbound calls, send direct mail, and schedule appointments, because the highest and best use of our time is to be here talking with you or closing deals. Anything that you can do to maximize your core competency is going to increase your income.
For you our question would be this: What is your core competency? What are you really good at? We’ve yet to meet anybody that’s really good at everything. Are you that sensitive in your own business regarding the value and investment of your time? If you’re not, you need to get there through specialization and choosing and identifying what it is you’re going to be good at, or your niche. Identifying your core competencies in relation to that niche will allow your income to explode.
When you are doing a very targeted message to market match where you’re sending 1300 mailers to out of state owners with a message that says, “Dear homeowner, I’m writing you because you live out of state. You own your property at free and clear. I would like to pay you cash fast.”
This is a very specific message to market match and our response rate on the piece is going to be exponentially higher. A good rate of return on a shotgun piece is 1%, in a strong message to market match, a good rate of return is 10%. If I got 13 leads from 1300 pieces on my last mailing, and on this mailing I get 130 leads with a very strong message to market match, my dollar per lead is going to be dramatically higher because the message to market match is more specific. This is what I’m talking about when I say “rifling your leads.”
In marketing, again, if you use the shotgun approach, you use 150 bullets and you might get one. In the message to market match you’ve got to be very specific and very strategic to the game that you’re hunting and the bullet that you’re going to use.
In this scenario, I used a very specific message to market match with out of state owners. I get a lot more leads, which is going to give me a higher, what we call “DPL,” or dollar per lead. Ultimately, that’s what I want to maximize. For those of you who are out actively looking for real estate to invest in, one of the things I see broken more often than not is that you have a bunch of worthless leads.
If you’re not sure if your leads are worthless here’s the litmus test for you. Of the leads that you have coming in from the multiple websites that you are paying monthly to have access to, how many properties have you bought and how much money have you made?
Think about this. Of all the money that you’ve invested, of all the worthless websites that you’ve got that look really pretty and they’re fun to play with, how many of the leads coming in have you actually made money with? I will tell you that the bulk of clients that I see that I work with privately or one of my mentors works with, we see so much wasted time on leads that are worthless.
I will go even further to say, of the leads that you have coming in, how many of those are you actually calling? How many are you sequentially following up with? You make the call. You write the letter. You send them some chocolates. You send them an offer. You follow up with that. Are you going through a sequential process? Are you closing the deal? If you are, that’s great. You represent a very small minority. The large majority is wasting time playing on the Internet and looking at leads that you will never get paid from.
Please don’t confuse time with success. If you are investing three hours a day looking at emails, writing letters and offers, and you still haven’t gotten paid, are you following up as strategically and as specifically as you should be? If you’ve got leads from people who’ve responded to your message and you are a welcome guest in their world because they received your mail piece and they reached out to you, why aren’t you closing more deals? Why aren’t you buying more property? Why aren’t you lending more money? Why aren’t you borrowing more money? Think about that.
When you sit down to work on your business and in your business, what is the outcome of each day? Are you producing revenue as a result of that work? If you’re not, don’t think that you’re a real estate investor. You are a real estate investor wanna-be. The only difference between wanna-be and success is taking strategic targeted leads and converting them into dollars. How do you do it? By doing the very things that scare you the most: picking up the phone, talking to people, and asking tough questions like, “How much do you want?” or “How did you come up with that asking price?” Or writing low offers and letting any negative reaction roll off your back. If you are not getting bombarded daily with no’s, you’re not asking enough questions or writing enough offers.
Look at the math. If I get paid for every 10 offers I write and out of this 1300 mail piece I get 130 leads, how many offers do you think I should write on 130 leads? Let’s do the math. Let’s say that conservatively, 25% of these leads are worth writing offers on. We’re going to write offers on 32 pieces of property. Out of the 32 pieces of property, I’m going to get paid on every 10, which means we will buy 3 deals. Here’s my math. If I’m going to wholesale and assign a deal, I want $5,000. If I’m going to partner on a deal, I want $15,000. If I’m going to do the deal all by myself, I want $25,000.
What this means is that I’m going to make $45,000. It’s important that you guys get the numbers in your business down to this format. Only once you know the metrics of the cost of your marketing, the number of leads that you get, and the dollar return on the investment in marketing, can you then ramp up to do more.
My goal here today is to help you guys understand that investing in real estate is an incredibly lucrative business if it’s treated like one and runs like one.
Once you understand the formulas of marketing it’s actually a lot more fun because the metrics are based more on income and on strategy. If you know the strategy and the formula and you follow the path, then you can pretty much dictate your outcome as to when you get paid.
So, we made $45,000 on our 1300 piece mailing. We’ve invested 100 hours into making calls, writing offers, and strategic follow up. Let’s say we spent $3,500 on the mail. We’ve got $3,500 on 1300 pieces and we invested 100 hours. If we invested $3,500 in mail, we netted $41,500. If we take the $41,500 divided by 100 hours, we get $415 per hour. Are you currently making $415 an hour?
If you’re not, you’re probably not following the formula on your screen which is 25 letters mailed each week, 25 calls made each week, and 2 offers written each week. If you follow that formula, stick to the formula, and do it consistently, you should be making no less than $415 per hour. Now you choose how many hours a week do I want to work?
If you work 10 hours per week, you make an extra $4,150 per week. If you work 20 hours in a month, you make $8,300 per month. If you want to work full time in this business, you’ll take that multiplied by 2 which makes $16,600. If you do that for 12 months, you make $199,200.
Here’s what I know: There’s not a single person here that doesn’t like that number. Perhaps, there are a select few of you who look at that number and say, “Lee, that’s too small.”
Ok. Then with $199,200, can you hire 3 employees and pay them $40,000 each per year. That’s $120,000 which means you’re netting out $89,000 annually. But, can your 3 employees do the work of you? You now take your $199,200 times 4, because it’s you and 3 employees, and guess what now you’re grossing $796,800!
There are really two things you need to get really good at. Marketing and sales, not real estate. Real estate is the byproduct of the business. If there are no new leads, if the phone is not ringing, and you don’t have customers, it doesn’t matter what your product is. It could be real estate, it could be widgets, it could be swimming pools, it could be candy, but if you don’t have customers, you don’t have a leg to stand on.
You must focus first on the marketing. It is truly the lifeblood of your business.
CHAPTER 8: NEGOTIATING DEALS
Negotiation is a critical part of any real estate transaction. By understanding how to negotiate, you can save yourself thousands of dollars on your next property purchase.
Keep in mind that your return on investment in real estate is made when you buy, not when you sell. To that end, it’s vital that you negotiate the best deal possible.
Here are some tips for negotiating like a pro:
- Understand what the other party wants: The first step to any negotiation is understanding what the other party wants. In real estate, this means understanding what the seller or landlord is looking for in a deal. This could include things like a quick sale, a high price, or certain lease terms. Once you understand their goals, you can begin to craft a negotiation that meets their needs while still protecting your interests.
- Start with a fair offer: It's important to start any negotiation with a fair offer. This doesn't mean your opening offer should be your best offer, but it should be reasonable and in line with what you're willing to pay. A lowball offer will only anger the other party and make them less likely to negotiate in good faith.
- Be prepared to compromise: In any negotiation, both parties will have to give up something in order to reach an agreement. Be prepared to compromise on certain aspects of the deal in order to get what you really want. For example, you may be willing to pay a higher price if it means you can close the deal quickly.
- Know your bottom line: It's important to know your bottom line before entering into any negotiation. This is the absolute minimum you're willing to accept in a deal. Once you know your bottom line, you can be more confident in your negotiation and less likely to make compromises you'll regret later.
- Be prepared to walk away: Sometimes the best negotiation tactic is simply walking away from the deal. If the other party isn't willing to meet your needs, then it's probably not worth doing the deal. This can be a tough decision to make, but it's important to remember that there are other deals out there. Don't be afraid to walk away from a bad negotiation.
CHAPTER 9: FUNDING DEALS
Real estate transactions can be expensive, and traditional financing may not always be available or desirable. When polling real estate investors, funding deals is commonly the number one stated problem they have.
We believe that if you have a great deal, the money will follow. To that end, here are 10 creative ways to finance your real estate deal:
- Use private money lenders.
Private money lenders are individuals who are willing to lend money for your real estate transaction, often at a higher interest rate than traditional lenders. You can find private money lenders through your network of family and friends, online directories, or by contacting a local real estate investor club.
- Find a partner or joint venture.
Finding a partner or joint venture can be a great way to finance your real estate deal. You can find potential partners through online real estate forums and websites, at local real estate investment clubs, or by contacting a real estate agent or broker.
- Get a home equity line of credit (HELOC).
A home equity line of credit (HELOC) is a loan that uses the equity in your home as collateral. HELOCs can be a great way to finance your real estate deal because they usually have low interest rates and flexible repayment terms.
- Use a credit card.
Using a credit card to finance your real estate deal can be a good option if you have a good credit score and can qualify for a 0% APR introductory rate. However, you will need to be careful with this option as it can be easy to get in over your head with credit card debt.
- Use a hard money lender.
Hard money lenders are individuals or companies that lend money based on the value of the property, not the borrower's credit score. Hard money loans can be a good option if you have bad credit or need to close on a deal quickly. However, hard money loans usually have high interest rates and fees.
- Borrow from your 401k or IRA.
Borrowing from your 401k or IRA can be a good way to finance your real estate deal if you have the funds available and don't mind paying the taxes and penalties associated with early withdrawal.
- Get a loan from family or friends.
Getting a loan from family or friends can be a good option if you have a good relationship with them and are confident that you will be able to repay the loan.
- Use seller financing.
Seller financing can be a good option if the seller is willing to finance part of the purchase price. This can be a good way to avoid having to get a traditional mortgage loan.
- Take out a personal loan.
Taking out a personal loan can be a good option if you have good credit and can qualify for a low interest rate. Personal loans can be used for a variety of purposes, including real estate transactions.
- Use crowdfunding platforms.
Crowdfunding platforms like Kickstarter and Indiegogo can be a good way to finance your real estate deal if you have a good project or story that will attract investors. However, it can be difficult to raise enough money through crowdfunding to cover the entire cost of a real estate transaction.
Using creative financing methods can help you fund your real estate deal when traditional financing is not available or desirable. Be sure to carefully consider all of your options and choose the best method for your specific situation.
CHAPTER 10: EXIT STRATEGIES
As we’ve mentioned before, your exit strategy should be one of the first things you think about as it will determine which type of real estate strategy you will deploy.
For example, if you will be holding a property for cash flow then you may deploy different strategies than if you were doing a quick flip.
Regardless, your exit strategy is one of the most important factors that determines your success in real estate investing.
Below are some of the most common exit strategies and how they work.
For Sale By Owner (FSBO)
There are a lot of things to consider when selling your property, and one of the biggest decisions is whether to go it alone or work with a real estate agent. Selling your property on your own, known as FSBO (For Sale By Owner), has some definite advantages. But there are also some potential drawbacks that you should be aware of before you make your decision.
The most obvious advantage of FSBO is the money you can save by not having to pay a real estate agent’s commission. In most cases, this is a percentage of the final sale price, so if your property sells for $800,000, you could potentially save $40,000 or more in real estate commissions.
Another advantage is that you will have complete control over the sale of your property. You can set your own price, show it to prospects whenever you want, and make all the decisions about how to market and sell it.
On the downside, selling your own property is a lot of work. You’ll be responsible for all the details of the sale, from advertising to open houses to negotiating with buyers. And unless you’re an experienced real estate agent, you may not have the skills or knowledge to get the best possible price for your property.
You should also be aware that most buyers are working with real estate agents, so you may have to pay a buyer’s agent commission if your property is sold through one.
If you’re considering FSBO, it’s important to do your homework and understand the process before you get started. There are a lot of resources available to help you, including books, websites, and even real estate agents who will help you sell your property for a flat fee.
Taking the time to learn about the pros and cons of FSBO before you make your decision will help you make the best choice for your situation.
Selling with a Real Estate Agent
If you're looking to sell your investment property, working with a real estate agent can be a great way to get top dollar for your home. Here are a few tips to help you make the most of working with an agent:
- Be realistic about your expectations.
It's important to have realistic expectations when selling your home, and your real estate agent will be able to help you determine what a fair asking price is for your property.
- Choose an experienced agent.
When selling an investment property, you want to work with an agent who has experience working with investors and knows the ins and outs of the real estate market.
- Be prepared to negotiate.
When working with a real estate agent, be prepared to negotiate on commission fees, as this is typically negotiable.
- Be patient.
Selling an investment property can take some time, so it's important to be patient throughout the process.
- Think long term.
If you’re serious about becoming a real estate investor, you won’t be able to do it alone and you’ll need a team. Remember that having a good real estate agent is one of the most important team members you can have.
A good real estate agent can bring you deals and help you sell faster. They can also connect you with other investors as well as financial backers. So make sure you treat your real estate agent well and don’t skimp on their commissions to save a few bucks.
Working with a real estate agent is a great way to get top dollar for your investment property. By being realistic about your expectations, choosing an experienced agent, and being prepared to negotiate, you can maximize your chances of a successful sale.
1031 exchanges are a powerful tool for real estate investors. By exchanging one property for another, investors can defer paying taxes on their gains. This can provide a significant advantage when it comes to reinvesting in new properties.
There are a few things to keep in mind when doing a 1031 exchange. First, the exchange must be for “like-kind” property. This means that the exchanged properties must be similar in nature and/or use. For example, an investor could exchange a residential property for a commercial property.
Second, the exchange must be completed within a certain time frame. The investor has 45 days from the date of sale to identify potential replacement properties. The exchange must then be completed within 180 days of the original sale.
Third, the investor must use a qualified intermediary to facilitate the exchange. The intermediary holds onto the proceeds from the sale of the property and uses those funds to purchase the replacement property. This ensures that the investor does not personally receive any of the proceeds, which would trigger a tax liability.
1031 exchanges can be a great way to defer taxes and reinvest in new real estate opportunities. By working with a qualified intermediary and understanding the rules of the exchange, investors can make the most of this powerful tool.
CHAPTER 11: CONCLUSION
If you want to get started in real estate investing, now is the time to do it. You need to determine what type of real estate you want to invest in, what your strategy will be and then build a team around you who can help make that happen.
Don’t forget – one of the most important things for an investor is creating deal flow so you always have deals available. And finally, once you have a property under contract, make sure you have the funds lined up to close on it. These are all steps that require planning and organization, but if you put in the work now you can be successful in your investments down the road. Are you ready to get started?
REI Club is here to help. We have thousands of of articles, videos and podcasts so if you haven’t joined the 10’s of thousands of “unemployables” here at REIClub.com click here to join our tribe!