First Timer w/ Cash - Where to Start?

[Dave T]

propertymanager,

thank you for your post.  Here is one example

425,000 purchase
42500 cash down
42500 Fixed Rate HE Loan
340000 primary mortgage

2380 Mortgage payment (assuming 7.5% interest)
430   HE Loan (assuming 15 year 9 %)
275   Taxes (3300 / 12 months)
66      Insurance (im not sure how much this would be i guessed 800/12 months)

3151 are the total regular monthly expenses.  How did you arrive at 8000? 

thanks again

I don't know what banks will do in your area.  In my area, the mortgage balance and the equity credit line on my investment property can not exceed 80% of the appraised value of the property. 

Instead of getting an equity credit line on the investment property, are you planning to use another property with sufficient equity?

Don't forget that when you do 90% financing, you will have mortgage insurance too.

[REIforNewbies]

I would say to start by keeping your cash safe and learning all about the business before letting it burn a hole in your pocket...

[617East]

I'm thinking of getting my real estate liscense and working in a brokerage so that I can learn the business and the market.  What do you seasoned pro's think of this idea?  Once I have much more knowledge then I will do some deals on the side.  Seems like a good place to start for a first timer.

Thanks

[Roger J]

Being a real estate agent and being a real estate investor are two completely different careers.  One does not relate to the other, save for the fact that they both deal with real estate.  Kind of like saying, I'm going to be a car salesman so that I can learn to be a mechanic.

Nothing wrong with being a RE agent.  Just note that you will NOT learn how to be an investor by becoming one.

Raj

[jparkx1]

Getting your RE license will be educational.  A person just needs to be open-minded that being a REI takes more creativity than what the traditional way in purchasing property is.  I think it's a good start for a new investor to learn one side of the business firsthand (get into the mind of a realtor); then use it accordingly as an investor.

[Roger J]

Again, being a RE agent in no way prepares you to be a RE investor.  Two different careers. Period.  In fact, depending on your choice of investing methods, actually being an RE agent may HURT your ability to be a RE investor.  There are many varied methods to investing in RE, some of which do NOT relate well IF you have your RE license.

And again, not bashing RE agents.  Just pointing out that these are two different paths that happen to focus on the same product.

Another point.  I've seen real estate agents who become investors and I've seen RE investors who become real estate agents.  The two groups think MUCH differently, even though they are both doing the same thing now.  RE agent/investor thinks much more "in the box" conventional thinking vs. the more creative investor/agent.  Seems that what you learn FIRST determines what you retain the most.

Raj

[BLL]

MA real estate agents only know how to sell property at retail. They don't understand real estate investing at all.  I spoke to one yesterday bragging how he did a short sale for $30K less than asking. It was a duplex that sold for $389k with rents of $800 per unit. You won't get an investing education working for a broker. You will only learn how to market properties to the average consumer for full price. One benefit to a MA RE license is that you can collect a fee for placing tenants into your own rental units.

Your time will be better spend at the Boston Area REIA or Mass REIA. The only problem with the deals in those groups are they are mostly wholesale SFHs. Not many rentals go through the network. There is a Boston Landlord group, but they focus on property management more than acquisition.

[617East]

Wouldn't working for a realtor allow you to see or know about deeply discounted properties before they are listed or just after they are listed? 

For example if someone was facing foreclosure and called the realtor to sell their house, I would be one of the first to know about it and could make them an offer. 

Also, wouldn't I have access to many resources such as lists from banks that show people that are going into foreclosure?  I understand what Roger J is saying about 2 totally different professions relating to real estate but  it just seems that I would be closer to all of the market data and info working in a brokerage. 

thanks!

[BLL]

Wouldn't working for a realtor allow you to see or know about deeply discounted properties before they are listed or just after they are listed?

For example if someone was facing foreclosure and called the Realtor to sell their house, I would be one of the first to know about it and could make them an offer. 
 

Agents and brokers want full commission and list properties for market value. A lower price means less money for them and they will only recommend a lower the price when the property doesn't sell. Remember they are trained to sell to the average home buyer who pays retail. More importantly, assuming your broker even lets you, I think you will have ethics problem trying to buy from his client at a deep discount.

I am watching a 3 unit right now. Rents are about $1,100 per unit in the area and one unit is vacant with about $1K in needed repairs. Mortgage is $450K and the owner put about $50K in improvements after he bought it last year. Agent had it listed at $525K 4 months ago when it went on the market. Three weeks ago it was down to $419K and listed as a short sale. Now it is $399K in the MLS. Rents justify about $325K retail at most. No investor is going to put down 10% or 20% to make a few hundred bucks a month. They can do better at ING and never deal with tenants, late rent, or MA courts. The agent isn't realistic about the price. She doesn't understand cash flow is the only thing that matters in rental property.

Also, wouldn't I have access to many resources such as lists from banks that show people that are going into foreclosure?  I understand what Roger J is saying about 2 totally different professions relating to real estate but  it just seems that I would be closer to all of the market data and info working in a brokerage.

Working for a broker will give you great insight into how the retail market works. Investors don't work with them because they slow down the deal and NEVER earn the commission.

[jparkx1]

Seems that what you learn FIRST determines what you retain the most.

Raj

Although it may be true that what a person first learns about real estate will stick to them, once "enlightened" at how deals can be made, they may realize that unconventional methods are available and DO work.

[Roger J]

I'm not speaking out of a vacuum here.  I'm going from a working knowledge of BOTH professions.  I get to see both sides.

And no, jparkx1, that's just not true, at least from my experience.  I see it time and again.  If you learn 'conventional' you do conventional, regardless of what else you learn.

And while I don't agree with alot of what BLL has said, one point reigns true which RE agents are trained to sell retail.  Additionally, he is also correct that you will be working for another person (the broker in charge) and you'll have to play by their rules.

Simply being an agent doesn't give you any "secret" info or anything.  You can get "just listed" property info by simply asking an agent to set you up on their email to forward you foreclosure listings as they hit the MLS.

You'd only know about prefors that called an agent if YOU were that agent.  Then, you'd also have a duty to that seller to get the BEST price for them (Sorry BLL, but that is the agent's job).  Kinda makes it difficult to buy at a discount.

You can get a list of pending foreclosures by simply reading the newspaper or going to court house and looking at the list.  No need to be an agent AND agents don't get any special list.

Raj

[jparkx1]

I'm not saying that RE agents get access to a "special" MLS where they have privileged information.  I'm saying it wouldn't be a bad idea to get a RE license to get some hands-on experience in seeing how RE is "traditionally" sold.  Most newbies are stuck in analysis paralysis and this way, they can get something going.  As they learn more, and if dedicated to opening their mind, they can see what other options they have.  While it is true that there are people stuck to their ways, I don't agree that ALL people will stick to 'conventional' if they learn of more effective methods.

[Roger J]

I'm not saying that RE agents get access to a "special" MLS where they have privileged information.
NO, J, but the original poster did.

I'm not trying to start some argument or big discussion on this, either.  Getting "hands-on" experience as an agent doesn't prepare you one bit to be an investor.  Simple fact.  And no, not "all" people are stuck in their ways.  Never said that.  What I said was that, from my experience, RE agents who become investors don't do creative deals.  Mostly, that's because their education in RE was conventional, but it is also because they ARE licensed and some 'creative' investing is closed to them because of this simple fact.

J, if you are an agent, then you'll understand this.  If you're not, then, frankly, you're speaking out of assumptions, vs knowledge.  Simply getting an RE license and "learning the ropes" isn't that easy.  Assuming that one has the funds to take the courses, the state exam and join the MLS (expensive in most areas) and assuming that one actually does pass all the requirements, then a person has to be able to find a broker to work under that will even ALLOW them to focus on RE investing vs. selling RE to the public.  And if you find that broker, then likely, you've also found a company that's not worth working for.  Again, a major catch-22.

Raj

[Salverston]

I am a semi-retired real estate investor and a former real estate agent.  I have to come down on the side of getting a license is a waste of time and money.

If you go the license route, you will get an education about real estate laws which is valuable, but which you can get by reading a good book or taking a decent college class.

You learn a lot about selling - selling owners to allow you to list their home, marketing homes once they are listed, and working with buyers to sell them a house.  So, as other posters have said, you do get a good education about how the retail side works.

There are two problems with this theory. 

The first is it gives you no education - none - about the most important parts of being a real estate investor.  The most important part of being a real estate investor is locating deals, analyzing them for their profitability, buying them and exiting per your exit strategy (wholesale, buy-and landlord, whatever).  Investors will not fail as an investor because they don't sell to sellers, or market properties to retail buyers, or work showing properties to retail buyers.  They will suceed or fail on finding deals.  Becoming a licensed real estate agent gives you zero education for the skills that are most important to you.

Second is the time.  As an investor, you theoretically can make a profit today:  Find a wholesale house, assign to a buyer and you made a cool fee.  Real estate agents first must go through 1-3 months for the licensing process, at a fair expense.  Then you have to go through your Broker's training program.  Then you will spend several weeks to a couple of months working with experienced realtors who will "mentor"you through the process, spending money on marketing as you go.  Finally you sell a house and your commission will come 30-60 days later when closing is done.  In other words, you will spend thousands of dolars and hundreds to thousands of hours of work and from 4-8 months before you see your first paycheck.

In 4-8 months, simply concentrating on being a real estate investor, you should be involved in deals that will make you much more money then you will ever earn your first year as a real estate agent.

Now this isn't a bitter failure talking here.  In my second year I was one of the top four producing agents in my office, and one of the top 15 producing agents in my city.  I left because I realized I could make much more as an investor than as an agent. 

Did I learn things as an agent that has helped me as an active investor?  Some,  but nothing critical.   Did I get access to any inside information?  Not really.  Most of the "Inside Knowledge" I gained as an agent was simply because I was active on a daily basis - talking to agents - lenders- bankers - escrow agents and others.  Going to meetings and reading the classifieds everyday - driving my marketing areas and talking to people and handing out my card.  All of those things are what you should be doing as a real estate investor.

A lot of people think getting a license will make your job easier.  it will, in a very small way.  It will delay your education of the most important part of becoming an investor, and add 6-12 months to any meaningful success you may have.  Is that worth it?  Some may think so, I don't.

You should note, that from what I can tell from the responses, about 100% of former real estate agents say don't bother.  That should tell you something.