The quick-fire guide to real estate

  How to get into real estate—and close your first rental deal—in 12 hours

From Mark Ford, editor, Creating Wealth: I’ve already explained how important investing in rental real estate has been in my financial life. It’s the largest asset class I own (outside of my operating businesses).

So, if you think it can be important in yours, you should be devoting one hour of each day to building your own rental real estate empire.

Now… I get it. You have a busy life. You’ve got a job that consumes the bulk of your productive time. You have family commitments. You have bills to pay, insurance, and taxes to keep up with. You’ve got a stock portfolio to manage. And you have to read all those good publications the Palm Beach Research Group keeps sending you!

Yes, you are busy. But you have enough time—or can find enough time—to get into rental real estate. It’s just a matter of revising your priorities.

What follows is a simple, step-by-step, hour-by-hour instruction manual on how to get started.

  Step One: Get a basic understanding of how the game is played.

Time Investment: No more than two hours.

Begin by getting a general idea of the sort of property you want to buy. There are many factors to consider in buying rental real estate. But at this point, you should focus only on the most important ones:

• The type of property

• The neighborhood

• The price of the property

• The amount you can charge for it as rent.

You can learn everything you need to know about these four factors by spending an hour or two reading the first two lessons of Rental Real Estate 101, the 10-part introductory course I wrote for the Palm Beach Wealth Builders Club.

  Step Two: Contact a bunch of local brokers.

Time Investment: No more than two hours.

Let’s assume you’ve done the research and have a good idea of the kind of property you want to buy. The next step is to compare what you think you want with what’s actually available.

You can do that one of two ways: by pounding the pavement yourself, or by finding a local real estate broker (or two) who you can trust.

I consider local brokers to be experts in pricing because they spend most of their working lives negotiating prices, representing buyers or sellers, and sometimes as landlords and renters.

Any broker who’s been active in the business for at least a year will have ready and reliable numbers to give you—the numbers you need to move forward.

(When you work with brokers, keep this in mind: They can be very useful in helping you find properties and negotiate prices… but NOT in making decisions for you. You are the sole decision-maker in every transaction. Do your own research and stick to the criteria we outline in our courses.)

Start with a Google search for real estate brokers in your area. Collect a dozen or so email addresses, and then send each of them a short letter explaining that you are looking to buy houses in the area, with the specifications you’ve identified. Request a 15-minute phone meeting, preferably in the morning.

You should get, within 24 hours, three or four responses at a minimum. (I did this recently, just to test it, and got eight responses out of 12.)

Total time elapsed so far: four hours.

  Step Three: Meet with three of them.

Time Investment: No more than two hours.

Make three appointments—phone appointments. Meeting face to face is time consuming and unnecessary at this point.

If you can, schedule all three appointments back to back. Allowing for five minutes between appointments, you can get all three done in a single hour.

There are two advantages to scheduling the appointments this way.

First, the pressure you’ll feel to finish each meeting in 15 minutes will keep you on topic. Second, listening to three people answering the same questions, one after another, will help you assess the information you are getting and decide which broker you like best.

Begin each phone interview by saying: “My goal is to find a broker to help me buy income-producing properties in the area. I’m looking for someone with knowledge, experience, and integrity, someone with whom I can have a profitable, long-term relationship.”

The broker will probably say something like, “Well, I certainly hope I can help you. What particular sort of properties are you looking for?”

You say: “Either single-family homes or small commercial properties that I can buy for no more than eight times gross yearly rents.”

He might ask you for clarification. If so, explain the “gross rent multiplier” calculation. Say, “I will do a more detailed analysis before I buy, but I’m not interested in looking at anything that has a GRM higher than that.”

Then ask, “Do you think you can find such properties for me?”

He will probably say yes, with some sort of qualification.

Say, “Well, I don’t want to waste your time or mine, so I won’t look at anything that fails to meet that standard. In fact, there is a chance that if you bring me a property with the right numbers, I’ll buy it sight unseen. I don’t need to see the property to make a decision.”

He will probably tell you at that point that he will get back to you. Ask him to give you a definite date. Thank him.

Having this conversation will save you a lot of time. Many brokers like to throw a heap of properties at a client because it is easier than a more disciplined approach, and because they know there is a chance the client will spend more than he initially intends (and thus, increase their commissions).

Don’t let that happen. Make it clear from the beginning that you are the boss, and the broker must respect your demands.

Another benefit of having this conversation is that you reduce to zero the chance that you will fall in love with a property that doesn’t meet your criteria. (Frankly, I have a weakness for properties with “potential”—houses that would be so much cuter with a picket fence or a new kitchen or a different paint job, etc.)

The business of rental real estate is a business of numbers—buying right but also maintaining and managing right. You have to stick with the numbers. And staying away from the property makes it easier to do that.

Total time elapsed so far: maybe six hours.

  Step Four: Pick the right neighborhood.

Time Investment: About one hour.

If your market is reasonably healthy (i.e., active and not overpriced), each of your three candidate brokers will send you property suggestions within 24 hours.

Let’s assume you have a dozen fact sheets in front of you (four properties each in three different neighborhoods in or around your hometown). Now, it’s time to narrow down the 12 options.

First, verify the rental potential of each of the three neighborhoods.

To do that, call or email a rental broker. (By rental broker, I mean someone who specializes in rental properties.)

Posing as a renter, tell him you are looking for the kind of property you’ve identified, and can pay no more than $X. In this case, $X should be 20% less than the monthly rent you’ve identified as your target rent.

Tell him you are interested in only three neighborhoods (the neighborhoods you have identified). Tell him you are somewhat flexible with the pricing, but you cannot budge on the kind of property you want—number of bedrooms and baths, etc.

Let him do his thing. And when he gets back to you, pay attention to what he says.

What you are hoping to hear is that he cannot get you such a home for that price in that neighborhood… but he can perhaps get one if you are willing to pay another 20-25%.

This will tell you that the rental prices you are looking to get are fair market estimates. And by comparing prices and availability in the three neighborhoods, you will get a feeling for the neighborhood that is best for you.

Total time elapsed so far: seven hours.

  Step Five: Pick your first property.

Time Investment: One hour.

You have narrowed down your 12 options to four. Now, you have to narrow those four down to one. Or do you?

Investors new to real estate sometimes think they should be looking for the one “best” option out there—the one house or commercial property that will give them the highest net rent and best long-term appreciation.

In theory, there certainly is one best option. But in reality, there is no way you can possibly determine what that is in advance.

There are many factors that affect the eventual value of any particular property. Not all are possible to predict. (A major builder may come in and buy up adjacent lots. A municipal project may come into play. Any number of things.)

Don’t worry. Express interest in all four houses. Make a tentative offer that is 15-20% below the market. Then, sit back and let the sellers come to you.

The sellers’ brokers will want you to put money down and sign a contract for one of the houses. Resist them. Push the conversations about pricing as far as they can go.

If you do have to put in a formal bid, or even include a deposit, you can do so without worrying. If they don’t hit your bid, you’ll get the money back.

The back and forth of the bidding may extend for several weeks. But the actual time it takes from your schedule should be very small. We are talking about a half-dozen two-minute conversations.

Total time elapsed so far: eight hours.

  Step 6: Figure out the financing and close the deal.

Time Investment: Three to four hours.

Like the bidding process, finding financing and closing on the property normally takes several weeks. But your time involvement, again, is relatively small.

Filling out some forms and attending two or three meetings of an hour or so each should do it.

This last step is sometimes a bit frustrating, as working with banks can often be. Just keep in mind that it is all very routine, and your broker, banker, and lawyer will all be helping you get it done.

Total time elapsed to make your first rental real estate deal: 12 hours.

Reeves’ Note: Most people don’t know Mark’s primary “point man” for his real estate investments is his brother, Justin Ford. Justin’s a multimillionaire real estate investor who owns hundreds of units across multiple states. He turned his personal “bubble-proof” investment methodology into an advanced educational resource. We call it the C.A.P. Strategy.