“How should I get started with real estate investing?” The question varies slightly, but the core of it is always the same. And, for a new real estate investor, I think it is an important question to ask.
Years ago, when I began speaking at our local real estate group, I used sit down with each person, usually over lunch, and try to determine their knowledge level of real estate markets, financing techniques, sales skills and other critical knowledge areas before recommending how they should get started investing in real estate.
After doing a dozen of these meetings, it occurred to me that the answer I gave was the same regardless of their experiences, skills and knowledge.
Without fail, I encouraged them to start out wholesaling.
What is wholesaling?
Wholesaling, is finding great real estate deals. Then putting the house under contract and finding another investor or retail buyer to buy the contract to buy the house from you for a profit above what you agreed to pay the seller.
For example, you by at a big discount and sell that discount to someone else for a fee.
I recommend wholesaling to starting real estate investors for several reasons.
First, it is a very low risk way of getting involved in real estate investing. When you put a house under contract, you are putting up as little as $10 and ideally no more than $100. Beyond your time and some marketing expenses, that is all you should have invested in your business when starting out.
Second, it is an exceptionally excellent way to learn your market. As a new investor, you might think that $10,000 below a refinance appraisal value is a good deal on a house. Your market will likely teach you otherwise and better to learn that lesson from trying to pass of this type of deal with only $10 invested in a binder deposit rather than try to sell this house while you are making mortgage, utility, taxes and insurance payments on a house you actually bought.
Third, you will get to know other investors and can learn from them. As a wholesaler, you should be finding what other investors want and are looking for in deals. Some will be helpful and will want to share information and time with you. Many will not; do not take it personally. There are good and bad folks in this industry just like there are good and bad lawyers, doctors and accountants.
Fourth, you can generate quick cash. A challenge common with many real estate investors is cash flow. Learning wholesaling is learning how to generate quick cash. Master the ability to generate quick cash and you have solved a lot of problems.
And finally, you can find great buy and hold deals for your portfolio. Inevitably, as you look for wholesale deals you will find exceptionally good long term buy, rent and hold properties for your own portfolio. I strongly suggest that you do half a dozen or more wholesale deals before you consider buying a long term rental. By then, you should have a much better idea of what a really good deal is than you did on your first day as a real estate investor.
James Orr is a professional real estate investor and marketing expert.
You can subscribe to his real estate e-newsletter and access audio downloads, articles, marketing materials and educational real estate videos at his Real Estate Investing blog.