How to Hold Down Your Day Job and Still Get Started in Real Estate Investing

This is an excerpt from Emerging Real Estate Markets: How to Find and Profit from Up-and-Coming Areas by David Lindahl, reprinted by permission of the publisher, John Wiley & Sons, Inc. Copyight © by John Wiley & Sons, Inc.  All rights reserved.

Getting Your First Deal in an Emerging Market

Before you invest in emerging markets, you need a plan.  This will be your roadmap to success.  Investors who simply jump into an emerging market—or any market-- without a well-though-out plan are usually not very successful and waste a lot of time and money.  You must find what type of property you want to invest in, a great property manager, and do your research on the property you want to own.  I always teach my students to hope for the best and be prepared for the worst.   Ask the existing owner what the highest vacancy rate has been and analyze how difficult it might be to replace tenants.  It’s also important to stress test your proposed investments by actively looking for flaws. All of this will save you time and money.

The Supreme Importance of Time Management

Of course you know that becoming rich in real estate does take some time and effort.  But I have two pieces of very good news:

• The right systems can reduce that time to a minimum; and
• The actual time needed is small enough to be realistically done by a person with a full-time day job. 

My most important requirement for a road toward financial freedom was that it not take too much time.  The fact that you can simply plug in my systems will save you even more time. 

Where You Should Start

Obviously, few investors can start by investing in really large properties, and you want to start with properties in your comfort zone.  During the first couple of years I focused on smaller properties and gained experience, learned from my mistakes, and worked on expanding my comfort zone.  Also many larger buildings will throw off enough cash for you to hire a professional manager.  This frees up a tremendous amount of your time to find other great deals and multiply your wealth.  The big difference between doing small deals and large deals is not how much time they take to manage—it’s that you get paid a lot more money to do the bigger deals.

How to Save Time and Money When Investing in Emerging Markets

One important thing to saving time and money is doing a direct mail campaign.  This is simply sending mailing pieces directly to the owners of the kinds of properties in which you are most interested.  You can get a list of owners from the assessor’s office of the city in which you are interested.  Ownership and tax records are public information. 

Another HUGE reason you must contact property owners directly: Agents concentrate on selling properties that are already listed.  They want to move their existing inventory, and keep those sellers happy who have listed properties with them.  By sending letters directly to a large number of property owners in a city, there’s a good chance you’ll learn of a property NOT currently listed for sale.  This could be one for the best deal s in town—and ONLY YOU know about it, because you directly contacted the owner.  Another great source for lists of property owners are mailing list brokers which you can use Google or another search engine to find. 

Just think about how easy it is to contact property owners in any city in America.  For about $130 or so, you can get the names and addresses of 1,000 property owners.  This enables 1,000 property owners in an emerging marketing to think about you and the fact that you are ready and willing to buy their properties.  Be selective and you can send FEWER letters at LESS cost saving you MORE time.

Another key to success is to delegate tasks to other people.  Many people are happy to take on other part-time work.  Employ them to do all sorts of jobs, like signing and stuffing envelopes, taking them to the post office, and so on. 

Start Investing Part Time

I encourage my students to think big.  As you will discover, it’s often just as easy to do a big deal as it is to do a smaller one. 

Believe it or not, in some cases, it’s easier to find financing for a big deal than for a small one!  That is because the bigger property produces much more rent and has relatively lower expenses (per tenant).  Banks feel reassured that there will be more profit, making it easier for you to pay the mortgage. 

An advantage of multi-family properties is that you can start investing in them on a part-time basis.  After all, you won’t be managing them—you’ll have a professional management company do that.  This is not so with single-family homes, where most investors end up doing much of the management work for themselves.

Do NOT make the mistake of trying to save a few dollars and manage your apartment building yourself!  If you do, you will not be in the investment business; you’ll instead find yourself in the tenant business.  If you go that route you will burn out.  You’ll then joining the ranks of amateurs who say “Apartments?  I tried that!  What a joke!  I’ll never invest in apartments again!”  Those same losers who were in the tenant business will get out by selling their properties at a discount to people like me (and soon you), at a steep discount!

In the real estate world, you simply hire a property management company and let them do the work while you sit back.

The way I look at it, you should be in this business to create freedom and wealth, not to create just another job for yourself!  Plus you’re not the one who will pay for the property manager—your tenants are.

Comments

[AdamCO]

I am envious of all of you who live somewhere where a property investment makes sense and can be cash-flow positive.

Here in moronville, CO, a quadraplex with monthly rents totally $2000 ($500 per unit) is on the market for $875,000. Another duplex with $900 monthly rents is on the market for $350,000. I expect these remnants from the great property bubble will be around for quite a while around here, but they make investing in real estate a complete joke.

[Kyle]

AdamCO, I really don't understand how you guys do it out on the west coast. Here in Atlanta, I bought a condo for about $100,000 (after a few renovations) and could rent it for about $850 per month if I didn't choose to live in it. I had a roommate for a while who paid me $450 per month to live in my spare bedroom, but I decided I'd rather turn it into a home office and live alone after he moved out. I will almost definitely convert this one into a rental in a year or two when I buy a new condo in a nicer neighborhood. West coast price simply astound me.

[rwh]

I don't know if anyone ever listened to Bruce Williams on the radio. He always told his listeners you had to get an absolute minimum of 1% per month of the existing value of the property and he made it a rule in his business to get 1.5% per month or he wouldn't buy the property.

That usually eliminates single family homes from the equation, leaving duplexes, 4-plexes on up. Bruce would say a 4-plex that rents for $2000/month should fetch no more than $200k, and if were him he would'nt buy it for more than about $133k, unless he was certain he could get more than $2000 per month in rent.

[Jim]

Personally I think doing the work yourself and not paying a property manger is a good way to start. Its my understanding property managers generally charge you 10% of the rent off the top and thats in addition to paying for any work done. So paying them can really eat into your cash flow. And for small units there isn't really a lot of work especially if you hire out services. Put your bills on auto pay, cash checks once a month, pay people to do maintenance as needed and show units when theres vacancies. Doing the work yourself will also give you a better idea of how the business works.

Of course its up to the individual. Being a landlord is really not for everyone.

Jim