How do I become a real estate investor?


Ever dream about starting your own real estate investing business?

According to Kabbage a financial services and data platform, 85 percent of small business owners believe that being your own boss and owning a business is achieving the American Dream. Starting your own business as a real estate investor, can be a great way for you to achieving your dreams.  

But how to start?  One way that does not require much capital, is called wholesaling.  Wholesaling is the term used to describe your part in a real estate transaction.  Basically, you are the one that finds a property deal, negotiates the contract for that property and then offers to sell that property or assigns it to a third person or party, who intends to fix-n-flip it.  

There are two aspects of wholesaling and they include 1 - finding property deals and 2- having or building what is called a buyer's list, in effect they are the ones who buy the deals you find.  You then charge a fee, called the wholesale fee, for your time and efforts.  You can incorporate any amount of fee you want when you sell a deal and commonly $3,000 - $5,000 is the norm; but it's not unheard of of charging $10,000 plus on a deal.  

There are several ways to find properties, newspapers, being part of a local real estate club, online sites like, Trulia.com, Realtor.com, Craigslist, and others.  You can buy lists of homes that are being foreclosed or auctioned off for unpaid taxes. Posting signs with sayings like: "We will buy your home for cash".  You get to decide on your strategy and what makes you comfortable because its your business.  

The second part and probably the most important part is having buyers who will buy the properties you find.  This requires you to network and find people who do fix and flipping for a living.  Find these people when they are selling their finished product, get their business card and ask if you can add them to your list.  Post adds on social media asking for buyers to send you their email.  Connect with them at real estate investor clubs.  The more buyers you have the greater the chance you can sell your property deal.

What are the risks involved?  Finding properties that are not appealing to buyers, like high crime neighborhoods or close to commercial properties or highways.  Miscalculating costs, such as remodel costs.  The buyer will analyze and in most cases send in their contractor to asses costs.  Another risk is that buyer buys your deal and can't close because of the lack of money or other reason.

What are the rewards?  Having a process that includes finding homes in the areas that your buyers will buy.  Understanding numbers, the concept is that you are finding and buying homes that are usually distressed and worth less than the existing homes in the neighborhood.  Once they are remodeled or rehabbed, they can be sold for market value to existing homes.  The term used to determine the value once the remodel is done is called the After Repair Value (ARV).  Typically, a formula to evaluate a deal is: 70% of the (ARV) is for the purchase and remodel cost combined, 10% of the ARV will cover interest, 10% will cover operating expenses and 10% will be profit.  Having your deals close to these numbers will make a good buy for your buyer's list.  Once you have a buyer and agree to terms, it would be a sound business practice to take a deposit when you sell or assign a deal; this way you can still make some money if the deal goes bad.  

Understanding all these steps and working the solutions into your process are required for success.  Getting a mentor or looking for mentoring programs is another way to learn about the industry and get first-hand knowledge from those who have done it before.  We will continue to write about this topic, because we think real estate investing is a great business to start.

Send me your comments and share this with your social network.  Thank you for reading!

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