Each month I hear the same issues from newbies at the investor meetups and Real Estate Investor Association (REIA) meetings I attend. Let’s debunk some of these myths right now.
Three Myths About Real Estate Investing
1.) I need alot of money to get started
Is this really true? Without even getting into creative financing, just keeping it traditional there is a solution to this.
FHA loans only require 3.5% down. The caveat; the property needs to be your primary residence for a year.
Furthermore, you can actually do this several times over using FHA loans, which usually offer a good interest rate to go with the low down payment.
So after living in the first property for a year, you then look to buy another to live in. Turn the first one into a rental and move into the second. Yeah, who wants to move a couple times in as many years, but if that’s what it takes to get a rental property – you must decide how bad you want it.
On the flip side – there are non-traditional routes; such as procuring seller financing from the seller. Maybe it is an investor looking to retire but they still want to generate passive income off their investment.
Negotiate a small down payment with the remaining balance being financed through the seller. Then, even if you don’t have any money saved it is a reasonable figure to acquire. You can get a personal loan, maybe borrow it from a relative, whatever it takes to put that small amount together – it’ll be much easier than if you needed 20% down.
Note: the seller needs to own the property outright for seller financing to be an option.
2.) You need to find a great deal
No one wants a bad deal, but a deal (especially your first) does not have to be a homerun. Will it cash flow? That is the key question and is why we use property calculators (download mine if you don’t have one).
You don’t need to find a place that needs a full renovation. Heck, if you can find a property that is already rent ready and the numbers work I suggest starting with that if it’s your first deal.
This is what I did. I bought a property off an owner occupant that was in good conditional with minimal work needed before bringing in a tenant. The numbers worked and I did not have to spend the time or money doing a big renovation on my first deal. I took what I learned from that and then got more aggressive on the next one.
3.) I need to wholesale first to build up some capital and a network
This is the one I see more than anything at my meetings and meetups. Literally 75% of the crowd are people who are wholesaling, looking to wholesale or just started wholesaling.
Hey, to each their own as most people think this is the easiest way to start in real estate. You don’t need any money, you don’t need to qualify for loans. You just need to find deals, simple enough right?
The reality is wholesaling (and this is just my honest opinion) is probably the hardest way to get started in real estate. People think it is an easy way to get some startup capital. You find a deal, get it under contract and wholesale it to an investor, collect your fee (5k, 10k, 20k, whatever) and you are on your way.
I believe you can achieve whatever you put your mind to, but the success rate in the wholesaling game is extremely low. For every 100 people I have met over the last 5 years that tried to wholesale about 2 of them actually had success and put some capital in their pocket.
The thing about it is, most people see wholesaling as their way to get their hands on some investment capital quickly, without spending any money out of pocket. This isn’t true, I know wholesalers spending hundreds per month on yellow letter campaigns and advertising.
I think many people fall victim to myth #1, thinking they need alot of money to get started and wholesaling seems like the easy answer (almost like a get rich quick idea).
One thing I can say – the handful of good wholesalers I know did not stay wholesalers very long as they started keeping the properties for themselves since the deals offered so much more profit potential than just wholesaling it.