Disclaimer: My real estate investment series will be not be in chronological order, at least as they are posted. They will most likely be random tips or topics I am currently thinking about. I would like to put together an e-book of “How to get Started in Real Estate”, but that is a long way off.
What is a farm area?
A farm area is a defined boundary around a neighborhood you wish to concentrate your marketing efforts for real estate investing.
How large is the farm area?
In order to make the farm area manageable, it should consist of 300-1000 houses. Some people restrict the farm area up to 5 miles by 5 miles, but that seems a bit overwhelming to me. Also, at least in the DFW area, an area can change very quickly over a few blocks. If you are reading this, you are probably just starting out. I’ve learned from my own experiences that one should try not to overwhelm yourself especially at the beginning. You want enough houses so that you have an audience, but not too many so your efforts are manageable and effective.
What does a farm area look like? What types of houses and neighborhoods am I looking for?
A farm area contains the houses you are interested in and would like to target. My first inclination when I was starting out was to target the nicer houses and better neighborhoods. This may sound like a good idea at first, but you have to separate what type of neighborhood you like personally as compared to the type of neighborhood you would like to invest in. The typical real estate investor targets older homes. In the book Buy It, Fix It, Sell It, Profit, Kevin Myers says that you should target homes that are 30-40 years old. I agree with that. Typically, you want to find homes that have the potential of being paid off (lots of equity) and require repairs (leverage for bargaining). A newer home will most likely not have a lot of equity and will require few repairs, and therefore most investors steer clear. The price of homes differ depending on the area of the country, but typically the homes that you would target in the DFW area are $90,000 up to $150,000. This price range reflects a well kept, working class neighborhood – i.e. nice yards, few cars parked in the street, few rentals. When reselling or renting the investment property after the repairs have been made, all of these qualities will make it easier to resell or rent.
Scope of Direct Marketing
How are you going to market to your farm area?
– Door to Door
– Door hangers
My next post in this series will explore my marketing plan and what has worked (and not worked) for me so far.
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This is a continuation from Post #1.
Once you have found a local real estate group and have read up on the subject, the best thing you can do is take action. You will not have a very good opportunity to make a real estate investment if you aren’t proactive. For those of you that will be starting out trying to obtain some cash without a whole lot of out-of-pocket expense, wholesaling is the way to go.
A wholesaler is a person that is able to track down and put a contract on a house. The wholesaler would then typically sell the rights to that contract to an investor. The out of pocket costs and the caveat of this whole experience is finding a motivated seller. A lot of the books and GURU’s make this sound pretty easy. It’s not difficult, but you have to work hard and you MUST be consistent (something I struggle with everyday and part of the reason why I started this blog). “So how does one find these motivated sellers?”, one might ask. Great question! Look for distressed properties.
(Stop the Press…There is something I must warn you about. I made this mistake starting out and I ultimately felt overwhelmed, frustrated and quit real estate investing for a period of time. It is very important to pick a “farm” area or a neighborhood to concentrate on. I’ll go into more detail in a later post, but you are looking for older homes that are your typical 3/2/2 working class homes.)
Finding Distressed Properties
1. You can go driving for dollars and look for vacant or “distressed” properties. Telltale signs of a vacant house include: unkempt lawn, lack of a garden hose, absent window coverings, a rubber band on the mail box (the post office does this to signify that a property is vacant), buildup of fliers on front doors. Or you can troll your farm early on garbage day morning and take note of which houses do not have trash cans out by the curb.
2. Drive around and look for “For Sale By Owner” (FSBO) signs. There’s a reason why they are not with an agent. Either they are trying to save a buck and sell it themselves or they couldn’t find an agent who was willing to list the property.
3. You can buddy up with a real estate agent (buddy up with as many realtors as you can and treat them like GOLD) and have them send you expired listings for your target area.
4. Search through probate records and send postcards and/or letters to the executor of the estate. Why would they be motivated? I spoke to a gentleman that was handling an estate. It was November and the holiday shopping season was around the corner. There were 9 other heirs of which they were all women. Do you think he was motivated to not have to hear them plea for shopping money?
5. You can search for “For Rent” signs. There are lots of landlords and a lot of those are landlords by accident (inherited properties, etc.). Don’t you think some of those landlords are tired of getting calls at 3 a.m. about the leaking toilet?
6. Half of the married population is getting divorced. A lot of those divorces are not very pretty. I bet some of those end up in a bitter struggle. I think those people would be motivated.
7. People in preforeclosure are pretty motivated and unfortunately they are not very difficult to find these days. It does help if you subscribe to a list such as www.flsonline.com.
In the next post, I’ll discuss ways of marketing to these potential motivated sellers.
To be continued….
This will be the first in a series of articles about getting started in real estate investing.
There are many ways to get started in real estate investing. Maybe you are a home owner and you are already involved in real estate investing, or perhaps you are currently renting and are saving up for your down payment. Real Estate has been “in flavor” the past few years. There are many tv shows that showcase you how much money you can make or lose. There are also the late night infomercials that promise you millions part-time. The truth is that you can make a lot of money in real estate. Real estate is still an excellent investment if you do your homework and are prudent in your decisions. The people that are in trouble right now bought on speculation, didn’t do their homework and are using risky financing products, lost their jobs, are over leveraged, etc. No matter the issue, there is always a strategy to make money in real estate no matter the state of the economy because people will always need a place to live.
What is the first thing I need to do to get involved in real estate investing?
If you decide to become a real estate investor, you need to treat it as a business. You are in it to make money, afterall. Hobbies are great and I have a lot of them, but real estate investing is a business and you should treat it as such. The first thing you should not do is buy any books or tapes from a late night infomercial. Also, do not buy any expensive packages at an EXPO from a GURU. You can find a lot of these for pennies on the dollar on ebay or at your local half-priced book store if you decide you need them. You can find reviews of these various courses on www.johntreed.com. The second thing I suggest is to read as much as you can about real estate investing. Go to your local library’s website and see what they have available. They probably won’t have a ton of material, but it is a free source. After that, try amazon.com and buy a few used books on real estate investing.
After reading up on the subject as much as possible, I feel it is important to begin building your real estate investing network. Simply Googling “real estate investing club” and your area should provide you with many options (however, if you can’t find any, e-mail me at email@example.com). Another option is to get online and read as much as you can at www.biggerpockets.com or www.creonline.com.
At your local real estate club, beware of “mentors”. There are a lot of self-proclaimed GURU’s out there just out to make a quick buck. I’ve met them and handed them my money only to see them either fail to deliver what they promise, or just plain not show up. If you do decide that you’d like to hire a mentor, I would figure out their motives and make sure they have an incentive to follow through on their promises. In general, and specifically in real estate investing, it’s important to network and to find an honest mentor (or perhaps a few).
Once you’ve gotten out and mingled, it’s important to figure out what your goals are.
Goals are important. It’s difficult to get through the hard times if you don’t have something to focus on. Maybe your goal is to passively make tens of thousands of dollars in cash flow or maybe you want to work really hard and rehab 50 houses in a year. Maybe you just want to have a few rental houses. For me, I’d like to have enough cash flow from rental property that my wife and I have the option of working or not. While we both have good jobs and are in a good situation, our temptation to stay home will undoubtly increase once we have a child.
To be continued…..
If you are a real estate investor, chances are that you’ve heard of biggerpockets.com, trulia.com, zillow.com, and the various web 2.0 real estate investing websites. The following are some newer websites or websites I think may be helpful in your real estate investing career.
- Xap Realty: http://www.xaprealty.com/ – This website is intended for realtors, but it appears to be a good tool. Their service is lead capture using text messaging. You text a phone number and the potential client receives all of the necessary info on the property and the real estate investor, in this instance, receives the phone number of the potential lead.
- Reactee: http://reactee.com/ – Following the theme of the previous website, I’ve had shirts made from this company. I wear the shirt, “We Buy Houses”, and if people are interested, they can text “sellhouse” to a number.
- Lenderlab – http://www.lenderlab.com/ – You’ve heard of lending tree, right? Well, this is a website for real estate investors needing a hard money loan or private money to do a rehab (know as a “flip” to people who watch “Flip That House”).
- Know X – http://www.knowx.com/ – A website used to check a person’s background for various judgements nationwide.
- Rentmarketer – http://www.rentmarketer.com/rm/cm/page/home.html – You are able to list your property with them and they’ll post your ad anywhere from 25 to over 60 websites depending on the package you choose. The price is per property per month and the prices range from $39.95 to $99.95
- 3000 Door Hangers – http://www.3000doorhangers.com/ – I think this is the cheapest place I’ve seen for door hangers. I personally have not done a whole lot of advertising using this method, but I plan on starting this VERY soon.
- Loco Print – http://www.locoprint.com/ – I think the name of the business says it all, but they probably have the best prices I’ve seen on flyers and signs. I personally have not used them, but I plan on giving their signs a try in the near future.
- Eppraisal – http://www.eppraisal.com/ – I haven’t used trulia and zillow in a LONG time (since they first came on the market). When I used them, they were pretty far off the mark. I just took a quick look at Trulia, Zillow and Eppraisal. Trulia seems to have a better interface than the other two, but I’m still not completely satisfied on the accuracy of their comparative market analysis. That being said, if you want a quick look at an estimated value of your home, it’s probably within 10-20% of the correct value of your home.
- Rentbits – http://rentbits.com/rb/s/find-rentals – Why am I putting a home rental website on here? Well, if you are a landlord, it’s nice to know how much your competition is charging. They are obviously not rented so you can’t get a true estimate unless you have access to MLS, but it gives you a good figure for how much to expect when looking at a prospective rental property.
- Real Estate Critic – http://www.realestatecritic.com/ – This website allows you to analyze potential rental property to get an estimate of cash flow. The best part of this website is that it’s FREE.