Since I am relatively young (age 31), I do get a lot of younger folks asking how to get involved in real estate so they can start building a cash flow stream for the future. I am always a big apprehensive to give that advice due to the fact that my journey to real estate did not start with me being 21 and just wanting to get in. I had been investing since I was 13 in other types of investments so I had a strong basis for understanding numbers going into it.
However, this does NOT mean that it isn’t not something you should look into. Getting into real estate can actually be just as fun as it can be stressful. There are just very common pitfalls I have learned through my years of mistakes that could make it easier for younger people to get involved.
1.) Why Do You Want to Invest in Real Estate?
If your answer is “Because I see a lot of people getting rich off of it” then back out now! That’s no reason to get involved with anything. Real estate is a great way to build wealth through paying down debt, buying good properties that will appreciate over time, and generating cash flow for future goals. If you don’t know how much to expect to make, find a professional who you may know to talk with. There are PLENTY of people you know who have rentals, I can assure you. Just start asking your friends and family if they know anyone who does it.
2.) How much do you have?
You then need to figure out how much you have to invest. The younger you are, the harder it will be to have a stash of cash to start with, which isn’t a point of giving up, but just a hurdle you have to overcome. Go out and figure out how much your first property will cost you from a downpayment side and figure out how much you need. If youdon’t have enough, you have three options: 1.) Save more money 2.) Borrow from family and friends 3.) Bring on partners
All three of these options are viable but I suggest the first one as your way of proceeding. It is much easier to make decisions with your own money than someone else’s money. Also, it’s hard to bring on partners or borrow money when you have NO experience whatsoever. Yes, you will have family who will just help you becaus they’re family but I don’t recommend it.
3.) Start looking. Yep, that’s it. You can start looking. Use the info you learned from the professional person you spoke to in order to determine what properties to look for and what kind of deals there may be out there.
A few problems that amateur investors run into (like I did at one point) can really sour you to an investment. It’s ok to be picky and to stand your ground, but most people who are entering a new business can’t do that out of fear of either making another person mad or sounding like they aren’t knowledgable. Real estate is very intuitive. If it doesn’t make sense to you, don’t do it. If a specific piece of property doesn’t make sense, there is a reason for that.
NEVER EVER EVER EVER listen to a real estate agent or real estate broker. Their job is to show you properties. They are NOT investors. I’ve never met a broker/agent who is a good investor. Ever. This is 100% a fact. The good brokers/agents will be the ones who admit this and who just say “My job is to show you the deal and your job is to pass or buy it.” If you find that your representative is talking very highly of a certain deal, there is probably a higher commission. Yes, it sounds cynical, but it is 100% true. Do your own research. Look at the numbers and talk to the real estae expert that you know who actually own properties to figure out what it will take to renovate or operate a property.
Which leads to my last concern: Most amateurs, yours truly included, didn’t know the costs to operate a property. I thought it was just mortgage and some light maintenance. Oh boy, I was wrong. Please talk to someone who has operated properties and ask them for the budget items that you may not be thinking about.
I am a big believer in pushing yourself to do more, so please make sure you proceed with caution and don’t jump into the first deal you find. There will be others. I have 825 units and only 3 or 4 I can say, honestly, I would have regretted not buying.
There are deals out there, just don’t jump in too quickly. I believe in being aggressive and trying new things, but ask as many questions as you can from people who have proven they are where you want to end up.