You’ve likely heard the popularized stat that real estate investing creates more millionaires every year than any other type of asset or investment.
Here’s how billionaire Andrew Carnegie put it.
“Ninety percent of all millionaires become so through owning real estate. More money has been made in real estate than in all industrial investments combined. The wise young man or wager earner of today invests his money in real estate.”
But how do you cut your piece of the real estate investing pie?
How do you dip your bucket into the wealth and freedom that real estate investing has to offer?
That’s what we’re going to cover in this guide — if you’re a total beginner and don’t know where to start, then you’re exactly where you need to be.
What is a Real Estate Investor?
A real estate investor is someone who buys property as an investment, with the intention of profiting and/or building wealth off of the purchase.
In other words, they’re not buying the property to live in it themselves (a.k.a an owner-occupier), but instead are looking at the purchase from a financial standpoint.
A real estate investor invests in real estate to increase their net worth, create passive income, and build personal and financial freedom.
Real estate investing can take many forms. And we'll discuss the different business models in a little bit. We'll even help you decide which business model is right for you.
Do Real Estate Investors Need a Real Estate License?
The quick answer is no, you likely do not need a real estate license to be a real estate investor.
(Although, there are a few states that require you to be licensed. So make sure to check on this in the state where you plan to invest.)
In fact, most successful real estate investors never even get their real estate license.
However, that doesn't mean it wouldn't benefit you to get your real estate license in the state where you'll be investing.
The main benefits to getting your real estate license are...
- To be able to access the MLS (Multiple Listing Service). The MLS is a database of properties that are listed for sale by real estate agents. This will also allow you to run your own comps on properties (more on this later).
- To get your feet wet in understanding the logistics of buying and selling property. Even if you don't plan on being a real estate agent, getting your license will give you a good foundation of understanding how the process works.
- To build credibility when talking to sellers. If you're looking for off-market distressed properties to buy, having your real estate license will make you seem more credible to sellers.
Real Estate Investing as a Business Model
Before we get into the nitty-gritty of building your real estate investing empire, let's talk about the important concept of real estate investing as a business.
Many people who talk about becoming a real estate investor simply want to buy one or maybe two properties, rent them out, and sit back and collect the checks each month.
And there's nothing wrong with that.
But if you want to build wealth and create financial freedom through real estate investing, then you need to treat it as a business.
What does that mean?
It means that you'll need to take a more strategic and systematic approach to your real estate investing.
Don't plan on just purchasing a single property, build a business that generates leads, finds deals, closes those deals, and makes you money.
It's fine if you want to start by just doing one deal on your own so that you can figure out how things work.
But if you want to build real wealth...
Then don't just do a little side-hustle investing when you've got time. Treat it like you're building a business.
And you'll reap far greater rewards.
Now let's talk about how to do that.
Step 1. Learn Some Basic Investing Concepts
The first step is to understand some basic terminology that is critical to a successful real estate investing strategy.
Don't roll your eyes.
These concepts are very important. And we've only listed the most important ones. Take a few minutes to read through these and get your bearings.
ARV (After Repair Value)
The ARV is the future value of a property after you've made all the necessary repairs and renovations.
This number is critical to know because it tells you how much a property will be worth once it's fixed up and ready to be sold or rented out.
It will also give you an idea of how much money you'll need to invest in order to make a profit.
You can calculate the ARV by running comps (see below).
Comps (Comparable Sales)
"Comps" is shorthand for recent sales of similar properties in the same area.
Investors will often talk about "running comps", meaning they're looking at recent sales of similar properties to help them determine the value (or ARV) of the property they're considering investing in.
You've probably heard investors talk about "finding deals". What they mean is finding properties that are priced below market value, usually because the seller is motivated for some reason.
Reasons that a property might be sold below market value include...
- The seller is in a hurry and needs to unload the property quickly.
- The seller has inherited the property and doesn't want the hassle of dealing with it.
- The property needs significant repairs or renovations and the seller doesn't have the money to do them.
There are other reasons, too (such as divorce, foreclosure, bankruptcy, or bad tenants).
Either way, a "deal" is simply a property that's selling for below market value.
You'll need to learn how to find these deals if you want to succeed at real estate investing.
An "off-market" deal is a property that's not listed for sale with a real estate agent.
Investors often try to find off-market deals because there's less competition and they can usually negotiate a better price.
We'll talk about how to find these deals later.
A "distressed" property is one that's in poor condition, usually due to neglect by the owner.
These properties can often be purchased at a significant discount, but they'll need repairs or renovations before they can be habitable or rentable.
In other words, distressed properties are exactly what most real estate investors are looking for.
A motivated seller is someone who needs to sell their property for some reason.
As we mentioned before, there are all sorts of reasons why a person might be motivated to sell...
- They're in a hurry and need to unload the property quickly.
- They've inherited the property and don't want the hassle of dealing with it.
- The property needs significant repairs or renovations and they don't have the money to do them.
- They're going through a divorce, foreclosure, bankruptcy, or some other financial hardship.
- They've had bad tenants and are tired of dealing with the property.
You might hear investors talk about sellers being motivated or not motivated, or about how they're looking for motivated sellers. They're simply talking about homeowners who are in situations that motivate them to sell quickly for cash.
A cash buyer is someone who's interested in buying a property but doesn't need to get a mortgage from a bank.
In other words, they have the cash on hand to buy the property outright.
Most cash buyers are real estate investors.
As a wholesaler, you'll flip contracts to cash buyers for an assignment fee. More on this later.
For now, simply understand that cash buyers are people (typically real estate investors) who can buy properties outright for cash.
Step 2. Understand Investing Business Models
There are a lot of different ways to become a real estate investor. Try to answer the following questions...
- Why are you wanting to get into real estate investing?
- How much cash do you have to get started?
- What's your end goal?
Answering those questions will help you get an idea of which real estate investing business model is right for you.
Keep in mind, however, that the best real estate investors stay flexible.
They don't exclusively use one business model -- they lean toward one, but they're willing to use others when it makes sense.
Not every deal is a perfect fit for every investing model. So it's important to stay a little flexible even if you are focussing on one primary method.
So what are the different real estate investing business models?
Here's a list.
In a nutshell, wholesaling is the process of finding good deals, getting them under contract, and then assigning those contracts to cash buyers for an "assignment fee".
You don't actually have to buy or own the property -- you simply find good deals and then sell them to investors with deep pockets who are looking for those types of deals.
A wholesaler can make between $5,000 and $15,000 on each deal.
This business model doesn't require much money to get started, which makes it a great option for beginning investors.
Wholetailing is a combination of wholesaling and retailing.
The basic idea is to find good deals, get them under contract, and then do some minor repairs to sell them to owner-occupant buyers (i.e. people who are looking to buy a property to live in).
You can make more money with wholetailing than wholesaling, but it also takes more time and effort and is more dependent on the type of deals you're able to find.
Reverse wholesaling is a great tactic for beginners. Whereas with traditional wholesaling you'd find deals and then promote those deals to a list of cash buyers, reverse wholesaling goes the other direction. You find a buyer and then work with them closely to find a deal that meets their criteria.
This method isn't as scalable but it's a great way to partner with your cash buyer, learn a ton, and get your feet wet in the real estate investing world.
Fix & Flip
This is one of the most popular real estate investing business models.
The basic idea is to buy a property, fix it up, and then sell it for a profit.
Fix & flippers typically borrow money from private lenders or hard money lenders to finance their deals.
This business model can be quite profitable, but it also takes a lot of time and effort -- not to mention, you need to have access to capital to get started.
The BRRRR method is an acronym that stands for "Buy, Rehab, Rent, Refinance, Repeat".
BRRRR investors buy a property, fix it up, and then rent it out. Once the property is rented out and generating income, they do a cash-out refinance to recoup their initial investment while they continue to build equity. They then repeat the process over and over again.
This business model is great for building wealth and generating passive income, but it's important to note that it can take a lot of time to reap big rewards.
Step 3. Understand Local Laws
Every city and state has different laws and regulations when it comes to real estate investing.
Some cities have very strict rules around fix & flips, for example, while others are much more lenient.
It's important to understand the laws and regulations in your area before you get started.
You can talk to a local real estate attorney, look up your city's laws online, or join a local real estate investing group and ask around.
Step 4. Consider a Partner
We're walking you through becoming a real estate investor as much as we can possibly can.
But there's no education quite as valuable as getting your hands dirty with someone who's been real estate investing for years and knows what they're doing.
In fact, there's no better piece of advice we can give you than this:
Find someone who's a successful real estate investor and ask them to partner with you. You might even promise the majority of the profits for your first 3-5 deals as you're learning the ropes.
Reverse wholesaling is another great way to partner with someone.
This experience will be more valuable than anything we can tell you in this article.
Step 5. Build a Network
Not only might you consider finding a business partner...
But the people you surround yourself with will have a big impact on your success as a real estate investor.
You need to build a network of like-minded individuals who can support and help you as you're getting started in the business.
Local real estate investing groups are a great way to meet other investors, learn from their experiences, and get deals done.
There are also online real estate investing groups, which can be a great resource if there aren't any local groups in your area.
Step 6. Create Lead-Flow
Hopefully you understand by now that real estate investing always follows a process that looks something like this…
- Find great deals.
- Make money off of those great deals.
But how do you find great deals?
That is, how do you find the homeowners who are motivated and willing to sell to you for below market value?
Not just once, but over and over again.
How do you create an ongoing stream — or lead-flow — that allows your business consistently do deals every month?
There are a lot of answers to that question. And we’ve written an entire article dedicated to the topic of marketing a real estate investing business to find motivated sellers.
You’ll find tons of great ideas inside of that article.
However, since you’re new, you really only need the most important information.
(It’s far better to do one thing really well than it is to do 10 things half-assed)
Here’s what we recommend if you’re just getting started on building a lead-flow.
1. Get Data
Start by buying data from PropStream.
You’ll be able to get homeowner addresses and phone numbers based on the property characteristics and location you select — vacant and absentee properties in your market is a great place to start.
2. Organize Your Data
You’ll be setting yourself up for failure if you don’t organize your data right from the get-go. Leads will fall through the cracks, your follow-up won’t be as efficient or effective, and you’ll miss out on deals you could’ve closed.
Get yourself an REISift account and upload your data.
We’ll help you keep everything squeaky clean. That includes your data organization, your lead management, your follow-up process, and even your deal flow.
We’re the ONLY all-in-one tool for real estate investors looking to start and grow their businesses.
3. Use Direct Mail & Cold Calling
There are a lot of ways to market your real estate investing business.
You could run Facebook ads, build a website and get ranking in Google, so on and so forth.
But we’re going to recommend that you just start with the two most effective and direct marketing methods available to real estate investors: direct mail and cold calling.
Remember that vacant/absentee list you pulled?
Now you want to clean that data — this is CRITICAL. Watch the video below to learn how.
Once you’ve cleaned your data, you can send a direct mail campaign to those homeowners saying something like, “Hey! I’d love to buy your house for cash. Give me a call at [phone].”
Click this link to learn more about direct mail marketing for real estate investors.
Additionally, you can skip trace your records to find owner phone numbers. Then you can directly call these people and ask them if they have any interest in selling.
Don’t know how to cold call?
Here’s one hour of live cold calling to get your off on the right foot.
And don’t forget to track all of your cold call, skip trace, and direct mail attempts inside your REISift account.
Track everything you do.
The more organized you are, the easier this business is going to be.
4. Rinse & Repeat
That’s the basic process for creating lead-flow for a real estate investing business.
Get data. Organize that data. Direct mail and cold call. Track your results. Then remarket to your existing data properly based on responses. Get new data once you actually need it.
You can see how this process can get extremely messy if you’re not keeping track of bad phone numbers, people who tell you not to contact them, direct mail campaigns, follow-up attempts, and everything else going on in your business.
To learn more about the process we use — and to build your business side-by-side with our founder, Tyler Austin, click the link below.
Step 7. Build a Follow-Up Machine
Here’s something you need to come to terms with if you’re going to be successful as a real estate investor: 90% of your deals will NOT happen during the first point of contact.
And rarely after your first offer.
Finding and securing deals requires follow-up — that’s just a part of the game.
If you’re going to be successful as a real estate investor long-term, then you need to build a follow-up machine. A process that is as automated as possible to follow-up with new leads so that deals don’t fall through the cracks.
We recommend taking your data through “three cycles”. We explain this process in detail over here.
Step 8. Streamline Acquisitions & Dispositions
Here are a few quick definitions for you.
Acquisitions is the process of finding deals, making offers, and getting properties under contract.
Dispositions is the process of finding cash buyers and flipping those contracts for a profit.
(In wholesaling, that is. This will look a bit different for different business models)
Before you dive head first into building an REI business, it’s important to have everything as streamlined as possible. Do you have contracts? A list of interested cash buyers? A title company you want to work with?
How are you going to estimate rehab costs? How will you run comps? What’s your formula for calculating your max cash offer?
What about contractors and inspectors?
Those are all things you’ll need to have in place before finding deals. Because once you do find a motivated seller and they accept your cash offer, things should move as quickly as possible.
Final Thoughts on Becoming a Real Estate Investor
Building a real estate investing business doesn’t have to be complicated. There are definitely a lot of moving parts, but if you take things one step at a time, it won’t be long before you’re closing your first deal.
The best way to get started is by clicking the link below.
By doing so, you'll get to walk with Tyler side by side as he teaches you how to build a successful real estate investing business from scratch.