If I were 22 again… A father explains to his son how to invest in real estate
Posted On July 7, 2023
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 start in real estate, what would you do?”
What a great question, and I really had to think about it before answering it. What I told you is not original to me. These ideas have been expressed much better by other authors before now, but since the essence of creativity is selective borrowing, this is the advice I gave you.
I said the first thing I would do is become an expert in my target market.
“How long will that take?” she asked.
Ah, youth, always in such a hurry.
“Depends on how much time each week you can dedicate to it,” I replied, giving him another of the vague answers he’d gotten used to.
As expected, he groaned.
I went on to explain to him that if he really committed to following my advice, and if he committed to a minimum of 15 hours each week, he should become proficient and confident in about 3 months, which doesn’t seem like a long time. The key is to look at tons of houses and ask the right people tons of questions.
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 connect you with a ton of opportunities you can’t find on your own and provide you with a list of foreclosures and vacant properties to view every day.”
“What would you do next?” she asked her.
I said that I would work on building a buyers list at the same time that I was learning my market.
“How would you do it?”
“I would find and join my local REIA (Real Estate Investors Association) group and attend all the meetings. If my area didn’t have a REIA group I would start one. This is the place to start finding, meeting and networking with people in your area who are investing in property. You would also read the newspaper classified ads for “Buying Homes” or “Buying Property” ads. These people are active buyers and should be added to your buyers 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 it to you 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 him with your knowledge, he makes you feel like he can’t believe how long it took you to reach your childish conclusions.
I moved on, determined to give my son the advice he was looking for.
“Then,” I said, “Armed with a thorough understanding 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.”
“All?” I could see the doubt in his eyes.
“Well, close to all of them. Every house your confidence level allows you to make an offer on.” I could see the next question coming.
“What do you mean by that?” she asked. So predictable.
“My point,” I continued, “is that the knowledge of the market you gather during your market research will give you a certain level of confidence. The more knowledge you have, the more your confidence will increase. When you first start bidding there There will be many properties that appear to be beyond your skill level, and if they do, they probably are, you just won’t be confident enough to bid on those properties.
“As time passes, however, and your knowledge grows, so will your confidence. Then those properties that intimidated you at first will become less frightening. Instead of seeing danger, you will see opportunity. Don’t stress about this, because it’s a natural progression. As long as you spend time learning your craft, knowledge will come, and so will confidence. One follows the other like summer follows spring.”
Next, my son asked, “But how do you determine how much to offer?”
I went on to explain my method for determining the correct amount to offer. Check out my article titled “Real Estate Investing: Is There a Magic Rule?”
“I get it,” my son said, shaking his head up and down knowingly. “What comes next?”
“Okay,” I said. “What happens next is that most of their offers are rejected outright, some may be countered, and one in twenty or fifty will be accepted.”
“That’s all?” he asked, puzzled.
“That’s it, but it’s okay,” I told him. You can’t handle a bunch at once right off the bat anyway. One or two is enough to start. What you do next is very important.”
“What’s that?” asked my son.
“Start marketing your goofhead.” I replied. “You know that buyer’s list you’ve been developing? You call each one of them and tell them about the great deal you’ve got, and see who’s interested. Put up ads in the paper, signs on the property, and billboards anywhere.” . in the neighborhood who can get away with it. Create a flyer to hand out at your REIA meeting. Sell, sell, sell is the name of the game. Regardless, find a buyer for that property BEFORE you close and take possession of it. .”
“What about title work and all the legal stuff you have to do when you buy a house?” she asked. He is smarter than I give him credit for.
“That’s just mechanics, and I can teach you mechanics as you go through each deal. What we’re talking about here is strategy. If you master this strategy, you can learn the mechanics.
“Okay,” he said, “how do I make money?” A very intelligent question.
“Simple: the same way you make money on any product you sell. You sell it for more than you paid for it. For example, say you get a $40,000 house under contract that you determined in advance has a Value After Sale. repair (ARV) of $97,000 and needs repairs around $12,000. If it were me, I would try to find a buyer in the $48,000 to $53,000 range. That way, your buyer would still have room to make your repairs and make a nice profit, and you would walk away with about $5,000 to $8,000 after taxes and fees.”
“Fees and taxes?” asked my son. A rude awakening.
“Yes, paid to your attorney, the real estate agent, the title company, and the government. Of course you could do a simultaneous closing, and there are other ways to remove some or all of those fees, such as making your offers on behalf of from an LLC and then sell the LLC instead of the property, but again we’re talking about mechanics, and that’s the subject of another discussion.” (And another article)
“How much would it be reasonable to earn doing this full time?” she asked. A light turning on.
“There’s no reason a full-time wholesaler (we’re really talking about wholesale) 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 constant effort, the sky is the limit”.
“Wow,” my son said, “I’ve never thought of it like that before. I’ve never really understood what wholesale is all about. I think I could do that.”
I think he could too. For the rest, you can too. In fact, what’s stopping you?
Now go make more offers!