"I'm new. Where Should I Start?"

I got an email that said: "I am looking to get a start in real estate investment. My goals are a passive or extra income, building a portfolio of rentals and/or possibly flipping homes. Big difference, I know. Just trying to find my right fit. I’m wondering how best to spend my money so it works the most efficiently for me while building a portfolio.

I am curious about the pitfalls? Market glut? Who I need in my back pocket on day one and who to wait on I.e. attorney?, property manager?"

I was super busy with an urgent assignment so I asked Ryan w/ www.bealcapital.com to handle our response, and I was blown away by his incredible thoughtful response, talk about hitting a grand slam! What do you think? Did he leave anything out? See below:

Read books on the topic, watch youtube videos, and check out bigger pockets (great resource for future questions with experienced investors). Stewart's favorites to start with are How to Invest In Real Estate by Joshua Dorkin and The Book on Rental Property Investing by Brandon Turner. I also recommend The Millionaire Real Estate Investor by Gary Keller, The Multifamily Millionaire by Brandon Turner, and Rich Dad Poor Dad by Robert Kiyosaki. Networking with other investors at local investor events, online, and at seminars is going to accelerate your education too. Facebook and LinkedIn have a variety of real estate investing groups, forums, etc. where you can ask basic & advanced questions, get help in bizarre situations, and learn tips & tricks to help reduce headaches.

Read up on house hacking. If you're able to live in a multi-unit rental, buy a 2-4 unit property that generates income (or at least offsets your mortgage, taxes, insurance, and utilities).

Spending your money most efficiently if you're looking to grow usually means you need to be willing to use leverage (loans) to grow. Here are some of the pros/cons of the most popular strategies:

Rental properties, self-managed (cash-flow focused)

PRO - If you house-hack, allows you to get the absolute best loans & interest rates

PRO - Saves money on property management fees, and builds hands-on experience

PRO - Easy to understand, probably a "low risk" investment for most investors

CON - Utilities and Mechanicals typically need significant work to maximize profits

CON - Difficult to scale if you're self-managing (and if you're still working)

CON - lower capital growth than other strategies

CON - Cash flows less-likely to be consistent than portfolio-focused strategies

*Note-this strategy does have several tax advantages over other formats that help bridge the gap

Rental properties, 3rd party managed (cash-flow focused)

PRO - same as above, but now scalable

CON - much less "profitable"; management is the largest expense for most investors

CON - Cash flows less-likely to be consistent than portfolio-focused strategies

CON - Financed deals with first-time partners can complicate loan underwriting

Flipping (capital growth focused)

PRO - You can build up a team of contractors for your portfolio at the same time that you flip

PRO - You don't have long-term management headaches

PRO - Fast way to grow capital

CON - short term capital gains taxes & general tax treatment

LP/Syndications (Accredited Investors only)

PRO - Easy to scale, hands-off for the Limited Partner

PRO - Only risk is the initial capital contribution

PRO - Many different funds with different strategies & sponsors (GP's)

PRO - Investment returns not tied to LP experience (sponsor qualifications are key)

PRO - Cash flows are more predictable than single-asset strategies

CON - Not good for first-time investors (can't learn quickly)

Joint Venture (JV) / Single Asset Investments (rentals with partners)

PRO - Multiple team members allows for potential to scale

PRO - Well-capitalized partners with experience help ensure good deals & terms

PRO - Less-involved than direct management, better pricing than 3rd party for AM & PM

PRO - Less likely to have a major loss event with a qualified sponsor

PRO - Refi's and returns are usually greater because it's on a property-specific basis

CON - Financed deals with first-time partners can complicate loan underwriting

CON - Cash flows less-likely to be consistent than portfolio-focused strategies

We offer JV deals to anyone who is interested in investing with us, and any accredited investor may invest in syndications as well.

Common Pitfalls

1-Over-investing - taking on too many projects, too much debt, and too many risks relative to your financial resources, manpower, and experience.

2-Property Management - the single most important factor in determining the long-term success of real estate investments comes down to the people who manage the revenue and expenses (property managers) on a daily basis. Our sister company, Beal Properties, manages over 3,000 units in our market and employs a 60+ person staff. We are well-equipped to handle maintenance issues, construction projects, and are aggressive in our management strategies to minimize these risks at all times.

3-Regular Monitoring - Generally speaking, investors who pay attention and understand what's going on with their investments are more likely to have better outcomes, respond appropriately when things go wrong, and minimize loss from vacancy and other loss events. Ignoring your property will lead to more risk in the future.

Note - Market Timing

Market timing is commonly considered a major risk factor for investors. As is the case with other risk factors mentioned previously, timing the market has a large impact on strategies which are dependent upon market conditions, such as flipping. If you buy real estate with a long-term strategy, you partially offset this risk because you're not directly dependent upon the property's current market value to determine your cash flow (rents become much more important than property value).

Team Members

Attorney - get one who is experienced with real estsate & contracts, one with evictions

Title Company - if you start doing multiple deals at a time, try to run all deals through 1 good title agent

Property Manager - At least 1 highly qualified property manager, more if your investments are outside their service area, etc

Handyman - always good to know a few handy people in case you have an emergency repair when you're out of town

Sponsors - if you invested with someone like us, you might also want to consider investing with other people like us in the space to help spread out your exposure & reduce the likelihood of sponsor-specific risks

Plumber - the number 1 repair category for most property owners. Have 2-3 per market that can get to non-emergency work in 1 week or less, but you don't want the cheapest, unlicensed guy who is available every time you call. You want one who is busy, and has a good reputation, or you'll make the same repairs every few months."