When I was still in the corporate world and just beginning my career as a part-time real estate investor, I started by purchasing a single rental property. It was a very simple, low-risk approach.
Like many would-be investors, I was fearful of taking that first step – buying that first investment property.
Here are the seven ways I overcame the fear factor, bought my first investment property and then moved on to build a profitable portfolio of rental properties.
1. I Chose to Stay With What Was Familiar
I started in markets I knew and understood, and I stayed close to my home with my first purchase. I didn’t venture out to unknown markets where I didn’t know the property values, the rent values or the good and bad parts of the neighborhoods. I stayed where I was comfortable. That made it easy, and it removed fear of the unknown with respect to the property I chose to buy.
2. I Bought Right Off the MLS
To most real estate investors, it may sound shocking—or at least very untraditional—to hear that I bought right off the Multiple Listing Service. But I am here to tell you that for first-time investors, that may be the only option or place you know to go, or can go. I contacted a Realtor and told him what I wanted, where I wanted the property and why I wanted it—for investment purposes. That Realtor went to work immediately, and I bought a property directly off the MLS.
Yes, you can get great deals that way, and investors—both new and tenured ones—do it every day. You may have to be a little more patient, negotiate a little harder, and you may have to move a little quicker. But those deals are out there and attainable, especially if you are looking for rental properties.
3. I Bought an Affordable Property
I did not have to be the hero and buy the fancy house. I resisted the temptation to buy a house that I wanted to live in.
A lot of times I see new investors or young investors think they can only buy the familiar—what they are used to or what they themselves would live in. Quite often those would not be the best investment properties, or they may be too expensive for an investment.
You should not be afraid to buy a house that does not appeal to your needs or your immediate lifestyle, but instead will appeal to a larger market of tenants. So I bought a house I could afford.
4. I Knew My Numbers Going In
Don’t think that your very first investment property purchase has to be one that is tremendously below market value. Yes, that would be great. And yes, that will happen with time and experience. But you can find good rental properties that will cash-flow just fine, and the numbers will be perfect, and they don’t have to be 20%, 30% or 40% below market value in order for those numbers to work.
If you—as a novice investor with limited resources, limited time or a limited network—are focused on finding that “home run” of a deal, you may never take that first step and buy a property. You may not have the visibility or accessibility to get to those below-market-value properties initially. That will come with time as you build your network. You do not need to be there on your first property.
Buy a property that cash-flows. You are just looking for a property where your monthly expenses are less than the monthly rental rates. If you know your rental rates and your monthly expenses—principal, interest, taxes, insurance and maintenance—you are going to get a cash-flowing property.
5. I Resisted Buying at Extremely Below-Market Value
Buying below market value is great if you have the skills, resources, time or the money. But don’t let that be the thing that keeps you from buying your first investment property.
There are plenty of turnkey rentals out there for sale, and they are literally ready for rent. Don’t forgo taking your first step because you are not handy, or because you don’t know how to fix or repair a property and you think that is the only type of property you can buy. That’s not true. There are plenty of turnkey rental properties out there you can buy and rent immediately.
6. I Knew I had Options in Managing a Rental Property
There are two options there: For one property, you can probably manage it yourself, and it will probably be a real good learning experience. That’s what I have done and continue to do.
However, if that’s just not your bag of tricks, there are plenty of excellent property managers out there. So don’t let the fact that you don’t know how to manage a property be the obstacle to your taking that first step and purchasing one. You can learn. Or you can pay somebody to do it. There are plenty of people who will do it for you at a nominal fee and still allow you to have a profitable investment.
7. I Was Not Afraid of Repairs
Making repairs (maintenance) is similar to property management. You can do them yourself, and when I had one property, my first property, I did.
Or, you can find contractors to do those repairs for you. But don’t let the fact that you are not handy with a hammer or a paintbrush scare you away from taking that first step.
There are plenty of people out there to do the work for you, quickly and affordably with quality. Or you may be able to do it yourself on nights and weekends. You will be surprised what you are capable of doing and how little time it takes and how little cost you incur.
Beyond the ‘Buy’
Maybe you don’t fear buying the first property so much as you fear marketing it. Sometimes the proverbial “next step” after buying the property is where the fear lies, and that is what stops the investor from buying in the first place.
You may know exactly what you want to do first: for instance, “I want to buy a three-bedroom, two-bath brick house in this particular neighborhood, five miles from my house, and I want to spend ‘this much,’ and I am going to rent it for ‘this much.’ ” Perfect. You know what you want to do, but you don’t take that step because you have a fear of the unknown, which lies in being afraid of marketing the property.
“How will I ever find a renter?” you may ask. Or, “I don’t have the time or patience,” or “I don’t want to run the risk the property will be vacant.”
That is fear of the unknown. But you’ve got to get there. When you do take the first step—purchasing the property—you will be amazed at how quickly you will figure out the next step—marketing it.
I have been able to market properties very simply by placing a sign in the yard. And I will venture to say you will have just as much success as I have had, whether you use a sign, Craigslist, or list them with a Realtor for rent.
Those are three great options that will create quick and profitable results for you. You can do it. You just have to get to that step in the process.
I was once told that to overcome the fear of an action, you need to go as far as you can see, and when you get there, you will see farther. That is exactly what I have experienced as I have built my rental portfolio over the past 15 years from one property to many.
I still have that first property that I bought 15 years ago. It’s fully paid for, by my tenants. And it continues to generate a healthy profit—month in and month out. It’s been a wonderful investment, but it also was my most inexpert and uninformed investment. But I kept to the principles I have mentioned here. I kept things simple, and I was able to find success in that first investment and many beyond.
So can you, as a new or novice investor.
About the Author:
Kevin Guz is a Dallas, Texas-based residential real estate investor with more than 10 years of investing experience. He owns a HomeVestors (or “We Buy Ugly Houses”) franchise as well as the Clear Key companies, which focus on residential real estate wholesaling, rental property management and self-storage leasing. He also is a licensed real estate agent in the state of Texas. He enjoys sharing his ongoing personal experiences, perspectives and learnings from his start as a part-time or “weekend investor” and full-time corporate professional through his ultimate transition to a full-time real estate investor and business owner. You can listen to his podcasts at www.blogtalkradio.com/kevinguz.