The Beginner’s Guide to Investing in Real Estate

Gavin Finch
Written by Gavin Finch 

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Real estate investing is the number one way to transform your financial situation. While industries and products of all types rise and fall in popularity, people will always need a place to live. And while many markets die out as popular trends shift, you can always make money in real estate.

Another great thing about real estate is that anyone can jump into the market. Despite popular belief, becoming a real estate investor doesn’t require you to have gobs of cash. There are several different ways to profit, and some of them don’t require you to invest any of your own money at all. So unlike stocks, you don’t need money to make money. 

Simply put, real estate is for everyone. It doesn’t matter if you’ve worked on houses your whole life or if you’ve never owned one. There are just a few basic concepts you need to understand before you start investing in real estate, and we’ve written this guide to walk you through each one!

Real estate investing basics: what’s the primary goal?

In its purest form, real estate is about buying properties and then making money off of them. There are several ways you can do this, but the main three are:

As you can imagine, there are other ways to make money in real estate, but most of them fall under these three categories. While each of these strategies is unique, they all share one thing in common: they rely on investors buying properties at a discount.

This is why many real estate investors live by the mantra “You make your money when you buy, not when you sell.” An investor can sell a property for $300,000 and make very little money off of it simply because they didn’t buy it for much less. Investors who want to maximize their profits look for houses that are either listed below market value or will sell off-market at a discount. 

By finding these homes, they can increase their return on investment several ways. If they’re renting the property, they can make their money back and start profiting faster. If they’re wholesaling or speculating, they can increase their profits by lowering their initial purchase price to pocket more money when they sell. Finally, if the investment is a fix and flip, they can lower their overall expenses and walk away with a bigger profit.

Motivated sellers: why someone will sell for below market value

When it comes to investing in real estate, many new investors understand the need to buy a property at a low price, but the prospect of finding someone who will sell a house for less than it’s worth seems unrealistic.

Unfortunately, the hardships of life can create a type of homeowner known as a motivated seller. A motivated seller is someone who is experiencing a situation that’s pushing them to sell a property as quickly as possible. There are many different reasons someone might be motivated to sell, but they usually involve looming debt or a pressing financial hardship.

One common example is people who are in pre-foreclosure. These homeowners have fallen at least three months behind on their mortgage payments. If they can’t catch up, they’ll enter foreclosure and. the bank will repossess their home. Not only will the owner lose their property, but they’ll also forfeit all of their equity and their credit score will be negatively affected as well. 

Because pre-foreclosure owners have a very limited time to settle their debt, they usually can’t list with an agent, wait for someone to sign a contract, and then wait for closing. They need to close as soon as possible, meaning they have to sell off-market. In these cases, selling to an investor for below market value is usually the only option.

Other common motivated seller scenarios involve elderly individuals who need to pay off medical debt, fund their stay in an assisted living home, or have recently passed away and left property to relatives who can’t afford to keep it. 

Surprisingly enough, other investors can also become motivated sellers. If they’ve owned property for long enough, they may become tired landlords who are ready to liquidate their portfolios and leave the burdens of property management behind.

The nature of life, mortgages, and property ownership creates people who need to sell. As a result, there are many other kinds of motivated sellers that you can look for and work with.

Regardless of why someone has become a motivated seller, the prospect of a cash purchase can be very appealing. Unlike working with a real estate agent to list on the multiple listings service, an off-market sale to an investor is usually fast and doesn’t require repairs. 

The property owner may not get all of their equity out, but when someone has pressing debt hanging over their head, a solution to their problem is often more appealing than waiting to get top dollar out of their real estate.

Generating motivated seller leads

Once you understand the various kinds of motivated sellers and the pain points each one is facing, you can start finding houses that you want to buy. You have several options when it comes to generating leads.

Real estate lead generation software

The first and most popular option is real estate lead generation software. These platforms aggregate real estate, financial, and owner demographic data and allow investors to search their markets for properties that match their search criteria. For instance, you can easily search for pre-foreclosures in your hometown.

Real estate lead generation software has several other benefits, which include:

  • Easy access to real estate data
  • In-depth insights into owners, their portfolios, and their financial statuses
  • On-demand owner contact information
  • Granular search capabilities
  • Tools for building, organizing, and comparing lists

Because these tools let investors quickly find and qualify leads, they’ve become the industry standard for lead generation over the past few years. However, they aren’t the only way for investors to identify and locate motivated sellers.

Driving for dollars

Many motivated sellers live in distressed properties, which are houses with obvious signs of disrepair and neglect. In fact, it’s precisely because they live in neglected houses that many motivated sellers can’t sell on-market, even if they don’t have a strict timeline. 

However, not all owners of distressed properties are experiencing financial distress. Some have simply neglected their houses and don’t have the money to fix them. Others simply don’t care. These homeowners are often willing to sell for the right price, but identifying them with real estate lead generation software can be difficult. To find distressed properties, you need to drive for dollars.

Driving for dollars is the practice of systematically exploring neighborhoods and identifying neglected homes that could make good investments. Signs that a home is neglected include:

  • Broken windows
  • Tarps over roofs
  • Overgrown grass
  • Peeling paint
  • Fallen-in buildings
  • Other general signs of disrepair

Driving for dollars is one of the oldest lead generation strategies, and technology has simply made it more effective than ever. Now, some lead generation platforms have driving for dollars modules in their mobile apps that allow investors to access detailed property information as soon as they find a potential investment property. 

Bandit signs

Placing a sign in a heavily trafficked area is the best way to find leads if you don’t have much money to spend on marketing and lead generation. Bandit signs simply inform the public that you’re buying houses as-is, and fast. By advertising a convenient way to sell, you’re showing motivated sellers that you’re ready to help them out of their situation. Just be ready to answer your phone every time it rings. 

Work with real estate agents

Real estate agents are a great resource when it comes to finding off-market properties. While most motivated sellers don’t want to work with a real estate agent, there’s a good chance they’ve talked to an agent to learn about their options. If you live in a smaller local market, your agent connections may even know about local neglected properties. 

Finally, sometimes the homes that agents represent don’t sell on-market for a number of reasons. Expired listings can quickly create a motivated seller, so an agent may be able to connect you to someone ready to sell immediately, even if it means selling at a lower price.

Whichever way you choose to find motivated seller leads, the real estate market is full of opportunities. Once you start looking, you’ll realize that there are motivated sellers all around you who are in desperate need of help.

Picking the right real estate investing strategies for you

As we’ve discussed, there are countless ways to invest in real estate. Once you’ve identified a motivated seller who wants to work with you, it’s time to choose which method you want to pursue for that specific deal.

When you’re new to real estate, your options may be somewhat limited simply by your lack of experience and capital. However, there are several options available, no matter how little money you have.

Wholesaling real estate

Wholesaling is the most common starting place for real estate investors. When you wholesale, you don’t invest any of your money and you don’t buy any properties. Instead, you simply identify motivated sellers, get their houses under contract for the right price, and then assign the contract to another investor, who’s known as a cash buyer

In this scenario, you’ll collect an assignment fee, which is essentially the amount that the cash buyer pays you for the right to buy the property. 

Fix and flip

If you have some money to invest, you can fix and flip.  In this strategy, investors buy houses, fix them, and sell them for a profit. Flippers usually only hold a house for a few months during which time they’re constantly updating it. 

Owning rental property

Unlike the first two investment strategies, owning rentals is a passive income strategy. While it doesn’t turn immediate large-sum profits like wholesaling and fix and flipping, it can be very lucrative for investors who make strategic purchases. You can also easily build a rental portfolio without much risk by using the BRRRR method.

Key takeaways

Investing in real estate is an exciting opportunity that anyone can use to transform their financial situation. The good news is that there are many different types of investments you can capitalize on. If you don’t have much money, you can start wholesaling real estate. If you have cash on hand, you can fix and flip or build a portfolio filled with several different types of real estate.

The opportunities are truly limitless, so if you’re ready to start investing, here are the steps you should follow next:

  1. Choose a real estate strategy you want to start with. Once you establish yourself, you can choose on a per-deal basis.
  2. Learn more about the various types of motivated sellers and how to find them.
  3. Start learning about real estate marketing and how to approach motivated sellers.
  4. Take action and start landing deals.

Real estate isn’t as complicated as it might seem. Just don’t forget the basic principle: you make money when you buy. If you purchase properties at below-market prices, you’re nearly guaranteed to turn a profit and build a lasting real estate business.

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