All too often, I encounter people who are really excited about real estate investing, but have somehow gotten themselves stuck in the studying mode. Analysis paralysis can hinder success in any endeavor, and it seems especially common in real estate investing. Many people are investing massive amounts of time reading investing books, following real estate forums online, and attending meetups and seminars, but somehow they still aren’t quite ready to make the move and become an actual investor.
While I have failed to fully track the data, I would guess that for every ten people I meet who are very interested in real estate investing, four or five have the income/credit/savings necessary to actually get started with a real estate investing. However, of those four or five, typically only one has actually taken the steps to acquire at least one property!
This post is mainly directed at those three or four out of ten people who are in the enviable position of being able to invest in real estate this year but have not yet actually taken any real action toward doing so. They have a substantial amount of savings and other assets, stable verifiable income, and solid credit. These are the people who could make real estate investing a reality within a month or two if they can get themselves to pull the trigger and take action.
For those five or six out of ten who don’t yet have the income, credit or savings necessary to start real estate investing, use the time that it will take to improve one, two, or all three of those things to simultaneously study and learn more about the concepts, and about your market of interest. Then as soon as you hit that magic income/credit/savings level you’ll be ready to hit the pavement and start taking investment action.
Preparation Does Matter
I absolutely want to stress that people interested investing in real estate should study and fully understand all of the concepts, and intimately familiarize themselves with the tactical elements of their market(s) before taking the plunge. Before actually making an offer on a property, a newbie investor should understand and be able to explain concepts such as cap rates, investment property mortgages, property taxes, and property management.
If any of the major concepts are still foggy for you, then a deep dive into the forums on BiggerPockets is probably in order. While there are plenty of other resources out there as well, ranging from books to podcasts to YouTube video series, BiggerPockets is probably the most comprehensive all-in-one-place resource currently in existence for learning real estate concepts.
In addition to real estate concepts, it is, of course, very important that you have a deep understanding of your market. Within your target area, you should know what properties are for sale (and for how much), what properties have sold in the past year or two (and for how much), the variations in property types/ages/styles, what properties are for rent (and for how much).
Assuming you’re targeting the Cleveland market, the Cleveland Investor Primer Area Guide and the Investor Toolkit are a great tools to get a preliminary understanding of various neighborhoods and suburbs to target, as well as where to get additional information. It’s not enough, however, to just look at information from a single source. Probably the most important way to do research is by digging into listings (active, pending/contingent, and sold) in your target areas using tools like Redfin, Zillow and even Craigslist. Set up free accounts on Redfin and Zillow, and you’ll have a bit more access to information. Redfin is my own personal favorite for searches (but not for actual buying), as the interface is user-friendly, and you can search all listings, regardless of status (active, sold in last 3 months, etc.) extremely quickly; you can even export massive amounts of data into csv files for analysis or tracking in Excel.
How Much Learning Is Enough?
If you are at the point where you fully understand the basic real estate investing concepts, AND you have done substantial digging into your target market such that you know what’s on the market, what has sold, and what the local rental market is like, then you are probably at the point where you are ready to start investing. Beyond this point, there are diminishing returns to further study.
The fact that you know the basics does not mean you should stop learning — It just means that now it is time to start doing, and to use that to learn even more. It will take years to really become an expert at real estate investing. But to truly get to that expert level, you have to learn from experience. No matter how many books you read, forums you frequent, and spreadsheets you create, you won’t get to the next level unless you make an investment.
Think about the process one goes through to learn how to swim, or how to drive a car, or almost anything in life. Are there things you can learn in these areas from studying, reading and observing? Absolutely. But will study alone ever get you to the level of expert? Absolutely not! Real estate investing is not much different from driving a car or swimming in some ways. Reading book after book and making spreadsheet after spreadsheet is roughly the same as taking driver’s ed for all four years of high school, but never doing any road time, and then expecting that eventually you’ll just become a good driver. You must take action and gain experience.
Set a Timeline
If you’ve been hitting the real estate books, sitting in front of a laptop digging through varied resources, and chatting with others at meetups for a while already, then it is time for you to kick yourself into gear. It is time to take action. It is time to make yourself a timeline to map out the path to your investment goal becoming reality.
If you work at a stable job earning at least $50-$60K, have saved at least $20K or so, and maintain a credit score above 700, then most likely you can check off the prerequisites for getting started in real estate investing. If you can check off those prerequisites AND you understand real estate investing concepts plus have a good working knowledge of your target market(s), then your immediate next step is to document the specific actions you will take toward pursuing an investment, and then set reminders/tasks/deadlines on your calendar to keep on track. Check out this post on getting started in real estate investing with $20,000 or less for some help to map out those actions on your plan.
Keep in mind that it is unlikely that your first investment will be the envy of all investors everywhere. As a complete newbie, you cannot have the expectation that you are immediately going to crush it and find a 21% cap rate property in a market where 8% is the norm, or pull off an ultra-profitable BRRRR (Buy-Rehab-Rent-Refinance-Repeat) right off the bat in a competitive market. Just try to find a solid deal that is in line with the norms — if you are seeing that the cap rates on duplexes in the area you are looking, say Garfield Heights or Euclid for instance, are in the 6-8% range, then try to assemble a deal that you’re confident can achieve that. Striving for an amazing feat for your first deal is like trying to pull off a triple axel jump on the ice when you’ve never even skated a full loop around the rink before.
Often people who I deem very prepared in every way are so reluctant to commit to a timeline that they will give themselves some far-off deadline when I push them, like the end of the year, or a year from now, or even longer. You cannot give yourself that much time, if you have gotten yourself fully prepared already. An appropriate timeline is about three months or less. Success comes only to those who take action. You’re only holding yourself back by not taking action now, so believe in yourself and make investing a reality this year!