You're about to discover how to turn a little into a lot with real estate. It's the question on many prospective real estate investors' minds. They want to know how to parlay a small amount of money into a whole lot of money through the power of real estate investing. And specially, they want to know how they could do it, in today's market, step by step. In the following two video series, I will walk you A to Z through how you can start with a small amount of money and safely and efficiently parlay it into a fortune with real estate. In the first video, I'll illustrate the traditional way to accomplish this goal and then in second video, I unveil how to do the creative way. If you have read my book or watched some of my trainings before, these two videos will bring together many missing pieces and you may leave this with an "ah-ha" moment. It may all "click" in your head as to exactly how myself and my apprentices do what we do. This two part video series is perfect for anyone looking to grow the money they have using real estate as their investment vehicle. And if you love it, please share it with your social networks. This is the kind of message that everyone who has any interest in real estate needs to hear so that they get started on the right foot from the very beginning.
How to Turn a Little into a Lot with Real Estate PART 1
Traditional Investing in Real Estate
I like to teach my real estate students the differences between traditional and creative real estate investing. Traditional is the "90%", or what most people will tend to do and interact with when investing in real estate. Let's break down this type of investing.
This is where you ask yourself, "where did the deal come from?". There are two different "A's" where a deal can be sourced from.
Agents in traditional real estate investing are hired by investors and buyers to go out into the market place to find deals.
Real estate brokers may also be sent out to attend different auctions as another way to find a deal. Even beyond in-person events, there are websites that auction off real estate as well, such as Auction.com.
Funding Loan (80%)
The typical traditional investor has a loan that will take up the majority but you still have to bring some money, or "skin in the game".
The down payment in a lot of situations, from an investor standpoint, will be at least 20%. There is also closing costs which make up about 2% of the money that you will have to contribute yourself. Part of the down payment that is given up front is called earnest money/deposit, which is about 1%.
In the traditional side of investing, these payments are required to be in the form of cash.
The majority of investors, in order to turn a profit, will rent the property. While renting the property, the hope is that they receive a positive cash flow.
Fix and Flip Properties
I have a free training on the Biggest Mistake with Fix and Flip Properties that goes in to more detail. Most traditional real estate investors have difficulty doing more than one or two of these in a year, as the timeline is quite long.
Let's move on to the pros and cons of traditional investing.
Pros of Traditional Investing
#1. It Does Not Require A Lot of Experience
This only applies so long as you are working with competent and good people who know what they are doing and will not take advantage of your time and money. Traditional investing is great because you don't need a lot of education or training to succeed. The key is to connect with people who can help you and let them do the part of real estate that does require intelligence.
#2. No Costs for Deal Sourcing
In traditional investing, you will not have to worry about physically going out to search for deals. You will outsource this task to a real estate agent who you will hire to find the deals for you.
Cons of Traditional Investing
#1. Rigid Structure
Think of traditional real estate as being similar to a box. If you do not fit into this box, then you do not get in! You have to close on a deal with someone's money, leading into our next con, Hard Money!
#2. Hard Money
These deals will be required to close with money, whether that be yours or someone else's. You will need to qualify for a loan, which is very difficult. You've got to have the money! I have a training available that dives deeper into Hard Money Loans.
#3. Marginal Deals
Traditional real estate deals tend to be marginal, meaning that anyone can do them, and you are unlikely to get a good deal on something. There are not many barriers to entry because of how simple traditional real estate investing is.
#4. Lots of Competition
When there are low barriers to entry and a lot of people with a little bit of money, there will be lots of competition in the market. What this means for you is that you will not get great discounts on your deals, leading to you needing to take out a loan.
#5. When Things Go Wrong...
When things go wrong, they can go really wrong in real estate! There are a lot of cons to traditional investing and you've really got to look to find a good deal, because bad deals are all too easy to find.
#6. Slow Moving
With traditional real estate, all aspects move much slower. Everything takes so much time to complete in order for you close your deal.
How to Turn a Little into a Lot with Real Estate PART 2
Creative Investing in Real Estate
Creative investing is the other 10% of real estate. Most people tend to shy away from this type of investing, with some even believing that it is illegal. I am here to clarify exactly what creative real estate investing means for you.
Do Your Own Marketing
In creative investing, rather than hiring a real estate agent, you will be doing the marketing yourself. Go directly to the sellers to negotiate creative terms.
This is simply the absence of banks and loans. This can include Subject To, where the borrower's loan stays in place and the property title is transferred to you. Owner financing is another method where the seller agrees to become the bank. A Lease Purchase is an option some choose because you can lease a property with the option to purchase later on. Another way to creatively structure a deal is to get it under contract and flip it, assigning the contract to a new buyer. If you do it right, it is legal, but if not, it can be considered practicing real estate without a license.
Let's Talk Money in Creative Real Estate
I typically do a $10 earnest money. People like to tell me this doesn't work, but it in fact does. if you are working with the right sellers, or "motivated sellers," then this will be no issue.
Cons of Creative Investing
#1. It Requires Knowledge
Unlike traditional real estate investing---the 90%----the creative side requires extensive knowledge and experience. The knowledge that can be gained from creatively investing is invaluable to you, and unfortunately, not many people possess it. The signal of this business is RARE. This knowledge costs money. Welcome to the real world! This knowledge does not come for free, it always has a price tag. Some people think that they can learn it for free, and discover that this simply isn't true, the hard way.
#2. Be Ambitious!
You have to be ambitious in this type of investing. There is a degree of business sense required to negotiate and coordinate tricky deals. You'e got to be great with clarifying difficult things. Sometimes it can help to position yourself to work with people who are already interested in doing something creative with their deal, but this is not always the case.
#3. Not Many Openings
There are not many motivated sellers out there in the real world. With creative deals, it can be hard to find sellers that are interested in creatively structuring a deal.
#4. No Dabbling
What I mean by this is that you cannot and it is impossible to "dabble in" creative real estate deals. Now, dabbling works great for traditional investors. It can be very helpful to start on small deals when going the traditional route. Investors who are looking to take the creative path must have an extensive amount of knowledge before starting their first deal.