Here are the top 10 tips for buying your first investment property. And this applies to flips,
rental properties, house hacks, where you plan on living there, fixing it up, renting it out. And
just a little side note, I do this for a living. Pretty much all I do is look at deals all day. So
I've seen quite a few good deals, bad deals. So that being said, let's jump into the video tips.
Tip number one is something called the law of 100, and I have no idea who came up with
this. I've heard it just used in different scenarios, but basically you want to look at
a hundred properties before you purchase one. And if you're able to look at a hundred properties,
chances are, you can find the low hanging fruit. You can find the cream of the crop type of deal.
Whereas if you only looked at five deals and you purchased the best out of five, chances are it's
not going to be that good of a deal. And that was actually a huge mistake I made when I was first
getting started in investing was I think I looked at two or three deals and then I bought one and
I bought the worst out of the three. Looking back on it I bought a studio which studio condos almost
never appreciate in value. Just keep that in mind. When you're buying condos, try to buy a two
bedroom, three bedroom. One bedrooms are okay, but stay away from studios. But also
look at a lot of deals. If somebody sent me a deal halfway across the country or in let's say Hawaii
or wherever it might be and they said, "What do you think of this deal?" Well, I'd have to look
at probably at least 5, 10, but better yet, if I looked at a hundred deals, I would really know the
market and I'd be able to see some inefficiencies and see some things that just... The values are
incorrect and it could be a good deal that you could reposition and sell for a profit.
The next tip is actually a quote from the billionaire real estate investor,
Sam Zell and this is just something you should keep in mind when you're evaluating deals because
real estate investing is all about evaluating risk. There's always going to be some level of
risk, but if there's enough profit, a lot of times it will make sense to do the deal. And the quote
is this. "If you have a big potential downside and a small potential upside, you should run
away from the deal. However, if you have a small potential downside and a big potential upside,
you should do the deal." And this quote's actually saved me a lot of time because I'll be evaluating
deals. And when I'm looking at the deals, I'm like, well, in a perfect scenario, if everything
were to go correctly I can probably make a pretty good profit on this deal. However, the more likely
scenario is that I probably break even, or even lose money on some of these deals. So you have to
be very conservative and make sure that it's much more likely that you're going to make a
significant profit than the potential downside. Tip number three, is that when you're getting
started as a real estate investor, you should purchase close to home because no
matter what type of property you purchase rental, fix and flip, you're going to have
to go to that property probably quite a few times, at least in the beginning, when you're
getting it set up or getting it fixed up. And if you're going to have to drive 45
minutes each way, that's going to get old very quickly. Even if you have to drive 30 minutes.
I have some properties that are 30 minutes away from me and maybe I'm just lazy, but I'm like,
"Man, I got to drive 30 minutes." Much less if it was in some entirely different city. I hear
about some real estate investors that purchase properties like hours and hours away. And once
you get more experienced and you have a good understanding of different markets and maybe you
have property managers over there, I think that's completely okay. But when you're getting started,
you want to purchase in an area that you know and that's close by and you can have
more control and management over it. One of the first investment deals that
I almost bought and, thank God I didn't buy, was in Baltimore.
And you're so new to real estate, you don't have any money. So you're just trying to get in.
And the person told me the house was $5,000. I was like, "You can buy a house for $5,000?"
Woo. And of course, I didn't know anything
about Baltimore. And if I were to look, this was probably like 10 or 15 years ago. If I were to
look at what the value of that house is right now, it's probably $5,000 if it's even still there.
I think Baltimore, I know Detroit has just been knocking down neighborhoods because there's just
so much blight in it. Some of the city resources can't even reach different parts of the city.
So buying a place you know and buy close by. Top number four is to have reserves. So I think
I heard Dave Ramsey talk about this. Your emergency fund is insurance.
And he wasn't talking about real estate investing. He was just talking about building up your assets.
Basically building up your treasure war chest as he likes to call it because
when you become a landlord, whether it's your primary residence or you're just renting it out
to somebody else, or you're flipping houses, you are going to have times when you're over budget,
when there're things that come up that you're not expecting, and it's more likely to happen
when you're first getting started and you just don't really know what you're doing.
So you can have reserves in the form of credit, being able to access credit. For example,
I'd recommend Chase Cards. American Express has good business as well as personal options.
And you can get a pretty long and extensive amount of credit that they'll give to you.
And you want to do this when your credit score's high, not when you actually need it. I had
an actual wall collapse at one of my properties and that's like 25 or $30,000 that insurance
is not going to cover. And this was actually because the wall was an exterior wall that was
pretty far away from the properties. It's a long story. Always get good insurance,
but basically you see my point. There's going to be unexpected costs. And if you don't have
access to a lot of credit or cash or some type of money, you could get screwed pretty
badly. So always try to build out your reserves. Tip number five is to talk to several different
lenders when you're evaluating options, whether its hard money, private money, or even if you're
just getting a conventional type of loan or FHA type of loan, and you're doing some house hacking,
you want to talk to several different lenders. You want to see how they operate, how responsive
they are, what their rates are like, what their reviews are like. You want to get a
good picture. You don't have to talk to a hundred lenders, but make sure you talk to at least three,
four or five, because I'll tell you. When I was first getting started, I was basically working
with a loan shark, hard money lender. I'm not even sure if they're still business or not.
They were basically ripping me off. And I was giving them really good deals. They were very
difficult to work with, overcharged me by tens of thousands of dollars. And if I had evaluated
different hard money lenders, if I had reached out to private money lenders, I could have realized
that every single deal I'd be saving somewhere between 10 and $20,000, just on every single
deal. That's not even talking about the profit of the deal. That's an additional profit for me.
And then once I got my license and started using private money, it's now I'm saving
20 to $30,000 sometimes on my deals. So make sure you reach out to many different lenders.
Tip number six is that most of the time, the more bedrooms and the more units, the better.
So if you're renting out a property, obviously more bedrooms, you can rent each bedroom out for
more money, but also in terms of renovations, in terms of flips, if you're listing a property as a
three bedroom house, there's going to be a good portion of buyers that only want four bedroom
houses. And especially if it's a two bedroom house. A two bedroom house is just weird and
strange, and you probably won't have many buyers at all for that type of property, but you really
want to be able to have four bedrooms or if it's a condo, stay away from studio condos.
I know from firsthand experience that was the first property I bought.
Those things don't appreciate at all. If you can get one dirt cheap and you can just rent it out,
that's one thing. But if you're looking for a good combination of cashflow, as well as appreciation,
I would try, in terms of condos, I would try to do at least a two bedroom condo,
but better yet, try to go for more of the multi-units when we're talking about rental
properties. And then when we're talking about single family, flips, renovations,
try to have three bedrooms at a bare minimum, but really try to focus on adding an extra bedroom to
get to that fourth bedroom. Or in some cases you might even want to add a fifth bedroom.
You have to see what the comps are. If it's a neighborhood where it's only three bedroom houses,
that's every single sale, that's okay. But there's a lot of neighborhoods where it might be four
or five bedrooms. And I would say, though, you don't want to go crazy with it. You don't want
to list a house that has like eight bedrooms. That's going to be a little unusual and a lot
of people probably will be turned off by that. Tip number seven is that when you're evaluating
deals, off-market properties are going to be almost always better than properties listed on
the MLS. And look, you can still find great deals on the MLS, but the overwhelming majority of good
deals are going to be found when you're marketing directly to sellers. And it just so happens that
I have a video that shows you exactly how I personally market to off market sellers. I'll
put the link below. It's called PropStream. It shows you who the off market sellers are.
And I like to do a combination of direct mail. Some people do text messaging, cold calling. You
basically just need to contact the right off market sellers. And that video goes more into
depth on that. But when you're marketing directly to a seller, that is when you're going to get the
best deal. Because if someone lists it on the market, it's going to be seen by 10,000 people.
Whereas if it's just you marketing to them, it might just be you and one or two other investors.
And oftentimes you can make a deal. Tip number eight for your first investment
property is, do not buy just for appreciation. Appreciation is literally impossible to predict.
Now there're some neighborhoods that are transitioning that you'd probably bet money
that they will appreciate, but you never know. In the market crash of 2007, there were neighborhoods
like that where people lost a lot of money. You never know what the market's going to
do. You have no control over that. So you always want to have... Keep in mind the risk,
keep in mind the downside as well as the upside. So if you're buying in an area that you think is
going to just blow up and has all this future potential appreciation, make sure in a worse
case scenario that you can still rent it out for the cash flow and make some money every
single month. A lot of people got in trouble when they were just buying for appreciation
and then every one of their properties was losing $500 or $1,000 every single month.
Tip number nine is to take on an easy project first. I'll talk to new real estate investors all
the time and they'll tell me about these different projects. Like, "What do you think about this
deal? What do you think about that?" And it'll be some massive condo conversion project, when they
haven't even fixed up a house before. And it's fine if you want to get into those bigger projects
and eventually you should. You should evolve as a real estate investor. I see so many agents and
investors that are doing the same types of small deals that they were doing like 10 years ago.
So your goal should be to evolve, but start with something that you can handle when you're getting
started and work your way up to that. Unless you come from some construction background or have
experience with those types of deals, there's so many variables and timeframes and just so many
different things, moving, moving pieces that are going around and you're not even aware of.
You just look at the numbers and you say, "Okay, well, if I can buy this piece of land and then
build these townhouses, and then they cost 200,000 each to build for new construction,
then I can sell them for 600K, well, I just made a 400K profit on every single one" And
it's really not like that. Wait a minute.
You have to know what you're doing with some of these bigger development projects, because there
are so many different things that can come up. I'll tell you a quick story. There was a very
successful real estate agent in my area. And I believe during 2007, 2008 when everyone was
buying homes right before the crash, he tried his hand at development and he had all this experience
as an agent, but he'd never really fixed and flipped houses, never done any projects and
he tried to do some massive subdivision and it was a complete failure. And fortunately he was
a really good real estate agent. So I think he lost some money, but it wasn't the end of
his career or anything like that. But start with smaller projects and work your way up.
The next tip is to get your real estate license. All it's going to cost you is a few hundred bucks
and pre-licensing education, maybe another hundred bucks to take the test. Maybe you're all in for
$1,000 to actually sign up with a brokerage. But the reasons you want your license are number one,
you want to get MLS access. You don't want to just rely on Zillow or Redfin and those sites
can be helpful. They're pretty good, but the MLS data is really what you want to be able to access.
And then secondly, you're going to save a ton of money by having your license because
you can list your own properties. If you find a good deal on the MLS that you want to purchase,
you can do that as an agent and save another 10,000 or however much it's going to be with 2
1/2 or 3% commission. There's this investor I know. He's pretty well known on Instagram and
social media. And he does a lot of flips. So he does some commercial too, some multifamily,
but he was saying he saved $200,000 or $300,000 every single year from having his license
and also being an investor. So it's pretty much a no brainer. There're fees associated
to every business and real estate investing, your only cost basically is your marketing and
then just getting your license. Pay a few hundred bucks, get your license. So thanks for watching
this video and be sure to watch this one right here and I'll see you in the next one. Bye.