“Now, one thing I tell everyone is learn about real estate. Repeat after me: real estate provides the highest returns, the greatest values and the least risk.” -- Armstrong Williams, entrepreneur
First of all I would like to apologize to all my readers (yes, all two or so of them!) for the huge gap between the last post and this one. As I'm sure most of you already know a lot has happened in my life since then. In the last post I told everyone I had just moved to the United States and that I was prepared to commence a career as a real estate agent and investor and that is exactly what I have done in the past four months since I moved stateside.
In this post, however, I'm not going to get into any details about my personal life or even about starting a career as a real estate agent in the US. I will let that for another post. This time around I want to share with you some information I have acquired in the past months about real estate investing that might be useful to most of you guys out there who are planning, like myself, on kickstarting your careers as real estate investors.
So first of all let me tell you the 5 things you will need to start your career as real estate investors. Those 5 things are knowledge, intent, credit, capital and positive cashflow.
Let's start with knowledge. Now, this is probably the single most important element out of all five, at least in my opinion. Personally, I bought my first two real estate properties at the age of 26 without having a clue about what I was doing. I didn't know anything about finances back then, I had never handled more than a couple thousand euros before in my life, I knew absolutely nothing about real estate other than you can live in it and I was definitely utterly unprepared to become involved in a real estate transaction. Still somehow, in spite of all of that, I decided to buy two investment properties and that was probably the worst mistake of my life so far. Five years later that deal still gives me constant financial and emotional pain. So I'll tell you this, learn from my very costly mistake. Don't do the same thing I did. If you are serious about investing in real estate, make sure you educate yourself first or at the very least make sure you surround yourself with the right people that will teach you and protect your interests and not their own like what happened to me.
The second worst thing you can do is, ironically, the exact opposite of the first one. That is, you can study real estate investing for thirty years but if you never decide to buy an investment property or flip a house, it won't make you a penny richer. I've covered this extensively in the previous post so I won't waste my time, as well as yours, repeating myself. Intent comes down to actually having the balls to make a move when you're finally ready. It means acting. Investing can be scary, but if you want to reap the benefits of it, and they are plenty, you need to be prepared to act at some point, even if that means taking some measure of risk. Intent without knowledge is dumb and dangerous. Knowledge without intent is just useless.
So now that we've covered the two abstract elements on this list, it's time to go over three more "down to earth" elements that you cannot do without if you actually want to buy an investment property. Let's start with credit which is something you truly must have in order to buy a property unless you are already rich. In the past months I've discovered that credit is actually the first thing you must secure if you're interested in investing in real estate, at least in the United States. It doesn't matter how good a deal is, if you don't have a bank lined up to give you financing you will never be able to actually secure the purchase of the property. So credit is a huge deal and, as I have found out recently, it can actually be quite hard to obtain. I will probably write more at length about credit in the future, but essentially the two easiest ways to obtain financing are either having a stable job or having someone that qualifies for the loan to get in the deal with you. If you're unable to do either thing, it is possible that your career as an investor in real estate won't take off for quite a while.
Once you actually have some sort of financing in place people will start taking you seriously. That's when you have to make sure you have the money to use as a down payment for the deal. Unlike what you will hear in lots of videos and blogs online, you almost always need at least some money in the bank to buy an investment property. After the collapse of the real estate market in the early 2000s banks have become cautious and very particular about who they loan their money to (as they should). That means they won't give you a 100% loan on a property no matter what, especially if you are a novice investor. That means you usually need to be prepared to pay at least a five percent of the total price of the property at the time of acquisition, plus all the other costs associated with buying a house. In other words, if you're buying a $200.000 house, you must have at the very least $13.000 dollars or more in the bank to use for the down payment and buyer costs.
It is only after you secure all of the aforementioned elements that you will actually be one hundred percent ready to buy your first investment property. In order to do so, however, you will now have to identify the right property to buy. I will definitely go into more detail about that in future posts, however at this time I want you to understand that the single most important thing about a specific deal is the property's cashflow. Had I understood this before starting my real estate investing career five years ago, I would have saved tens of thousands of dollars. So, once again I tell you, learn from my mistakes not yours! This will save you a lot of money. I will write extensively about finding the best deals in further posts but for now I only need you to understand that whatever property you buy, it must have a positive cashflow. That means the property has to put money in your pocket every month. In other words, the rent you get from the property must be superior to the costs associated with it, including its mortgage payments. Basically, if you have to take money out of your pocket and put it into a property every month, that property is not an asset, it's a liability. If you want to be financially independent you will want to buy assets and avoid liabilities at all costs. If you still don't know this by now I emphatically encourage you to go back and read the previous posts or, even better, play the cashflow game online or read Rich Dad, Poor Dad by Robert Kiyosaki.
