How To Get Started Investing in Real Estate

On today's podcast I talk about how to get started investing in real estate. I read an article today online which was called "5 Ways To Get Started Investing in Real Estate". This article had some really bad advice for new investors. So I thought I would record this podcast episode on that topic of how to get started investing in real estate.

The Article That I Read Recommended These 5 Things.

1. Buy REIT's (I don't recommend that)
2. Online Real Estate Investing Platforms (I don't recommend that either)
3. Buying rental properties (I recommend that you learn how to buy rentals)
4. Consider learning how to flip houses (I recommend that you learn how to flip houses)
5. Rent out a room (recommended if you are on a budget and need to come up with more money to invest)

As far as getting started investing in real estate, I only agree with two of the above strategies. Learning how to flip houses and buying rental properties. If you are thinking about getting into real estate investing, then you have probably considering learning more about how to flip houses and you are interested in investing in rental properties. 

If you have a job and decent credit I would highly recommend that you learn how to buy rental properties because if you want to get started investing in real estate, buying rental properties is the easiest strategy to learn - especially if you have a full time job.

Learning How To Buy Rentals Only Requires You to Have 3 things:

1. A Job
2. A Paycheck
3. Decent Credit

Since most of my audience and students that are listening to this podcast have a job and have a paycheck, and I assume that many of you have decent credit, learning how to buy rentals is hands down the best strategy to focus on.  

WHY IS BUYING RENTALS THE BEST STRATEGY FOR BEGINNERS?

There are many reasons why you want to focus on buying rental properties. The long term appreciation potential, the wealth building effect of owning real estate, the tax deductions, the amortization and principal loan paydown and of course the cash flow from the rental income which increases over time. Those reasons are well known to many aspiring real estate investors. But what is not so well known is the secret way that you can use the Buy, Repair, Rent, Refinance Method to acquire these properties without having to use any of your own cash.  

Let me explain how this works. 

When you go to a mortgage broker, and tell them you want to get approved for a mortgage on an investment property they tell you that you need to put 25% down. That would mean you would be required to put down $50,000 on a $200,000 investment property. That would be great if you had $50,000 but what do you do if you don't have $50,000? What if all you had saved up was $50,000 and once you purchased that one rental property you had no money left to buy another? This is where understanding the BRRR Method becomes so important. This is also where many aspiring real estate investors quit and say "I will get started when I have saved up $50,000". 

That is not the right approach. If you understand the BRRR Method and you really understand how the Buy, Repair, Rent, Refinance Method works then you will understand.

That mortgage broker that told you that you need 25% down probably omitted to tell you one very important detail. And that detail is that if you refinance an investment property, they will also lend you 75% of the appraisal value. Why would they not tell you that? Because you asked them about getting a loan for purchasing a property (not refinancing). Since you don't already own a rental, why would the topic of refinancing even come up in the conversation? And that is where you miss the most important fact which is that banks will lend you 75% of the appraisal value of an investment property.

So the question is, is there a way for you to get the bank to finance your investment property without coming up with the $50,000. And the answer is yes. If you can buy a property at a deep discount to what it would appraise for, then you could potentially refinance it and have the bank put up the cash for you. To simplify, if a bank will lend 75% of appraisal value, then if you could purchase a property at 75% of appraisal value, then when you went to refinance you would not need to have any money since the bank would lend you all of the money. 

Let's use a real life example of a house that I purchased. A motivated seller in Seattle inherited a property from their dad that passed away. This individual was not on good terms with their dad and had not spoken to them in almost 20 years. They were very surprised to learn that they had inherited their dad's house. How did I find this motivated seller that inherited his dad's houses? I purchased an "inherited list" which is a type of motivated seller list. You