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If I Were 22 Again… A Dad Explains Real Estate Investing to His Son
My twenty-two year old son asked me a question last night. He said, “Dad, if you were just starting out like me and wanted to get into real estate, what would you do?”
What a good question, and I really had to think about it before answering it. What I told him is not original with me. These ideas have been much better expressed by other writers before, but since the essence of creativity is selective borrowing, here is the advice I gave him.
I said the first thing I would do would be to become an expert on my target market.
“How long will that take?” He asked.
Ah, the young people, always in such a hurry.
“Depends on how much time you can devote to it each week,” I replied, giving him another one of the vague answers he’s become so used to.
Predictably, he moaned.
I then explained to him that if he really committed to following my advice, and if he committed to a minimum of 15 hours a week, he should become both competent and confident in about 3 months, which doesn’t seem like a long time to me. The key is to look at tons of houses and ask tons of questions to the right people.
I told him that if I started, I would also find the right real estate agent to work with. The right real estate agent will be able to connect you with lots of opportunities you can’t find on your own and provide you with a list of foreclosures and vacant properties to review daily.”
“What would you do next?” He asked.
I said I would work on building a list of buyers as I learned my market.
“How would you do that?”
“I would find and join my local REIA (Real Estate Investors Association) group and attend all meetings. If my area didn’t have a REIA group, I would start one. This is the place to start find, meet and network with people in your area who are investing in real estate. I also read classified ads in newspapers for “Buy Homes” or “Buy Property” ads. These people are active buyers and should be added to your buyer list. Your goal is to have as long a buyer list as possible, at least 50-100 names depending on the size of your region.”
“Why?” he asked me
“I’ll explain that to you in a minute.” I said
He rolled his eyes. Talking to your son is like talking to a nuclear physicist – every time you try to impress them with your knowledge, they make you feel like they can’t believe how long it took you to get to your childish conclusions.
I continued, determined to give my son the advice he was looking for.
“Then,” I said, “armed with a thorough knowledge of my market and my list of active buyers, I would start bidding low on every foreclosure and vacant property I looked at.”
“Everyone?” I could see the doubt in his eyes.
“Well, almost everyone. Every house your confidence level allows you to bid on.” I could see the next question coming.
“What do you mean?” He asked. So predictable.
“What I mean,” I continued, “is that the knowledge of the market that you accumulate during your market research will give you a certain level of confidence. The more knowledge you have, the more your confidence will increase. When you start bidding there there will be a lot of properties that will seem to be beyond your skill level, and if they seem to be, they probably are. trust to make offers on these properties.
“As time passes, however, and your knowledge grows, your confidence will also increase. Then those properties that intimidated you at first will become less scary. Instead of seeing dangers, you will see opportunities. Don’t worry about it, because it’s a natural progression. As long as you put in the time to learn your craft, knowledge will come, and so will confidence. One follows another like summer follows spring.
Then my son asked, “But how do you determine how much to offer?”
I continued to explain to him my method of determining the right amount to offer. See my article entitled “Real Estate Investment – Is there a magic rule?”
“I get it,” my son said, knowingly shaking his head up and down. “What happens next?”
“Okay,” I say. “What happens next is that most of your offers are completely rejected, a few can be countered, and one out of twenty to fifty will be accepted.”
“Is that all?” he asked, puzzled.
“That’s all, but that’s okay,” I said. You can’t handle a whole bunch at once from the start anyway. One or two is enough to start. What you do next is very important.”
“What is that?” asked my son.
“Start marketing your fool.” I answered. “You know that list of buyers you’ve put together? You call each of them and tell them about the great deal you have, and see who’s interested. Put ads in the newspaper, signs on the property and signs anywhere in the neighborhood you can get away with Create a flyer to pass around at your REIA meeting Sell, sell, sell is the name of the game Either way, find a buyer to this property BEFORE closing it and taking possession of it.”
“What about title work and all the legal legwork you have to do when buying a house?” He asked. He’s smarter than I think.
“It’s just mechanics, and I can teach you the mechanics as you go through each trade. What we’re talking about here is strategy. If you master this strategy, you can learn mechanics.
“OK,” he said, “how can I make money?” A very clever question.
“Simple – the same way you make money on any product you sell. You sell it for more than you paid for it. For example, let’s say you get a house under contract for 40 $000 that you previously determined has an after repair value (ARV) of $97,000 and requires repairs of approximately $12,000 If it was me, I would try to find a buyer within the range $48,000 to $53,000. That way your buyer would still have room to make their repairs and make a nice profit, and you’d walk away with around $5,000 to $8,000 after taxes and fees.”
“Fees and taxes?” asked my son. A rude awakening.
“Yes, paid to your lawyer, the realtor, the title company and the government. Of course, you can do a simultaneous closing, and there are other ways to eliminate all or part of these costs, like doing your bidding on behalf of an LLC and then selling the LLC instead of the property, but again, we’re talking mechanics, and that’s for another discussion.” (And another article)
“How much would it be reasonable to earn doing this full time?” ” He asked. A light that turns on.
“There’s no reason a full-time wholesaler (wholesale is really what we’re talking about here) can’t make $5,000 to $10,000 a month, or more. Not at first, though. sure, but after a few months or a year of constant effort, the sky’s the limit.”
“Wow,” my son said, “I’ve never thought about it like this before. I’ve never understood wholesale so clearly. I think I could do it.”
I think he could too. Besides, you too. In fact, what’s stopping you?
Now go make more offers!
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