Many people shy away from investing in real estate because they believe it requires large amounts of money, credit and knowledge to get started. While that may be true for traditional methods of investing, such as buy and hold or flipping, there are other techniques that require little to no money at all.
Knowing what I know today, if I were starting all over again and had no money, credit, knowledge, experience, or investor contacts, I would use the following approach…
Network with local investors
How do you find these investors? By far the best way is by finding an investment club in your area. Here are some ideas on how to find one…
- Search online – many clubs have websites to promote themselves, offer special member services, etc.
- Talk to real estate professionals – Realtors that specialize in investment properties will likely be well known in the area, and will probably know about local investment clubs
- Look in the newspaper for investors selling properties – offer to take them out for lunch, ask them what they look for in a deal, and if they belong to any investment clubs
When I first started investing, I found a local club that was just getting started by searching online. It eventually grew into the Ottawa Real Estate Investors Organization (OREIO) with hundreds of members (I’m past President of the club). If you live in Ottawa or the surrounding region, I highly recommend you check out a meeting.
Once you’ve found a club, be sure to attend all the events. Talk to experienced investors and learn from them. Find out what they look for in a good deal. You’ll be surprised how helpful people can be.
Learn basic principles of investing
Even if you find out what a successful investor considers a good deal, you may struggle if you lack general knowledge of real estate investing.
- What’s a mortgage?
- How do I place an offer?
- Why do I need a property inspection?
You need to understand the answers to these questions before you take your first steps.
I recommend using a variety of methods to develop your knowledge, including reading books, learning from other investors, and taking courses or seminars. If you can’t afford to buy any of these items, try borrowing them from the library or from a friend. However, don’t think your education is over after doing this for just a few months. Dedicate yourself to constant learning and you will soon have the knowledge and confidence to invest on your own.
Learn about the local market and view a lot of properties
Start learning about your local real estate market by driving around the neighbourhood, visiting open houses, and talking to people selling their homes privately (called For Sale By Owners or FSBOs). Do this even if you plan to invest in another city.
Why? It gives you experience in seeing property, dealing with people, identifying good and bad neighbourhoods, analyzing deals, and much more.
I can’t emphasize enough the importance of this step!
It’s how I got started many years ago, and I strongly believe it was the main reason I took action and bought my first deal. It’s simply too easy for people to sit at home, read books and courses, and yet not actually DO anything. Do yourself a favour and get out talking to people.
Talk to real estate professionals
This is by far one of the most important steps to ensure your success. If you are a person who doesn’t like talking with people or doesn’t get along with anybody, then you need to step out of your comfort zone.
Real estate is a people business, no matter what any of the gurus say. You have to talk to lawyers, accountants, property inspectors, appraisers, bankers, and most importantly, realtors.
Realtors will be your main source of deals. It’s their job to know what’s going on in the real estate market, and they will hear about properties for sale before they ever hit the market. They won’t ever know about ALL the deals (some sellers will never use a realtor to sell their property) but they know about the majority of them, especially for areas in which they specialize. And if they don’t know an area, one of their colleagues will. Talk to people, tell them what you’re trying to do, and good results will follow.
Refer deals to active investors
First step… You must learn exactly what investors are looking for. “That’s easy” you say… “Good deals, right?”
But what exactly is a good deal? You need to know the investor’s criteria. And each investor is different. Some people think a property that is 10% below market value is an awesome deal, while others won’t even bother looking at it.
You need to talk to investors and dig out the answers. Once you know what they want, you can find it and give it to them. Agree up front how you will be compensated for your efforts. Referral fees are negotiable, but between $500 and $1000 is reasonable if the property meets the investor’s criteria.
So what exactly do you do for this fee?
- search newspaper listings for properties
- walk or drive neighbourhoods looking for property for sale
- call sellers to determine if their property is suitable for your investor
- collect the seller’s name, address and phone number to give to the investor
You do not have to fill out any forms or present an offer to the seller. You simply connect the investor and the property seller and get paid. Normally, the investor would be doing this themselves, but by leveraging your time and effort, the investor more effectively manages their own time.
You must ensure that you are dealing with honest, ethical, and experienced investors who will actually close on the deals you bring them and pay you. This is very important, otherwise you will be wasting your efforts. And be sure to work with multiple investors just in case one can’t close on a deal for whatever reason – you can always offer it to someone else.
Assign deals to active investors
An assignment is basically the transfer of legal rights with respect to a contract, in this case, an offer to purchase property. They require basic knowledge of real estate contract law because instead of just connecting the property seller and the investor, you are actually placing an offer to purchase the property with the seller.
This requires you to know how to:
- properly fill out an Agreement of Purchase and Sale
- protect yourself with the proper escape clauses, and
- ensure the ability to assign the contract to someone else
In addition, due to short timelines involved, it requires having a ready supply of investor buyers ready for your deals. That means providing them exactly what they are looking for, with terms and conditions acceptable to them.
You get paid by offering to assign (or sell) the contract to an investor for a fee. This fee is determined by you and is usually much higher than a simple referral fee because you have done a lot of the work up front and have actually tied up the property under contract.
When it comes to real estate, many people are fearful and have a ‘scarcity’ mentality. They believe there are a limited number of good deals, and they should do whatever they can to keep a deal for themselves.
This is the wrong attitude! If you find an excellent deal that is $75,000 below market value, what good is it if you can’t close on it yourself and keep the profit? You might as well make some money on it until you can invest on your own.
Keep this in mind the next time you find a great deal and let it slip through your fingers because you didn’t have the money, credit or knowledge. By using referral fees and assignments, you can earn while you learn.