FAQ For New Investors

Is real estate a safe investment?

No investment is 100% safe. But some investments are riskier than others. An FDIC insured CD would be worthless, if your bank collapses and the Federal Reserve goes under. But of course…the odds of that happening are SLIM TO NONE. There's risk in any form of investment, period.

I like comparing real estate to the stock market. When you buy shares in a corporation, you never know which way those shares will go. You can read financial reports, but you are not in true control of the stock price. It could go down by 25% over the next few years! But if you buy a fixer upper house for a below market price, and fix it up on-budget, you create forced equity. In other words - the value of that asset goes up in value whether you like it or not. It’s almost a guaranteed way to make money - if you do it right. You can then refinance the house & sometimes get all your investment basis back (in the form of a tax-free loan against the property) yet still have equity, and rent it out, and let the tenant pay it off for you … and you get the great tax benefits, increased rents, and a decreased mortgage over the years. Or you can just sell that house right after you're done fixing it up - and take a possible huge profit.

The key thing to making money in real estate…is to buy a house at a below market price, keep your repair costs in check, and know your future ARV or rental rates. Don’t think you cannot lose money…you can. Just be careful, be smart and learn as much as you can before making your first investment. Once you do your first investment, though, the second, third & fourth one become way easier.

Where do I buy properties at bargain prices?

The best ways to buy good deals, is from "any source you can get it". Haha! The MLS is the most traditional way people buy & sell houses, but the problem is the best deals tend to not be on the MLS. Or if they are, they are sold nearly immediately or bid up high in price. Wholesalers and your own marketing tend to get you the best deals. The problem doing your own marketing to buy homes, is you can blow $10,000+ on advertising…and you may find you get no properties. So you have to know what you're doing. When buying from wholesalers, they tend to have properties that are very good deals.

How do I tell if I am getting a good deal?

Always, always, always -- do your own ARV (estimated value after the house is fixed up, or "after repair value") and repair estimates. It's A-OK to listen to the property seller, wholesaler or real estate agent - but always do your own due diligence - and make no exceptions to this. Most ARVs and repair estimates are just that … ESTIMATES and not 100% accurate … so it’s good to gauge your own numbers against what is being advertised. This will help protect your investment dollars. And note by buying below market, that substantially lowers your risk in the event the house does not sell for as high as you want and/or there are unexpected repairs (which can and does happen from time to time)

How do I determine an ARV (after repair value) or rental rates?

You can run your own comps and get an ARV, by consulting with a licensed real estate agent, getting MLS access yourself or using a website such as Propelio.com (which is worth it).

How do I estimate repairs, to a property?

Estimating repairs, is not as easy as estimating an ARV. You'll find many repair costs can vary wildly between investors...AKA the more experience you have, and the larger you scale up your real estate investing business, the cost to repair properties will actually go down. So it's possible the cost to remodel say a small 1200 sq foot rental house may more for one investor, than the other.

In the beginning, if you have zero experience in real estate and no contractor / vendor connections, you can expect to pay more to remodel a home. What's an example? As of December 2023 - you can go to Home Depot and buy carpet for $4 per square foot,  with padding & installation included. This is for good, basic carpet. But we personally use a guy who installs FHA grade carpet, for only $1.25 per square foot with the same services included as Home Depot. But we've also been remodeling houses for years & years, and have gotten to know such vendors through talking to other investors / looking on line / networking / etc. And we also give that carpet guy repeat business, so he's happy to give us his volume rate. We go straight to the subcontractor, and bypass the general contractor or retail store in this case (when it comes to something simple like carpet).

Also - the quality of the home/neighborhood you are dealing with will greatly affect your repair costs. Some new investors think all homes are the same...they are not. A fancy house, in an expensive part of town, will need much higher quality finish outs (and therefore much higher repair costs per square foot) than an old mobile home out in the country --- or a house in a bad part of town.

In conclusion, it will take time to learn repair costs - whether you do the work yourself, hire a subcontractor or hire a general contractor. Don't let this scare you from investing. It's worth it! Just take the time to do research, and go slow, if you are new. And with time & experience you will be an ace at estimating repair costs. Also checkout the book FLIP: How to Find, Fix, and Sell Houses for Profit at https://www.amazon.com/FLIP-Find-Sell-Houses-Profit/dp/0071486100/