It starts as a consideration. Then it becomes a dream. Then, just maybe, if you play your cards right, it becomes a reality. Buying your first investment property is much more than it seems on the surface. You have all the due diligence warranted of buying property, but also all of the second-guessing and organizational preparation of starting a business (if you’re doing it the right way).
There’s a lot of glam to investing in real estate. It’s how people become millionaires. You may have heard that real estate has played a large role in building wealth for 90% of self-made millionaires in the US (http://www.mckinneycapital.com/90-percent-of-millionaires-do-this/). It’s not easy, but it’s tried and true. It’s the most likely way you will become wealthy.
I’ve been curious about real estate for several years, mainly after reading the popular book, “Rich Dad, Poor Dad” by Robert Kiyosaki. This book prompted me to really think about the person I could be with the freedom of passive income. Over time it became an obsession, leading me to getting a real estate license almost a year ago when I was studying Business Management at The King’s College in Manhattan (the New York one, not the Kansas one).
New York has five times the red tape, an unfathomable amount of capital, and 1/4th the organization (they don’t have an MLS!) of the Jonesboro Arkansas real estate market. It was a thrilling, and bizarre experience. Primarily I worked with leasing where I learned the basics of showing property, people’s varying preferences, and the landlord’s perspective. My first listing was a two-family townhouse in Brooklyn for sale for 1.55 Million. It needed a decent amount of repairs, but would have been worth 2 million easily with repairs. If it were in the neighboring Park Slope area, it likely could fetch twice as much. What shocked me was the absurd cost of renovation. For floor, paint, cabinets, and appliances in this ~3000 square foot, 3 story building, it would have cost around 100,000$. Of course, in Jonesboro this would cost somewhere around 20,000$ to 30,000$ with any reasonable contractor.
There are two main forces driving this cost difference: New York has an extremely high number of white-collar workers and not enough blue-collar workers to service their property, and massive amounts of red tape. Due to the steep cost-of-entry among other reasons, I decided Jonesboro was a better market for me to make my start in real estate.
I’ve made my dream a reality, buying a four bedroom house in Jonesboro (in the Annie Camp area).
Here are a few important lessons I’ve learned from studying the market, reading, my mentors, and experiencing it for the first time.
Don’t let your emotions lead you.
It’s easy to go after a house that you would love to live in. You can imagine it being a great place to live for another family and you’ll feel great owning it. That’s fine if you have money to throw around at property you just have to have – but true real estate investing is a math equation. What’s the square footage? What are the comparable sales for the neighborhood? What could it rent for? Should the tenant pay utilities or not? What will the repairs cost?
These factors and others should all influence your spreadsheet when looking at a house. When I first began looking for my first property, I decided that I want a large, old house downtown. I was going to wait until the perfect house came on the market and go after it. I had made offers and gotten fairly serious on more than one property. What I quickly realized (with the advice of wise friends) is that I was letting my emotions influence how I was formulating the investment equation for this property. My subconscious was doing an Enron-style number fudging game on me. Luckily, I was able to overcome this tendency and move on to a wiser mindset.
Play to your strengths
Success in business can be put into two categories: being willing to do something no one else is willing to do, or being able to do something no one else is able to do. Being a landlord and your own property acquisitions team is a business. Each individual due to their position in life, network, occupation, or skills will have a unique ability that others won’t. Perhaps you’re retired: then your time is more flexible which allows you to see and offer on a property quicker. Perhaps you are college-age like me: then you know younger people who want to rent rooms in houses which provides a higher rent.
If you have a large network, you’ll likely be able to find off-market deals that other people aren’t aware of. If you’re in any blue-collar field related to building, you’ll be able to do those repairs yourself. It may take some creative thinking, but you can find your niche and enjoy its benefits.
Expect the unexpected
Assume the worst. That old HVAC? It will go out after three months. That great tenant you thought you had? They will trash the house and not pay. That old hot water heater? It will burst and ruin the new floor you just had installed. I don’t want to discourage anybody from investing in real estate, but it’s not to be done lightly. Maintenance is of the utmost importance and you must have a plan A, B, C , and D. However, if you play to your strengths and follow the numbers when buying, you will do a great deal to mitigate these risks. At the very least you will have options of how to handle emergency situations.
Hire what you don’t know
If you’re ready to make the leap, you don’t have to jump out there on your own. If you have a fantastic real estate agent, experienced property manager, inspector, and contractor, there’s no need to fear. You can rely on us professionals to do what we do best.
I’ve been studying, reading, apprenticing, and now participating in the wide world of real estate investing. I’m not your typical real estate agent who works with owner-occupied buying and selling. I am the quiet, soft-spoken, analytical agent who has been trained on investment property like no other agent in town. I’m looking to work with a select few investors to help them achieve their life goals through residential real estate investing. If you’re interested in working with me – email me at firstname.lastname@example.org and we can schedule a meeting to chat about your goals and how best to meet them.
Mason can also be reached at 870-897-1176. You can also find out more about Mason Clark here.
Jonesboro Select Real Estate, 216 E. Highland Drive, Jonesboro AR