How to get started in real estate investing
Many people are looking for something simple that they can do right now to get started in real estate investing. I recently received an email from an aspiring investor. He says:
“I am working in Riverside CA as a sales representative for a pest control company. While I am out selling, I come across a lot of homes for sale and I talk to quite a few people that are looking at losing their homes, trying to sell them quickly, and so forth. Is there anything I might be able to do now, especially since I come in contact with so many different people and have so many opportunities?
“I have never been part of a deal, and I am not sure how the details work. If I find a house, and the investor decides to buy, how do I get paid? Should I have a place in mind before I contact the investor or should I call them and see what they are looking for? Are there any other details that I should know about? I really appreciate your help and I hope I am not sounding like too much of an amateur, but I would rather learn what I can before I make mistakes doing it.”
There are some basic things that he (and you) can do right now to get started in real estate investing.
Considering his situation, he’s in a great position to “bird-dog” properties for investors. Just like the dogs that track down and point out quail and other game for hunters, real estate bird dogs point out possible properties that investors might want to acquire.
I happen to know some investors in the Riverside area (I know investors all over the US), so I sent him a list of my contacts along with the following response.
One Note
If bird-dogging sounds interesting to you, you can read my pointers to him, but be sure to see my notes for you underneath my response.
My Response
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The first thing you want to do is contact the investor and see how they would like to work with you and find out what kind of properties they are interested in. If you can tailor what you find to their needs, they are much more likely to work with you (conversely if you send them properties they’re not interested in they’ll start ignoring you).
Generally the more involved you are in the process the more you get paid. Here’s a general progression from low involvement to high involvement:
1) (lowest involvement): you find a property that looks abandoned,distressed, or for sale. You write down the address and take a picture of it and send it to an investor. If they check the place out and end up buying it, they’ll give you a finders fee, usually in the range of $200~$500 (just to give you an idea).
2) (more involvement): You find a property that looks abandoned, distressed, for sale, or in foreclosure. You get the name, number, and address of the person who owns it and contact them to find out their situation. When talking to the owner, you’re looking to find out if they’re selling the property because of a difficult situation that requires they sell quickly (can’t pay mortgage, moving out of state soon, accident, divorce). If they have a hard situation and need to get out of that property, an investor can help them much faster than a real estate agent or a “for sale by owner” sign.
For doing some of the leg work the an investor will probably pay you more.
3) Find out everything in #2, plus find out what shape the home is in, how long the owner has lived there, what they owe on the house, how much they think the house is worth (and how they arrived at that estimate), if there is a 2nd mortgage or any liens on the house, if there is anyone else on title, if they’re behind on payments and how far behind…
These questions (an any others a particular investor wants answered) will give an investor an idea of how to best approach a particular property and whether it might be a good deal or not.
4) Beyond the work done in #3 you’re entering the world of full-fledged real estate investing.
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That’s the email I sent back to that individual.
Now before you jump in your car and start looking for properties, there are a couple of things you want to understand about bird-dogging:
#1) While finding properties for investors is a way to get your foot in the door of real estate investing, I mainly recommend it for people who are already in the path of motivated sellers. If you work a job like door-to-door sales reps, postal carriers, or people who work in home improvement stores (home owners often fix up their houses when they’re trying to sell them). If you can find motivated sellers during the course of your normal day, then it’s a great way to help local investors while possibly earning a little extra cash.
If you don’t have one of those jobs then bird-dogging isn’t bad if your purpose for doing it is to get a feel for your community and see what properties are out there. I just don’t want you to count on making a lot of money at it. It is time consuming, doesn’t pay very well, and is not a good use of your resources if you want to make money in real estate.
That leads to…
#2) If you want to bird-dog because you’d like to learn to become a full-time investor, bird-dogging will likely not get you there. You’re welcome to try it for a little while just to get your feet wet, but I don’t want you to think that you’ll be able to learn everything you need to know about real estate investing by finding properties for investors.
I’ve seen countless people try this, and they simply don’t learn enough nor make enough money to justify the time and effort they put into it. Real estate club attendance sheets are clogged with people who show up diligently for several months–sometimes years–hoping that the knowledge and experience they need to invest will rub off on them. Unfortunately it doesn’t work that way.
It’s kind of like hanging out at the dentists office hoping to glean enough information to someday open your own practice.
If your real goal is to become a real estate investor, there are faster and more effective ways to success. Visit this page to find out how.
