How to get started in Real Estate?

[Golfman530]

Hello,

I just recently have been very interested in real estate. I guess it all started when I watched an episode of undercover boss the other day and the owner and CEO of the company was talking about how he made millions developing real estate. The show Shark Tank has also peaked my interest in it because of Barbara Corcoran, one of the investors on the show, because she said that she took a $1,000 loan and turned it into millions in New York real estate. I realize that just like in any business, the people who make millions and millions or not the norm but rather the "most successful". I am just wondering, how would a person make money in real estate like this?

I know that to do it fulltime as your only source of income requires that you start a real estate business and not just invest in a couple of properties on the side. Could anyone give me any kind of information on these types of businesses?

My dad for example has owned residential apartment buildings my entire life. He just owns some on the side while he works a regular fulltime job. My family has made good money off of these properties but it is not a fulltime business by any means. We treat them more like side income gatherers.

How would one get involved fulltime in real estate?

Two example of people I am thinking of (I realize extremely successful examples) are Donald Trump and Barbara Corcoran. How do people like this start? Do they develop real estate (build it and then sell it) or do they just own many income generating properties where they collect rent for many years?

I know real estate can be very expensive so how can a person go from a $1,000 loan to millions and millions worth in real estate?

I know this is a long post with a lot of information in it but I am a young college student (20 years old) and I am very interested in working for myself and commercial real estate is something that really interests me greatly.

Any information that you could give me would be greatly appreciated!

[vangogh]

In Trump's case his father was a real-estate developer and started the business. I'm not sure about Barbara Corcoran.

I would think your first steps would be to learn as much as you can about how real estate is bought and sold. You might want to work for someone in the business first and soak up as much information as you can. The only experience I have with this is helping friends fix up homes they bought to flip a few years back. They would identify a home, fix it up, and then turn around and sell it. Some of the things they needed to consider were the initial price, what kind of work they could do, and how much that work would increase the value of the home. They also needed to take into account how quickly they could sell the place, since they'd need to pay the mortgage every month until they could sell it.

Unfortunately for them the housing market crashed so flipping homes stopped being a good business to be in.

I just tried a few searches using words like business, degree, real estate, and I see a lot of results. Most look like they're degrees you earn online. I have no idea how useful any would be, but you can probably learn quite a but just by looking over the different courses they offer. I would think an MBA would come in handily and I'd also think there are plenty of books on the subject. I have a feeling that your best bet would be to work for someone already in the industry and combine that experience with an MBA of some kind.

Hope something in there helps.

[nealrm]

I would start off by getting your feet wet. Get your real estate licence and go to work selling real estate. This will help you in several ways, first you will see first hand what is in the market, you will start making contacts in the real estate field, and it will expose you to the different areas of real estate. You can make money many ways and you need to determine which one to pursue. Do you want to be a landlord renting homes or commercial space? Do you want to be developer of commercial property or residential property. Or do you want to be a broke that makes his money off selling the property. All the area can do very well if you want. Watch out for the dangers. More people have lost everything in real estate than made it big. Even those that made it big have lost everything, some of them several times.

By the way - avoid any class that offers to teach you to earn millions via their secret method. The method to earn millions is hard word and the secret is they are scamming you for your money.

[vangogh]

the secret is they are scamming you for your money.

Not really much of a secret is it? :)

Neal how are you finding the real estate market at the moment? I think real estate is generally a good business to be in, since we all need a place to live or work. I know the market isn't doing well in general now though. How is it where you are? I know not every part of the country is hurting as much as others and in some places things seem to be picking up a little.

[nealrm]

We had the busiest January that I can remember and Feb is off to the same start. I'm not sure why, but a lot of people are putting their home up for sale. In addition, we are seeing more homes sell. I don't know if it is the economy doing an upswing or the freakishly warm weather. Either way we are shooting 8 to 10 listing a day. Normally this time of year we are doing 3 to 5. The high end market is still soft in this area, but that is directly due to over production.

[vangogh]

Well that's good news. Certainly for you. If the homes are selling it would seem to indicate the housing market is getting stronger in your area. 8-10 is a small sample size, but it seems reasonable to think you're not the only one seeing higher numbers.

[nealrm]

Vangough,
That was 8 to 10 per day. About 250 for the month.

[vangogh]

Oh, my bad. See what happens when I try to reply too late at night. :) Definitely a bigger sample size since I think it's safe to assume you aren't the only one seeing the increase in sales. Again good for you and hopefully good for the economy at large.

[Golfman530]

Thanks for your replies. I just find it facinating that these types of people can build up such a large real estate empires. It seems so incredibly difficult but obviously it can be done as these two individuals have shown. I just have a strong desire to work for myself. The thought of me going out and getting a job working for somebody else is not appealing for me. Every job where I worked for somebody I just felt like I was working so hard to make the owner of the company rich. I felt like however much I was making an hour ($8.00 $9.00..etc) that the owners were making double that off of my work.

I have always hear the saying, "Work for somebody else, you earn a paycheck...Work for yourself, you work to make money."

I am just very interested in real estate and investing so people who make a business around these two things facinate me.

I also feel like I have a little advantage over some because of my age (20). I feel like starting young could and would give me an advantage because I have so many more years to go at it. That is just my thinking.

Thanks again!

[vangogh]

I think it's the same with any business. Where real estate is concerned there's more money being invested so greater risk and greater reward.


The thought of me going out and getting a job working for somebody else is not appealing for me. Every job where I worked for somebody I just felt like I was working so hard to make the owner of the company rich.

True, but the point of working for someone else for a time is to learn how to do it yourself. It's not about the money you'd be making at the job. It's not really any different than what you're doing now in school. I take it you aren't getting rich in school. Rather you're learning things that will hopefully help you in the years after school.


I also feel like I have a little advantage over some because of my age (20). I feel like starting young could and would give me an advantage because I have so many more years to go at it. That is just my thinking.

Say you spent 2 years learning the business working for someone else. You'd still be pretty young at 22 with many years to go at it. I'm not saying you have to work for someone else. You can try it on your own. Either way you're going to have to learn a lot to be successful.Why not take advantage of the wisdom of some who are already successful. It'll probably take you less time to learn a number of things if you work for someone who already knows how than trying to teach it to yourself and learn from your mistakes along the way.

If we were talking about something that didn't have much cost associated with it I might say just figure it out as you go. Because of the money though it probably makes more sense to get some learning in first on someone else's investment. You'll still be young after a few years of working and learning.

[lucas.bowser]

I would say nealrm has it right. Get your real estate license and work in the business for a while. It will probably save you from my fate.

My experience with real estate is on the losing end. I didn't suffer horrendous losses like some people, but I did lose my up front investment. The big problem I had was I didn't understand the type of real estate I was buying well enough. The properties I was buying, were strictly cash flow properties. No matter what I put into them, they were never going to appreciate much. I should have put in the minimum to bring them up to neighborhood standards and then rented them for a monthly profit. Instead, I brought them up to standards beyond the market of that neighborhood. Sure, I was able to keep them full, but at the rents I was receiving I wasn't really making anything. Worse, between the debt + equity I put in, I was underwater on them, especially after the market receded. I did finally sell them at a loss(the hassle wasn't worth the money.)

So get your license, put your time in and figure out how you want to make your money. You have plenty of years left before retirement, so there's no reason not to wait a couple of years while you learn the ropes.

[nealrm]

One more thing - Real estate agents for the most part are not employees they are independent contractors. So you will be your own boss.

[Golfman530]

Thanks everyone! You truly are helping me. I am a communications major right now in college and I am finding that my background in communications would greatly help me in any type of field. My "safe" approach right now is to find a PR job after I graduate (I'm hoping I can at least do this. I have an internship under my belt already and a 3.5 gpa.) Even if I go into PR at first, I feel like if and when the moment presented itself I could then get into real estate at a later time.

I think you make great points about learning first before trying to venture out on my own. I can see how trying on my own without much knowledge could fail very quickly.

I am thinking that I could look into internship opportunities at local real estate firms in my area. This would give me firsthand experience seeing the ins and outs of real estate.


I would say nealrm has it right. Get your real estate license and work in the business for a while. It will probably save you from my fate.

Thanks for sharing your experience bowser. I know real estate can be difficult at times. My parents 12 unit apartment building is a great example. With the bubble bursting, the property value has obviously gone down below what they even paid for the property. The taxes however keep going up because the city is in such bad shape. After all expenses are paid, they still come out ahead by about $20,000 a year which isn't bad but it isn't as good as it would be if times were good.

[Pss]

I'm not an expert on either of them, but my recollection is Trump and Corcoran made it big by different paths. Trump was primarily a developer, while Corcoran built up a big brokerage firm.

From your posts, it seems like you're more interested in the trump approach.

I agree with other posters that encourage you to learn from others, on someone elses dime. That way, you can make a few mistakes and it wont be the end of the world. Also, it can plug you into a network of real estate investors, and you can build up credibility with them. It is theoretically possible for you to find someone willing to give a 20 year old with no experience a lot of money, but that is unlikely. Most serious investors hear a lot of pitches, and have plenty of opportunities to invest in good deals with experienced sponsorship.

A typical financing structure for a deal where you didnt have a lot of money, is you would find a really good deal, put in under contract (requires some money- usually 1% of sales price as earnest moeny in my market, with just a portion of that at risk from day one, the rest refundable if you terminate during the feasibility period), find an investor who is willing to do the deal and let you have a "promote".

In a typical promote structure, the investor would get the first x% return (the preferred return, or "pref") and then you would split any excess return on some split. For example, the investor might want a 10-12% pref and 80% of the proceeds above that, and you get 20% of the proceeds above the pref.

So, you buy a piece of land for $100,000, and sell it exactly one year later for 130,000. After commissions, property taxes, lawn mowing fees, etc, you net 120,000. The investor gets the first 12% return (112,000) and you split the next $8000 80/20, so you get $1600.

Note that in this case, you found a great deal (30% appreciation in 1 year) but didnt make much money.

A few observations:

The real estate agent that made 3% on the sale probably made more money with less aggravation. (though there is nothing preventing you from also being the agent, thus earning some pre-split fees)

If the same deal has taken two years instead of one, you would have made anything, because 100k compounded at 12% for 2 years is $125k and change, so you wouldnt get anything, despite your efforts on a moderately successful deal. Time is your enemy on IRR calculations.

If instead of paying cash, say you bought the property with 20k down and a note for 80k. You have proceeds of 120k again, less 4800 in interest (assuming 6% for a year),. After debt, you are left with $35,200 to split. His 12% return on his 20k investment is $22,400. You split the remaining $12800, with your share of $2560. Big increase on your split due to leverage... Leverage is your friend, assuming it all turns out well.

My understanding of Trump's history is that he was leveraged to the hilt and made some good pops, but also got hammered and lost properties when the markets shifted. He is also in a special category because he eventually was able to profit as much for his brand name as with his developments. There were some developments overseas where he didnt do anything besides agree to let them call it a "Trump" building, and got millions in return.

The real estate road is littered with investors that have built a big portfolio but eventually went bankrupt by over-leveraging.

In the structure i showed above, if it were a 5 or 10 million dollar deal instead of a 100k deal, you could have made some money. But the key is that whether it is $100k or 10M, they have to be really good deals, which are hard to find. Being in the market 100% of the time as a broker or agent will give you access to the deal flow you need to be able to find good deals. If you lose money on your first deal you've lost your own pursuit money, your investor, and all of your investor's friends. Just buying a regular deal without any real plan to add value quickly will not work.

Good luck!

[TonyP]

Hi I'm new to this forum but I think I should try to give my opinion as I have some experience in this as both a real estate agent an investor and developer.

It's great that you're starting out at your age. The potential in making money in real estate is great and so is the potential of losing money. I've spend the last decade learning everything I can about real estate. Getting my hands on books, real estate seminars and good mentors. I have yet to lose any money but my philosophy is to buy and never sell. I'm a long term investor. One key aspect to real estate is leverage. Leverage other people's money and/or time. Know how to do this right without risking too much.

Without knowing too much about your history and what kind of education you already have, I'm going to assume you're starting from nothing. One way you can get started is by becoming a real estate agent as someone had already mention. You'll start to learn the market and learn how to sell. Learning how to sell is a great skill to have in real estate as you'll always be selling something. Either it be real estate or your skills.

You can earn alot of money as a real estate agent. The barrier of entry is low as almost anyone can go and become an agent. So the standard for an average agent is pretty low. All you gotta do is have a high standard, be ethical, know how to market and try alittle harder then the average agent and you can be in the top 10% of all agents. From here you can start to leverage other people by building a team or eventually your own brokerage. This is where the money is at.

Just because you're an agent does not mean you're an investor or developer. As the skills set is alittle different. As an investor you have 2 things that you're always doing. That is always finding a deal and always be finding money. You need to have a high volume of deal flow coming in so that you can pick from the good ones and you gotta learn how to raise money. My recommendation is to start out in residential properties but eventually get into commercial. Once you're in commercial that's when the returns are better and even though they're more expanse to purchase but they're usually alittle easier to raise money for as well. The commercial community is usually pretty small so your reputation is really important. If you're already an agent maybe consider taking the CCIM designation, join your local real estate investment club and always be learning.

Good luck!