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Getting Started in Real Estate for the Penniless - Part One
You probably won't like what I have to say. But, the brutal reality is that you can't spend everything you make and expect to get rich. Period. If you are slipping further and further into debt each month and you think real estate investing is going to save you, I have bad news for you. It won't.
"But," you say, "Real estate investing rescued those people on TV. They got out of debt and were able to quit their jobs." For starters, it's impossible to believe those testimonials are real, and even if they are, people who can do it in this way are very unusual.
Real estate investing is a solid way to make a lot of money. The best way is to set your goals and find properties that meet those goals (and then keep them for at least 5 years). If you look at the richest people in in Canada and in your city, at least 25% of them probably made their fortunes by investing in real estate. We believe that this estimate will hold true based on who we see on the list of Canada's richest people as well as the Power List for Vancouver.
The trick is to learn what you're doing, and then accelerate your investments after you have built a base of knowledge and equity. It's not the only way to make millions in real estate...but it's the way that requires less money, has the least amount of risk, and induces the least amount of panic attacks.
We started out with $16,000. Thankfully my wife Julie was a saver. When she graduated from University and started working as a sales rep, she continued to live like a student. And, she put every extra penny she had into paying down her student loan. When that was paid off, she proceeded to save any extra money that she had. Her plan was to go back to school for her MBA so she wanted to have as much cash in the bank as possible to pay for school.
In contrast, I was not a saver. I didn't live above my means, but I was right at them with some credit card debt, a nice new Volkswagen (financed) and nights out on the town. I had a small piece of property that I owned with my mother and no savings to speak of. I got very excited when Julie explained to me how we could retire at 35.
It took a lot of work on my part to pay off my credit card debt, but I did it. I then started to save a few hundred dollars every month. But the reward was worth the work, and we started to shop for our first investment property.
Our first investment was a lot easier to do thanks to Julie's savings. But, you don't need money to buy your first property.
Many programs out there will tell you that you can get into real estate for no money down - and there are definitely plenty of ways to buy real estate with no money down, but they come with a lot of risk. As far as we're concerned, there are only 3 ways you should consider coming up with a down payment on a property, and the good news is that only one of them requires that you have money saved:
1. Cash out retirement and other savings, stocks, and GICs
2. Your home's equity
3. A partner that has money to invest.
A partner with money to invest is essential if you have no money. However, a partner won't want to work with you if your own finances are in terrible shape. You have to fix your finances before any partner would be willing to work with you. When a partner sees that you have a lot of debt, he/she sees a person that can't be trusted with money- either your own or someone else's. You haven't proven yourself as a trustworthy partner, and investing with you would be too much of a risk.
But, if you come to me and say "Dave, I have found this property that I think is a great investment. I don't have any money because when I graduated from University two years ago, I had $30,000 in student loans. I only have $5,000 left to pay off, but I really want to get started real estate investing and I think this deal will be great," I will be more interested in working with you.
See what I am saying? This person has no money, but they have the right mindset about money. They are in debt for a good reason AND have been diligent about debt repayment.
Before you can buy a single piece of property, you have to be able to control your own finances. This gives you control of your destiny. Living beneath your means is the only way to do that. If you're unsure about what you make versus what you spend, try this: for the next six months, keep track of every penny you spend. Once it's there in black and white you'll be able to see how you're living and where you can make changes.
It's possible that a few of you may be thinking "well, I couldn't possibly cut back on buying expensive birthday presents", or "I'm not willing to give up my yearly beach vacation". That's fine, as long as you have a plan to save for those things rather than going into debt for them. If you go into debt often when things like this come up, you are a SPENDER, not a SAVER, and are not serious enough at this point about growing your wealth by becoming a real estate investor.
About the Author Learn How to Retire with Real Estate with Dave's free Real Estate Investing Starter Tips Guide. Learn how to find money for real estate deals, create financial freedom, extra revenue and massive wealth with tips like: How to find quality rental properties, finding and keeping great tenants, and easy ways to make more money with real estate.
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