Why Starting Out in Real Estate Being a Landlord is a Big Mistake!

I remember when I was first interested in getting into Real Estate 10-15 years ago and I read a bunch of books I picked up at Barnes and Noble. Every book I bought was about buying property cheap and looking at the rental numbers to justify the purchase price. As long as you could pay the mortgage, insurance, taxes, maintenance, deal with occupancy rates and still come out ahead it was a good deal. Come out ahead $100+ a month in rent and you were set, rents would raise each year and eventually you would have enough equity to borrow off your property to get a second home to rent. Several years later you could retire and live off the rental income! Yay, financial independence… way better than working for the man! Or so I thought…

That is always how I felt and I thought that was how I wanted to start “when I had the money” to buy the first place. That was until I bought a book by Robert Allen with creative financing and getting properties with nothing down that I first heard of the terms of contract assignment and the ability to “control” a place but not purchase it. This was like a light bulb and suddenly I learned everything I could about this new way of investing! How is it possible to do such a thing and how could it even be legal? Trust me it is and it has been happening for many years but now it is almost a normal way of doing things. I read more and more on it and it was exciting to hear of people finding someone getting a huge deal on a home, had NO money but still signed a contract to buy as if they did. Then he would simply find a buyer for the same property at a price higher than what he signed the contract for and during closing he would get paid the difference… nice!

Read about:   The A-Z of Stated Income Loans

Essentially this is wholesaling or flipping as people call it now. To me this is far better than owning and renting out properties, at least in the beginning. Now why is that? Both make you money and with owning at least you don’t have to constantly look for new properties. This is true but with flipping you don’t have to worry about renters, damage or any of the hassles of being a landlord…even if you use a management company to deal with it all for you. Now, I know being a landlord is not a bad and you can make a lot of long-term money off it but in the beginning for an investor flipping is FAR better. With owning you have risk and hassle, with flipping you can essentially have zero risk and faster profit. Getting 3-4 flips in a month is not unheard of and at an average of 5-10K a flip you can make much higher profit. If you are unable to find a buyer, you simply invoke an inspection clause and say your “silent” partner didn’t approve of the sale and you get your deposit back. What you will find though is that when you find motivated sellers, you can easily negotiate a contract with no earnest money deposit, it happens all the time… very nice!

It so much easier to be a landlord after you have 100-200K in the bank than it is when you first start out. Flipping is the easiest, least risk way to start out in this business and can generate a lot of profits quickly. It is more profitable than being a bird dog with the same risk, less risk and effort than rehabbing and far less hassle and risk than landlording! Plus, add in the benefit of being able to do it while still having a full time job and it is the natural way to get started and transition yourself away from working for the man…amen!

Read about:   Rocket Mortgage Introduces New Tech Platform to Empower Real Estate Agents