I’m a fairly average guy. Average intelligence, average income, average lifestyle. I don’t have millions of dollars, well-connected friends, or an excess of free time. However, I do invest in real estate, which makes me a little different than the average Joe. The way I invest isn’t complicated, difficult, or time consuming. Sure, there are ways to invest in real estate which are complex, expensive, and extra-risky. However, that’s not my style and it’s probably not yours.
Therefore, today I want to share my thoughts on how to invest in real estate when you aren’t uber-rich, uber-connected, or uber-smart. This post is about investing in real estate for regular folks like you and me. So let me give you the three real estate investing rules for regular folks.
1.) Learn Selectively
Learning how to buy that first investment house or property can be overwhelming. If you search Google for “Real Estate Investing” you are given 217,000,000 results, or if you search Amazon for “Real Estate Investing” you are presented with 11,472 books on real estate investing…
So how can you possibly consume that much information? Easy: Don’t.
When investing in real estate, there are a whole lot of different niches you can get into (like single family homes, multifamily properties, commercial retail stores, etc) but you don’t need to master them all. In the same regard, there are many different strategies you can choose (like long term buy and hold, house flipping, and more) but you don’t need to know them either.
You simply need to pick one niche and one strategy, and learn a little about those. That’s it.
For example, you might be interested in buying small multifamily properties, like duplexes or triplexes, and hanging on to them until retirement. Suddenly, the vast amount of information out there becomes a lot smaller, and it’s much easier to find the information you need. Searching Google for “how to buy a small multifamily property” will bring you far more targeted responses. This is a good thing!
Additionally, once you narrow your focus of learning down, it’s easier to find individuals who have experience in the kind of investing you want to learn more about. Using the same example as before, perhaps you can ask family and friends if they know anyone who is a landlord of small multifamily properties – and then take that investor out to lunch to learn.
Therefore, the first rule of investing in real estate for regular folks is to learn selectively.
2.) Start Small
The second rule of investing for regular folks is to start small. Yes, you may want to acquire millions of dollars in real estate to stock your retirement fund, but that million dollar portfolio starts with a single purchase. And that’s okay!
Perhaps it’s your goal to buy ten single family houses over the next five years. You do not need to buy all ten this year, or next. Perhaps you can buy just one this year, while learning how the process works. The year after you might buy two. Then three. Each year, you become more and more familiar with the process and can buy more and more properties.
The great part about this kind of learning is that it happens naturally. You don’t need to feel overwhelmed, because those other properties will come in time. The knowledge and experience will come slowly, so let it. Just start with the first deal. Starting small is not only necessary, but it’s also a good thing.
3.) Buy Only the Best Deals
Let me ask you a quick question… Would you rather buy ten homes that broke even each month, or one deal that made you $1,000 per month? Hopefully you picked the one one deal, because wealth is built buying great deals. So when you start shopping for your next real estate deal, focus intently on only buying the best deals. Remember these three simple words: Quality over Quantity.
Having hundreds of properties does you no good if you aren’t making any money from those properties. When you are a multinational corporation or large hedge-fund buying up property, you can wager your bets and buy thousands of properties, hoping that some turn out good in the long run. However, if you are a regular guy or gal looking to stock your retirement fund, you can’t afford to buy bad deals.
Keep in mind that just because you might be an regular person – doesn’t mean you should buy regular deals. Since you probably won’t be buying dozens of properties at a time, you can take the time to shop selectively for the best ones.
Look for properties in good neighborhoods that provide good monthly cash flow (the extra income you get to keep after paying all the monthly expenses.) Estimate the future potential of a property very carefully and conservatively:
- If you think you might spend $50 per month on repairs, perhaps you should double that just to be safe.
- Not sure how much the property will rent for? Aim low – and if it turns out better than you estimated you can celebrate.
- Nervous about the potential tax increase in your city? Plan for the worst-case-scenario.
Buying the best deals will allow you to spend less time managing properties, give you less stress while owning them, and help you build wealth even faster. As I said, quality over quantity.
Look – you don’t need to be exceptionally brilliant, rich, or connected to invest in real estate. Instead, you just need to follow the three rules I’ve listed above. Learning selectively can help you get off the couch and investing with less hassle, starting small can keep you from getting overwhelmed, and buying amazing deals will help ensure you achieve your financial goals. Stop worrying about being average and start planning for an above-average financial future.
Brandon Turner is an active real estate investor and Senior Editor at BiggerPockets.com, the real estate investing social network. He enjoys writing epic long blog posts, such as his The Real Estate Agent’s Ultimate Guide to Working with Investors.