A common question that comes up is how to start in real estate investing. If you want to learn real estate investing and don’t know what to do, this post is for you.
When I started 13 years ago, I dove in and looked at properties all over Metro Manila. I went as far north as Malinta Valenzuela all the way to Sta. Rosa, Laguna. You’ll learn a lot when you’re looking at more than a hundred properties.
These things take time. It took me 8 months before I made my first deal. But some fellow investors took less time to find their deals. Some took longer. I want to shorten the time frame for you in this post.
Let’s get started.
How To Start in Real Estate Investing in 10 Steps
First, you need to decide what you want to do with the property that you are going to buy.
- I suggest you buy your home first. Make your home your first investment. It’s the only investment that appreciates while you use it. You save on renting and start building up your net worth.
- If you already own your home, then start building your real estate portfolio. Make your investment decisions based closely on your risk appetite and investment type. Ask yourself what you’re current investment goals are and strive to hit those goals.
- If your goal is to build up capital, then flipping properties is an option. Flipping gives you chunks of cash to accumulate and use on your next flip.
- If your goal is to build passive income for retirement, then start accumulating rental properties. You start with one and build up from there.
- If you have so much cash coming in month after month, then you can opt to think long-term and buy big tracts of land to hold but personally I’m biased towards accumulating rental properties. Go big with warehouses, office buildings and commercial centers.
Second, determine your current resources. I get asked how much money is needed to start in real estate investing. Here’s the answer.
- How much do you currently have? If you’ve been saving already, then set aside a part of that to invest in real estate and continue to build it up. If not, start saving up. It always helps to have something set aside, the more, the better.
- How much can you allot every month? You will likely use some form of financing and will be making monthly payments. Determine how much you can allot for monthly payments. This is a major commitment. You will need to clear space in your budget.
- How much can you loan? Once you know how much you can make in monthly payments, you can go to the bank and get pre-qualified for a bank loan. As of today, only BPI pre-qualifies a borrower for a loan. That means you can submit your financial documents to BPI and they will let you know up to how much they can grant you a loan. You now have a budget for your first purchase.
Third, decide on a location. Don’t go all over the place.
- For your first investment, I don’t suggest buying property in a place that’s from you or a place you’re not familiar. You don’t know enough about the place to make an intelligent decision. Stick with a place that’s very familiar to you.
- Buy near your work or near your home. That way, you can easily research the area after work or during weekends.
- You can also buy at the place where you intend to stay for the rest of your life.
Fourth, find a property in your location
- Look at property ads online There are many platforms that advertise properties for sale: OLX, Zipmatch, Lamudi, Persquare, Property24, MyProperty.ph, etc. Just make sure to call and confirm that the property is still available.
- Look at newspapers although this is fast becoming obsolete. The Sunday Bulletin, once the go to place for advertising properties, no longer has the same number of property ads that it used to have.
- Walk around the neighborhoods where you’ve decided to invest. Do a little jogging. Look for signs of properties for sale and inquire from the sellers.
- Call agents or brokers familiar with your chosen area. Tell them to let you know if there are any good deals. Being a broker myself, I would appreciate if you let me know in advance that you are looking for a good deal so be open and let them know your price range.
- Look at bank foreclosed property listings. Just go to any bank and ask. They should have a list in their branch. You can also go visit www.foreclosurephilippines.com, a website by my friend Jay Castillo. He has a database of foreclosures in his website.
- Ask your friends and relatives if they know anyone who’s selling. Maybe you have an aunt or uncle who’s selling and you might be able to get a “kamag-anak” discount.
Fifth, determine if the property is worth buying.
- This is the part where you attend seminars or read books on real estate investing. You need to know if the property is worth buying. Real estate is not complicated. If you follow just one principle, “Make money when you buy,” then you’ll be fine. So go find a formula that will work for you. One formula is my No Money Down Formula.
- Like I mentioned in a previous post, there are 3 ways to make money when you buy – buy early, buy discounted and buy in the path of progress.
- Buy early in a pre-selling project. This is where you usually get the biggest price discounts. Downside is it will take time for you to realize your profit.
- Buy discounted means you buy below-market value properties. This will allow you to make money right away because you can quickly flip the property for profit.
- Buy in the path of progress is another long-term strategy. You ensure appreciation because you are investing in a growing area.
Sixth, make offers and start to negotiate.
- Once you find a suitable property or properties that you like, start to make offers. Try to gauge the seller’s price range by asking questions and being nice. Sometimes, just asking the right questions will lead you to the answer. As a general guideline, don’t make an offer until he has given his last price.
- Negotiation is a skill. Many good negotiators use principles of Neuro-Linguistic Programming to drive the negotiation process.
- If a property is really good and the market is moving fast, don’t delay. Make a written offer with an earnest money deposit attached to it. If the price is already good, don’t make a lower offer anymore because I’ve been in situations where the buyer lost out on the property because they still tried to get a lower price and someone beat them to it.
- Don’t be afraid to negotiate with multiple sellers at the same time. If you are making low offers, you don’t know which seller will accept so always keep your options open.
- If you plan to flip the property, negotiate for longer payment terms to give you enough time to find a buyer. In an average market, I usually plan to sell within 3 to 6 months. If the market is hot, meaning there are many buyers, it’s faster and properties sell in lessthan 3 months. In a slower market, it could take a year or more.
- If you plan to rent it out, it’s best to close quickly so you can move quickly to rent it out and start getting cashflow.
Seventh, close the deal
- Once an offer is accepted, you move into closing. This means preparing the paperwork to transfer ownership to you.
- If you intend to flip the property, a contract-to-sell is usually enough. You will put the property under control and when you find a buyer, you assign the contract to them. You don’t want to transfer the property to your name because then you’d already pay the capital gains tax of 6%.
- Otherwise, you will want to execute a Deed of Absolute Sale. This is the required document to transfer the ownership to you.
- If you used bank financing, you will also be signing your mortgage agreement.
Eight, improve the property.
- If you will live in it, improve the property to fit your tastes and lifestyle. It’s important to live in a place that you’ll be comfortable in. Just understand that all improvements do not necessarily translate to higher value on resale. Meaning, if you spent Php1M for improvements, it’s not automatic that the property value increases by Php1M also.
- If you will flip or rent it, the improvements will depend on your target market. Here are some quick guidelines. Feel free to look around, compare and copy.
- Economic and socialized housing don’t need it beautiful just clean and liveable. Sometimes a smooth cement finish and plain white paint is enough.
- Mid-range housing will require more. You’ll want to make it look both beautiful and functional – something that will make them both want to live there and be proud of it.
- High-end properties will require recognizable brand names and high-end finish. Put emphasis on the materials used. Get expert designers to help you make it stand out.
- If you will hold it, build a fence if you can to keep out squatters.
Ninth, use, rent or sell.
- Enjoy the fruit of your labor and use the property forever or until someone offers to buy at a good price.
- If you plan to flip or rent out, start marketing! Marketing deserves it own post but here are some quick tips.
- Take good pictures
- Post in multiple sites. There are many sites that offer free posting.
- Print flyers and leave it on the front desk of the condominium or at the guard house if it’s a subdivision. Hand it out to businesses in the area, the owners may be interested.
- Share it on Facebook.
- Send emails to your friends and ask them to forward it to their friends.
- Finally, hustle.
- Once it’s rented or sold, congratulations! Send me an email describing the experience or better yet, treat me to lunch! Then go to your next deal.
Tenth, before you wrap up this deal, make sure to tie up loose ends. Follow-up the paper work. Don’t forget to get your title and tax declaration.
That wraps up this quick guide on how to start in real estate investing. I suggest you continue your journey by attending seminars, reading books and learning more. Then start looking at properties.
And, before you go subscribe to this blog to get more tips on real estate investing plus get the first 3 chapters of my book, No Money Down Formula in Real Estate, for free.