My twenty-two year old son asked me a question last night. He said, “Dad, if you were just starting out, like me, and you wanted to get into real estate, what would you do?”
What a great question, and I really had to think about it before answering. What I told him is not original with me. These ideas have been expressed much better by other authors before now, but since the essence of creativity is selective borrowing, here is the advice I gave him.
I said the first thing I would do is become an expert in my target market.
“How long will it take?” he asked.
Ah, young man, always in such a hurry.
“Depends on how much time each week you can spare,” I replied, giving him another of the vague answers he’s become accustomed to.
Predictably, he groaned.
I went on to explain that if he really committed to following my advice, and if he committed to a minimum of 15 hours each week, he should be proficient and confident in about 3 months, which doesn’t seem like that long. . The key is to look at tons of houses and ask tons of questions of the right people.
I told him that if he was just starting out, he would also find the right real estate agent to work with. The right real estate agent will be able to put you in touch with a wealth of opportunities that you can’t find on your own and provide you with a list of foreclosures and vacant properties to look at every day.”
“What would you do next?” he asked.
I said I would work on building a buyer list while learning my market.
“How would you do that?”
“I found and joined my local REIA (Real Estate Investors Association) group and attended all the meetings. If my area didn’t have a REIA group, I would start one. This is the place to start finding, meet and network. with people in your area who are investing in property. You would also read the newspaper classified ads for “Buy Homes” or “Buy Property” ads. These people are active buyers and should be added on your buyer list. Your goal is to have as long a buyer list as possible, at least 50-100 names depending on the size of your area.”
“Because?” he asked me
“I’ll explain in a minute.” i said
He rolled his eyes. Talking to your child is like talking to a nuclear physicist: every time you try to impress them with your knowledge, they make you feel like they can’t believe how long it took you to come to your childish conclusions.
I continued, determined to give my son the advice he was looking for.
“Next,” I said, “Armed with a deep knowledge of my market area and my list of active buyers, I would start making low offers on every foreclosure and vacant property I looked at.”
“Each one?” I saw the doubt in his eyes.
“Well, close to all of them. Every house where your confidence level allows you to make an offer.” I saw the next question coming.
“What do you mean by that?” he asked. So predictable.
“What I mean,” I continued, “is that the knowledge of the market you acquire during your market research will give you a certain level of confidence. The more knowledge you have, the more confidence you’ll build. When you first start bidding there time. There will be many properties that appear to be beyond your skill level, and if they seem to be, they probably are. You simply won’t have enough confidence to bid on those properties.
“As time goes by, though, and your knowledge grows, so will your confidence. Then those properties that intimidated you at first will become less terrifying. Instead of seeing dangers, you’ll see opportunities. Don’t t “You don’t stress about it, because it’s a natural progression. As you spend time learning your craft, knowledge will come, and so will confidence. One follows the other like summer follows spring.”
My son then asked, “But how do you determine how much to offer?”
I proceeded to explain to him my method of determining the proper amount to offer. See my article titled “Real Estate Investing: Is There a Magic Rule?”
“Got it,” my son said, nodding his head knowingly. “What comes next?”
“Okay,” I said. “What happens next is that most of your offers are rejected outright, some might be countered, and one in twenty to fifty will be accepted.”
“That’s all?” he asked, perplexed.
“That’s all, but it’s okay,” I said. You can’t handle a whole bunch at once right at the start anyway. One or two are enough to get you started. What you do next is very important.”
“What is this?” my son asked.
“Start marketing your silly boss.” I answered “You know that list of buyers you’ve been developing? Call each one of them and tell them what a great deal you have and see who’s interested. Put ads in the paper, signs on the property, signs anywhere. in the neighborhood with you can get away. Create a flyer to pass to your REIA meeting. Sell, sell, sell is the name of the game. Whatever it takes, find a buyer for this property BEFORE you close and take possession .”
“What about the title and all the legal stuff you have to do when you buy a house?” he asked. He’s smarter than I give him credit for.
“This is just mechanics, and I can teach you mechanics as you go through each chord. We’re talking strategy here. If you get that strategy, you can learn the mechanics.
“Okay,” he said, “how can I make money?” A very astute question.
“Simple: Just like you make money on any product you sell. You sell it for more than you paid for it. For example, let’s say you get a house under contract for $40,000 that you’ve previously determined is worth after repair (ARV). ) of $97,000 and needs about $12,000 in repairs. If I were you, I’d try to find a buyer between $48,000 and $53,000. That way, your buyer would still have room to make their repairs and make a net profit, and you’d come away with about $5,000 to $8,000 after taxes and fees.”
“Cups and taxes?” my son asked. A rude awakening.
“Yes, paid to your attorney, real estate agent, title company, and government. Of course, you can do a simultaneous closing, and there are other ways to eliminate some or all of these fees, like making the your bids in the name of an LLC and then sell the LLC instead of the property, but again we are talking about mechanics, and that is the subject of another discussion.” (And another article)
“How much would it be reasonable to earn doing this full time?” he asked. A light on.
“There’s no reason why a full-time wholesaler (wholesale is really what we’re talking about here) can’t make $5,000 to $10,000 a month, or more. Not at first, of course, but after a few months or a year of consistent. effort, the sky’s the limit.”
“Wow,” said my son, “I never thought of it that way before. I never quite understood what wholesaling was all about. I think I could do it.”
I think he might too. That’s why you can too. In fact, what is stopping you?
Now go make more deals!