What Comes Next?

Getting Started in Real Estate 5/5

I've been putting off writing this blog post. Truthfully, this final part of the series is the most open ended and most difficult for me to crytalize. I don't feel like my own processes have been perfected; I am constantly making mistakes from deal to deal. What can I share when there exists mountains of real estate knowledge that I haven't even begun to tap. But... maybe that's what I should write about. The neverending journey, the constant education and the highs and lows that come with investing. At this point, you've gotten your feet wet. After your first deal, what things should you think about and consider?

Are you a believer?

At the end of the day, the most important question is whether this investment strategy works for your purposes. Is the effort vs return trade-off what you expected and will continuing this process help you achieve your investment goals? Do you enjoy the journey and/or have the grit to grind out however many deals needed?

For many, it is easy to rinse and repeat the same investment strategy and gradually build up a respectable portfolio. But often times, the next logical step is how to scale faster. Everyone is familiar with Aesop's The Tortoise and the Hare. The classic lesson of slow and steady wins the race. But truthfully, I'm not the most patient person. Is it possible to take the best traits from both the tortoise and hare?

I've spent the last year thinking about scaling and increasing cash flow; the BRRRR process is easy but it feels so slow. With finite personal funds, you are limited in the number of deals you can do. By observing other investors, I've found that the key is acquiring more capital; whether that be raising capital from friends, family or other investors. In this way, I see the first year of investing as a proof of concept. I've found that your experience serves as a badge, allowing easier and cheaper access to private capital. However, before you rush off to use other people's money, make sure to identify and fix any problems in your processes.

Fool me twice, shame on me

With every completed deal, I try to identify what went well and what went poorly. Where are the opportunities for improvement? What can I do next time to help me scale? And more importantly, why did I make that mistake?

No deal goes perfectly and there is always opportunity for improvement somewhere in your process. Of course, there might be some projection but our (my and Kat's) past deals are riddled with mistakes. Many are our fault. Sometimes we were too hasty, too aggressive with our numbers, too eager to rush into our next deal, but other mistakes some would argue were out of our control.

For example, rehabs going over budget or timelines must be the contractors fault. Missing an eviction court date and having to restart the process, blame the property manager. It's easy to look at these incidents and think they're completely out of your control. To borrow a rather cliche metaphor, as investors, we are captains of our investing vessel. Our team makes up the crew and at the end of the day, the responsibility and decisions bubble up to us.

As the owner of a business, you need to constantly be aware of issues before they turn into larger problems. In the prior examples, we could have recognized that our contractor was juggling too many projects and acted accordingly. We could have actively reminded our property manager that the eviction date was coming up. There were plenty of opportunities for us to correct course but we were either too busy or disorganized to recognize them. I look at these occurances as opportunities. What do I need to do next time? What signs do I need to look out for? By accepting my mistakes and improving my mindset, I can hopefully prevent larger future issues and smooth the path for doing more deals.

Unfortunately, there are times where the way you want to operate is fundamentally different than your teammate's. We've personally experienced this with various property managers where their processes work for their business, but in our view are inefficient, or worse, just don't work. In these cases, you should strongly consider moving on and working with someone aligned with your mindset and processes.

Find the giants

I've found that real estate investors have huge egos, some more understandable than others. It's all about who has the largest portfolio, the best cash flow, who's done the most deals. It's easy to trap yourself in the mindset that you are more accomplished than others. You surround yourself with people who are less impressive, to feel that you are somehow "better" at investing compared to everyone in your circle. Rather, look to surround yourself with people who are where you want to be.

In my experience, this makes me stay inspired and focused, constantly thinking about and reevaluating my goals. These mentors have gone through the difficulties of building their business and have made mistakes you won't even think to catch. By listening to what they have to say and observing their actions, you can accelerate your own growth. As the metaphor goes, you can see farther by standing on the shoulders of giants.

Finally, as a quick note, Kat and I are huge advocates for finding an accountability partner. Someone who will regularly check in on you and help you keep your commitment to investing. This person doesn't need to be a giant but arguably are more instrumental in your personal development.

Conclusion

I hope that this series was helpful and not only provided a rough roadmap for getting started with real estate but also my investing mindset. I want to emphasize that these are my personal thoughts about real estate investing. Many of these questions and thoughts were personal ones that I carried with me through my investing journey. I tried to shape my strategies and deals around my investment goals and constantly adjusted and readjusted my course. I accepted that mistakes will happen and I resolved to learn and grow from them. Investing is a journey and there will be ups and downs. Embrace that and trust the process. Trust the numbers.

For next steps, try to start growing your network. Reach out and find a mentor, connect with peers and be an accountability partner. Finally, reach out the Kat and me and schedule a time to connect. I'd love to talk and see if I can help you in any way.

As always, if you have comments, questions or want to chat, reach out using the links in the footer. If you enjoyed this content and want to get notified when we publish a new post, use the mail list form below to subscribe.

Your First Deal

Getting Started in Real Estate 4/5

You can write dozens of offers, go under contract multiple times, yet never close on a deal. Why? Is it just bad luck that there is always some deal breaking issue? Possibly. But you might want to reflect and ask if you are unconsciously sabotaging yourself. Rather than talking about the process of closing on a property, I want to talk about the investing mindset and pushing deals through to the finish line.

The investor mindset

The mindset you approach each and every deal with is crucial to your success. How much do you trust your numbers? How much do you trust your team? How good are you at navigating a deal when things go belly up?

Almost no deal lines up perfectly with your pro forma after completion. There are plenty of places where things can and will go wrong. Even before you close, your numbers can quickly start falling apart. Your inspection can turn up unexpected costs or the general contractor you've been talking to is unavailable and you need to find someone more expensive. Maybe your property manager thinks the scope of work needs additional items to hit the expected rents. What is the right mindset to adapt and successfully close?

If Kat and I had an investing phrase, it would be "if the numbers work." On the surface, it sounds like a no brainer. When you find your returns slipping and the deal failing your criteria in some way, how do you make the "go" or "no go" decision?

When I was getting started, I was afraid of buying a bad deal. I ran the deal numbers very conservatively and was not willing to explore adjusting the numbers to reflect a higher risk tolerance. If the deal no longer hit my rigid numbers, it wasn't a deal for me. I provide an example with numbers below of a deal I passed on. With experience, I can reflect and say that my problem was not understanding my numbers and the amount of risk (or lack thereof) that I had built into the deal.

Understand how your numbers work

I don't mean understand what cash-on-cash means or ROI or how much money you're spending. Understanding your numbers does not mean necessarily understand your criteria. It means knowing how each number affects the "go" and "no go" decision and what is "deal critical" versus "nice to have."

I imagine running my numbers akin to turning various knobs. Pushing the rents up $50 can boost the cash flow just enough to hit the minimum of what we're looking for. Is that $50 increase realistic looking at comps? Perhaps. On the other hand, what numbers are unrealistic to try to control? There's no point stressing over the rate or the exact amount to set aside for maintenance and capex (There's some discussion to be had over what to set aside but most people find a value and stick with it). In addition to all this, adjusting one number can in turn cause your other numbers to change. A classic example would be doing flip vs rental grade finishes. This changes your ARV, rents, and a whole host of other numbers.

Here's a good exercise. For each number that you can adjust, take the time to do the following steps

1. Would adjusting this number change your decision to buy or not buy? To what degree is the deal more or less appealing?
2. How much control do you have over this number?
   • You probably don't have great control over the average vacancy or current trending mortgage rates but you can control rents and rehab scopes.
3. How are you determining this number?
   • For example, some budget the maintenance and capex at 5% rent a piece. Does this number make sense?
4. How does adjusting this number impact your other numbers?
   • For example, larger rehabs can mean more things are replaced. This can translate to reduced maintenance overhead and capex reserves for the first few years. Additionally, a recent rehab can improve rentability.
5. What numbers and adjustments are "no fly" zones? What should you never adjust past a certain point?
   • This is important, make sure that you clearly define your "no gos" and don't compromise on them. These "no gos" should be based on rational decisions and research.
6. At what point will adjusting the numbers be taking on too much additional risk?

The goal of this exercise is to start thinking about your criteria and numbers as a series of knobs that can be adjusted in various directions to achieve the same result - getting the numbers to work and closing the deal. At the same time, the more you fiddle with the numbers, the closer you get to the line that separates a deal and a disaster. If you understand your numbers, you'll not only run deals faster but also be more creative and capable of closing them.

How risk-averse are you

Your risk tolerance will play a big role in determining your cut-off point that separates an ok deal from a "no go". This varies from person to person and will change with experience. By adjusting your numbers to make the deal work, you're trimming fat off the deal and adding potential risks. Unfortunately, this is often necessary to get a deal to the closing table.

When we were starting, we adjusted our numbers less and therefore ended up building larger returns into those deals. These deals had less risk but were also much more difficult to acquire. In doing so, we passed on dozens of solid deals that would have worked. As we've gotten more experienced, we are more confident in our process and numbers and are willing to take on more risk. This is our current investing mindset but find something that works for yourself.

My "first" deal (but not really)

My first deal we got under contract would be a great example of hindsight being twenty twenty and what happens when you're too conservative with your numbers. 2428 Sickle Rd, I still think occassionally about this one.

This was a 3/1 tri-level with potential to turn it into a 4/2. On paper, it looked like an amazing deal. It was in a great rental neighborhood, minimal crime, and more importantly a perfect BRRRR. The only downside was the relatively poor cash flow due to having a suboptimal rent to price.

Initial Pro Forma	Amount	Final
Purchase	$55k	Cash flow	$72/mo
Rehab	$25k	Left in deal	+$2k in pocket
ARV	$115k	Cash on cash	inf.
Rent	$1050

Given this was our first deal, we had three contractors bid on the price. None of the numbers were close to $25k. We got two $33k bids and one $55k. The first hurdle, this was not a concern as the deal still hit our 12% minimum cash-on-cash.

Post SOW	Amount	Final
Purchase	$55k	Cash flow	$72/mo
Rehab	$33k	Left in deal	($6k)
ARV	$115k	Cash on cash	15%
Rent	$1050

Here's where things started to get fuzzy. Our sewer scope report came back with a huge hole in the line. The cheapest quote to replace the line was $10k. This made our return look significantly worse because we were leaving more money in the deal and the property didn't have great cash flow.

Post Sewer Scope	Amount	Final
Purchase	$55k	Cash flow	$72/mo
Rehab	$43k	Left in deal	($16k)
ARV	$115k	Cash on cash	5.5%
Rent	$1050

We did the standard back and forth with the seller, asking them to cover the $10k unexpected cost of the sewer line repair. They offered to meet us halfway at $5k concessions which put the deal as follows.

Closing Table	Amount	Final
Purchase	$55k	Cash flow	$72/mo
Rehab	$38k	Left in deal	($11k)
ARV	$115k	Cash on cash	8%
Rent	$1050

If you put this deal in front of me today, it's a done deal. There are so many places to push the return that I was too risk-averse to consider. Here are a few of my options:

1. Adjust the rent: Pushed the rent to $1100 for a 12% return or $1150 for a 15% return. Even if the rent could not be pushed this year, we would have the opportunity to increase it down the line.
2. Adjust the taxes: Marion County taxes non owner occupied homes at 2% tax assessed value. Because of this, we were running our tax amount at 2% of $115k because we were concerned about the worst case. The assessed value was $80k. Realistically even with a 10% increase, we would be nowhere near the $115k taxable amount. Using 2% of a more modest $90k assessed value would have yielded 13% returns.
3. Adjust the ARV: This one is somewhat out of your hands but still a valid case to consider. When you're doing such a large rehab, you can afford to be more aggressive with your comps. The home will show better and the newer finishes will be reflected on the appraisal report. While increasing the ARV to $120k actually lowers the return slightly (7.7%), does it really matter when you are only leaving $7k in the deal? You've gained the 25% forced equity, equivalent to $30k.

Starting out, I was afraid of buying a bad deal. I was constantly looking for a home run and making mountains out of molehills as a result. I scrutinized every problem and did not understand my risk tolerance or how to adjust the numbers. In reality, pushing the rents or adjusting the taxes would not add a significant amount of risk. Rather, I had built far too much safety into the deal, even for someone who is very risk-averse. I didn't truly understand how recent rehabs may influence rents or vacancy. Instead of having the mindset of making the numbers work, I had the mindset of not buying a bad deal. As they say, hindsight is 20/20.

The importance of the first deal

Not every deal needs to be a home run and the majority of your deals won't be. It's a huge milestone to close on your first deal and get to first base. This is especially crucial when it's your first deal because it signals to your team that you are serious about investing in that market. Not only that, it opens up the path to testing the rest of your team and processes. Up until then, the only truly tested member of your team will be your agent.

Conclusion

Get into the mindset of doing what needs to be done to close on your first deal. Understand your numbers and learn what knobs you can and can't turn. When you do walk away, reflect on what made you walk away. Be aware of when something is a deal breaker because you can't take on more risk versus when you're looking for reasons the deal won't work. If you're approaching deals with the mindset of making them work and you understand your numbers, you'll be more creative and find that the "mediocre" deals look a lot more attractive.

Homework

For every deal we closed on, we wrote offers for a dozen and analyzed countless more. When the opportunity does come around, make sure you are prepared to act quickly. Understand your numbers and what makes a deal "go" or "no go."

1. Review your numbers. See the section "Understand how your numbers work" above.
2. Run deals every day. Set up Redfin and Zillow alerts. Have your agent put you on an MLS search. Get familiar with the neighborhoods and make running numbers a habit.
3. Start writing offers. If you're not writing offers, there's no chance you're making it to the closing table.

A word about turnkeys -- Despite the negative associations investors have with turnkey companies we personally know investors who got started buying a turnkey property. In a way, it makes a lot of sense. Getting started, there are so many variables to consider that it can get overwhelming. Turnkey properties allow you to reduce that and focus on building a solid relationship with two key members of your core team, your agent and property manager. They serve as a halfway point where you can stabilize and better understand the market before fully diving in.

As always, if you have comments, questions or want to chat, reach out using the links in the footer. If you enjoyed this content and want to get notified when we publish a new post, use the mail list form below to subscribe.

Building a Team

Getting Started in Real Estate 3/5

You have a market and a strategy in mind, how do you start putting the pieces together? The answer is you need a team. A team who you trust and who are far better than you in their specialized field. Without a competent team, you will find yourself rolling the dice far more than you'd want.

There are plenty of resources that walk you through the vetting process. We particularly like David Greene's detailed blueprint in his long distance real estate investing book. While I could use this post to summarize his methodology, it would be a poor substitute for actually reading the book. Instead, I'd like to use this post to explore why finding the right team is the single most important thing you will do in real estate.

Why does it matter?

Why does it matter who your agent or general contractor or any other member of your team is? You're the one making the decisions, don't you just need someone who will do what you ask?

The truth is that if you build your team right, they will be there to fill in the gaps in your knowledge. They will be there to tell you what cross street to avoid and what street to buy on. They will be there to tell you that the deal is crap even though it looks perfect on paper. If you find the right people, you'll find your investing journey much easier.

You are not going to be the expert at finding propeties, the best at managing a rental or ensuring a flip is progressing on schedule. Why would you be when your agent, PM, or GC does this for a living? No, your superpower is going to be growing your business and finding the right people to execute on your vision. Lean into that.

I seriously cannot reiterate how important it is to find the right people, especially making sure to do it properly when you get started. Once your process is in place, it becomes more and more difficult to adjust on the fly. Your team is there to make things easier for you. They will ensure your processes are running smoothly so that you can spend your time on what YOU are best at. Don't cut corners or your future self will not think kindly of present you.

In no way are we experts at putting together a rockstar team. Similar with any passion project, real estate requires constant self-reflection, education, and improvement. Kat and I are constantly learning from our own mistakes.

Trust but verify

I've spent the last section telling you to find the right people and trust what they tell you. Unfortunately, it's a bit more nuanced than that. At the end of the day, it is still your responsibility to verify what they're telling you. They may believe it but that doesn't always mean they are right.

If our agent or PM were to tell us not to invest on a certain street, we would almost always listen to them. If they told us our ARV or projected rents were off, we'd ask them to provide the numbers to support their opinion. When there's a significant difference in expectations, it typically indicates some problem in the process. Maybe your agent will have more recent comps or your PM will have a non-public facing database. Or going the other way, maybe they missed the comps you are using. A difference in opinion is an opportunity to understand what we're doing differently that causes us to reach different numbers. This allows us to recalibrate and ensure future analysis is done properly.

Don't get upset if your team member told you something that ended up being untrue when you could have gotten a second opinion. Everyone makes mistakes, the most important thing is catching and learning from them. Trust what you're told but verify and mentally file it away so that it's available next time.

Building a relationship

Another unfortunate truth is that it's going to be difficult to build a team when you're just starting out. You're a little fish in a very very big pond. Everyone is looking for a rockstar agent but that agent is probably spending the majority of their time on their rockstar investor. For that great PM you've heard about, why should your one property portfolio get priority when your PM has an investor with fourty doors?

Instead, think about finding a "good" agent who is hungry to grow and expand. It may make more sense to work with someone who believes in you and will dedicate their time to your success. The key question is how do you convince someone to seriously work with and for you?

The vetting process is not a one-sided affair. Just as you're there to make sure they tick all your boxes, they are checking boxes on their own end. Real estate is a relationship based business and it's incredibly important to build good rapport with your team members. Respect goes a long way. People will naturally prefer to work with who they like.

Your responsibilities to your team

Just as your team has responsibilities to you, you have the same to them. You're the horse they hitched their cart on and that means that you need to contribute to their success as well. I'm going to break up this section and walk through some of the more important responsibilities I see myself having with my team.

Show them respect

By respect, I don't just mean it in the conversational or relationship sense. While that is important, it is also necessary to acknoledge everything else they do for you.

They are putting in effort and time to run numbers and provide opinions. Make sure you're also doing the same. Before you send that listing to your agent, consider sending your projected ARV, renovation numbers and comps. This signals to them that you respect them enough to not want to waste their time unless you believe the deal is worth their time as well. Show that you respect their time, knowledge and effort.

Have productive conversations

When you disagree, be open to the fact that you may be wrong. The discussion does not need to be adversarial, instead frame it as collaborative and educational. By the end, you both should walk away with a better understanding of how the other person comes to their conclusions and can therefore be faster on the next deal.

Make them a lot of money

At its core, your team prioritizes working with you because you make them money. Our agent likes to say he's the only agent who will talk us out of buying a deal. While that may be an exaggeration, the sentiment is generally accurate across the industry (and to be frank, all industries will have this problem). Your team makes money even when you lose money on a bad deal. For them to talk you out of a deal, it means they believe long term you will continue making them money. It indicates that they see the long term future of the relationship and are looking out for your best interests.

Say thank you

Finally, make sure to thank your team. Take them out for a meal, wish them happy birthday, get to know them. Money may be a great motivator but there are plenty of intangibles that create a great relationship. Respect, likability, friendship, etc. After all, we're all human.

Conclusion

By the end of this post, you won't have the tools to find and vet a team. In fact, even after reading David Greene's book, you won't have the perfect process. Instead, you'll understand the mindset that goes into building a great team. Personally, I think that that's pretty important. If I had to distill our learnings into one paragraph, it would be as follows.

Trust but verify. Take the time to speak to each potential member of your team on the phone. Do your personalities and business styles match? Do you respect and understand each other? Just as you are counting on your team members to make you money, they are counting on you to do the same for them. Constantly iterate on your process and identify failures. Was it an isolated failure or something that can happen again, and if so, what can you and your team do to ensure it never happens again. Commit to building a long term relationship and constant improvement. And finally, if it isn't working out, don't be afraid to move on.

Homework

Don't expect to be able to find and vet a team quickly. Plan to set aside at least two months to read, learn and start the process. This should be a rough blueprint for how to start.

1. Read David Greene's book, particularly the chapters around vetting various members of your team
2. Write up a blueprint of key questions based on the book.
3. Reach out to investors and professionals in the market (see previous post). Ask for recommendations for team members and start vetting them

As always, if you have comments, questions or want to chat, reach out using the links in the footer. If you enjoyed this content and want to get notified when we publish a new post, use the mail list form below to subscribe.

Researching and Determining a Market

Getting Started in Real Estate 2/5

You have a vague idea for what you want to do in real estate, but where should you buy? There are hundreds of markets in the United States alone, how can you be sure you're investing in the best one?

Best places nationally for real estate investment right now?

I see some variation of this question all the time and it almost never sparks a meaningful discussion. Everyone's understanding of "best" depends on their investment criteria and this makes for wide sweeping opinions that other investors roll their eyes at. Before you start gathering opinions, you need to first define your strategy and criteria.

Some of this ties back with the previous post about identifying your investment goals and target strategy. Your investing "theory" will form the basis of your market search. With that in mind, ask yourself:

• Are you comfortable investing out of state or does it have to be within driving distance?
• What strategy are you targeting? (e.g flipping, short term rentals, long term rentals, storage, brrrr, etc...)
• Are you looking for appreciation or cash flow?
• Do you want to buy single family homes or multifamily homes?
• How much do you have to invest?
• What return are you looking for? You can quantify this as cash flow per door, cash-on-cash, return on equity, or some other measure - just keep it consistent.
• Are your previous answers reasonable when considering them all together?

People are more likely to participate and provide thoughts when your market criteria is well defined. Something like the following drives the conversation far better than sounding utterly rudderless.

"I am looking to invest in single family BRRRRs out of state. Ideally the market has moderate appreciation at or above inflation rate and solid $150/mo cash flow per door. I'm looking for a 12% cash on cash and have $100,000 to invest. What markets are you [other investors] able to hit those numbers?"

If you ask around and start looking for keyword searches that match your market criteria, you will quickly see that some markets are mentioned more often than others. We suggest starting with BiggerPockets and setting up keyword alerts and searches. The more precise your criteria, the smaller your list of potential markets. It is best to start narrowing down markets before you spend significant time diving into the nitty gritty details.

Market Research

Let's say you now have a short list of markets, even though you've managed to eliminate most of the country, you still need to whittle down the list to one or two finalists. You've done as much surface level research as you can, what you need now are the numbers. The goal is to use metrics to gauge market health and discard markets that are weaker in areas you care about. When Kat and I were doing our initial market research, we had nine markets and a laundry list of potential metrics broken into major categories. Here are some examples of what you can consider.

Demographic

1. Average wage
2. Average age
3. Average education
4. Population growth
5. Poverty rate
6. Percent of population that own a vehicle

Employment

1. Employment rate
2. Top industries
3. Top industry growth
4. Average commute to work

Real Estate

1. Median property value
2. Property value increase
3. Median rent
4. Rental rate increase
5. Property taxes
6. Percent of homeowners vs renters
7. Number of new build construction permits issued

Other

1. How landlord friendly is the market?
2. Average crime rate and type

You can easily debate yourself and others in circles on what metrics are stronger indicators of market health. Instead, try to pick metrics that make sense in context to your investing strategy. For example, Kat and I cared most about cash flowing long term rentals, so we wanted to determine markets with the best rent-to-price ratio (one percent rule), friendly landlord tenant laws, all in price of sub $100,000, brrrr-able, and good growth. We didn't care as much for property value appreciation as long as it kept up with inflation.

Thankfully if your market is in the US, the government collects this data and makes it available to the general public for free. There are a few sites that display the data within a friendly UI, we used Data USA. One thing to note is that government data denotes markets by Metropolitan Statistical Areas (MSA). MSAs are defined by the U.S. Office of Management and Budget as having at least one urban area with a minimum population of 50,000. More broadly, you can think of an MSA as a region consisting of a city and surrounding related (societal, economical, etc) communities.

Just be sure to keep in mind that data is gathered and reported on an MSA level but your market may be more specific. As an example, the MSA containing Indianapolis also contains the surrounding submarkets Carmel and Anderson. If you are more interested in the major market [Indianapolis], the data should be relatively accurate as Indianapolis is the main metropolitan market. If instead you are interested in a submarket [Carmel, Anderson], the MSA data can be skewed and may not accurately represent those markets. You may need to look into other data sources more specific to your submarket.

Once you know what market metrics you care and you have all the numbers on a spreadsheet, you can quickly start crossing out weaker markets until you're left with three or fewer choices. If you're lucky, you'll have one standout market. It's time to start networking and getting some boots on the ground opinions.

Networking

You're in the final stretch. The goal is to network and talk to people in your chosen space to get an understanding of whether the actual numbers match your research. By talking to investors and real estate professionals executing your strategy (and many others), you'll have confidence that your investment goals and criteria are possible.

Use BiggerPockets to determine the market expert that shows up or is referenced in every conversation. Is there a popular investor focused agent? Is there an investor who is constantly sharing knowledge and insights? Reach out to them and introduce yourself. Make sure to prepare a loose script so that your conversations are productive and comparable. Most importantly, show that you've done your homework about the market. Seasoned investors and professionals are busy and want to see that you've taken the initiative to do some legwork. You'll find that showing your research, thought process, and due dilligence will open more doors and show you're serious about your investment goals. The more Kat and I have learned and grown, the more we realize that people are really passionate about real estate. We all love to talk shop and are happy to share what we know.

At the end of the day, it's entirely likely that your final markets are still neck and neck. That's ok, we had the same problem when choosing between Indianapolis and Kansas City. The truth is that both markets would have worked out, we just needed to make a decision and commit. We encourage you to do the same. In fact, your decision can be as arbitrary as flipping a coin. In our case, we chose Indianapolis simply because I went to Purdue and had some friends in the area. Don't get paralyzed with indecision so close to the finish line.

Homework

Hopefully this post lays out the steps for how to research and determine your target market. By the end, you should have a chosen market and confidence that you're in the right space. To help you get there, I've come up with a few assignments.

1. Form your market criteria statement.
2. Using your statement, do surface level research and create a list of twelve or fewer markets.
3. Identify what metrics matter most to your investment goals. Remember that these can be based on well-thought-out personal opinion.
4. Compile market specific numbers and pick your finalists.
5. Reach out to investors and professionals in your final markets.
6. Finalize a market.

As always, if you have comments, questions or want to chat, reach out using the links in the footer. If you enjoyed this content and want to get notified when we publish a new post, use the mail list form below to subscribe.

Identify Your Investment Goals

Getting Started in Real Estate 1/5

A question we often get asked is "How can I get started in real estate?" Often times, people are aware of real estate and actively educate themselves but are still lost on where to begin. This can be due to a variety of factors but usually the heart of the matter is that there is so much you need to know to get started. With this five part weekly series, we will try to break down the learnings from our own journey in the hopes that it makes your climb less daunting.

1. Identify your investment goals
2. Determine a market
3. Build a team you can trust
4. Complete your first deal
5. What next?

Our experience is primarily based on on-out-of state long term rentals but most of our learnings will still apply if you are doing something different. Many of our processes were based on David Greene's Long-Distance Real Estate Investing: How to Buy, Rehab, and Manage Out-of-State Rental Properties and then further refined to fit our personal needs. We plan to share our high level core learnings but the book will provide additional nitty gritty details. We highly recommend using the book as a template for developing your own processes.

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Identify your goals

Why start here?

There are countless ways to get started in real estate and no one has mastered everything. The general partner (GP) you see doing huge 100+ multifamily syndications may have no idea how to underwrite and put together a storage facility deal. It can take a lifetime to try every real estate investing strategy, let along master them, and that makes it very difficult to know where to start.

In my personal experience, when you're starting at the bottom, it is easy to get overwhelmed and lose motivation. By narrowing down your goals and therefore your initial investment strategy, there is a significantly smaller subset of things to learn and master.

Your goals will also shape your initial strategy and growth. Someone who's interested in cashflow with low to no money down may become an expert at identifying and executing short term rental arbitrage opportunities. Or they might learn about cold calling and buying seller-financed rental properties. If someone else is interested in fast growing appreciation, they may go down an entirely different path.

Identify your goals and use them to direct your energies. Focus your efforts and energy on one goal and you will find yourself growing faster than you thought possible. Build a solid foundation and then build outwards.

What to consider

Goals

As obvious as it is, I dont think many people take enough time to think about their goals. So many people want to buy in the "hottest" market or they want to buy a rental... but why? I don't mean that in the way where those strategies don't work. Instead, how does buying a home in a hot market or buying a rental bring them closer to their goal. Have they actually chosen the ideal strategy for themselves?

Imagine where you want to be in 10 years. What do you need for this to happen? As an example, if you want live very comfortably, you might say you need $20k a month in disposable income. Someone else may imagine that their children's college funds are 100% funded. Whatever your 10 year goal is, identify it and what you'd need if it were right now. Hold the thought, we'll revisit it in a bit.

Time and Energy

Now let's consider how much time you're able to put aside every week to pursue your goal. It isn't realistic to think you can be a general contractor (GC) overseeing your own rehabs while holding another full time W2 job. Some people may be able to do it but consider your situation and come up with a realistic number.

I consider energy to be separate from time. Some people may be looking for a very passive strategy while others need to be calling and coordinating every little part of their operation. How much effort are you willing and able to put into the time set aside? Are you able to floor the gas and then bring the same level of effort to your full time job?

Putting it together

At this point, you should have an idea for you want to be in 10 years and how much time and effort you are willing to devote to getting there. Just like how companies plan their roadmaps, you should create one for yourself. As an example, I'll fill it in with my personal goals.

Let's say I want to be financially independent outside of my W2 income. To do this, I decide I need an alternative income stream of $6k a month.

Note that what I consider medium energy or risk, you may consider low or high. What really matters is having a consistent and reasonable view of what is achievable based on the time and energy spent.

We start with what I very creatively call a "10 Year Roadmap".

Timeline	Goal	Needed to achieve goal
Year 10	Financial Independence	$6k per month
Year 5
Year 1

Logically, we could fill in the remainder of the columns as follows assuming linear growth.

Timeline	Goal	Needed to achieve goal
Year 10	Financial Independence	$6k
Year 5	No longer fully reliant on W2 income	$3k
Year 1	??	??

From this point, you should be able to determine what strategy may work best for your goal. You need to ask yourself questions such as whether your goal is more cash flow focused or appreciation based? Take the time to understand your goal and underlying motivations.

What options exist?

Once you understand your real estate investing goals, it becomes easier to filter out strategies that don't fit your requirements. For example, I may not look at flipping homes if I think there is significant risk and effort involved. Instead, I might look towards rentals.

Read forums, listen to podcasts, go to meetups. Expand your understanding of what's possible and keep in mind the effort and time you are willing to spend. Is it enough?

At the end of the day, the most important thing is to pick something that aligns with your goals and run with it. There is no right answer, if it were that simple, every investor would be doing the exact same thing.

Final steps

Once you've determined a potential road, breakdown your 1 year goal into more achievable chunks. What can you accomplish in 1 week or 1 month to reach your 1 year goal.

In "The 12 Week Year" by Brian P. Moran, he advocates for working with 12 week goals in mind to avoid low productivity and increase urgency. This is very similar to how programmers work in sprints. Goals and deadlines expand to the alotted time. By setting shorter and more achievable goals, you are able to push yourself further with less complacency.

Continuing the example earlier, I decided that I wanted to build a rental portfolio. With this in mind, I can finalize my "10 Year Roadmap" and break down the first year into managable sprints.

Timeline	Goal	Needed to achieve goal
Year 10	Financial Independence	$6k
Year 5	Build a sizable rental portfolio (10+ properties)	$3k
Year 1	Buy my first property	??

Now let's set short term achievable goals.

Timeline	Goal
Month 12	Close on my first property
Month 7+	Start writing offers regularly
Month 5+	Start networking with investors and building a team in my chosen market
Month 3+	Finalize a market
Month 2	Start researching a market
Month 1	Continue reading and accumulating knowledge, start identifying criteria for markets
Now	Find resources and books

Motivation

Look over what you've come up with. Are you motivated to get to work? If not, you need to ask yourself why. If you're not excited about the investing strategy, understand why and reevaluate if it is the best for you.

If you're the type of person who needs motivation from external sources, go to meetups, find an accountability partner, listen to a podcast, ask a friend to check in on you, there are plenty of options.

Real estate investing returns are tightly coupled to the effort put in. If you aren't putting your 110% forward, why should you expect to get 110% back?

Homework

You've made it to the end... now what? I challenge you to do the following things and take your first step.

1. Identify your 10 year goal
2. Create and fill in a "10 Year Roadmap" tailored to your goals.
3. Go to a meetup or talk to investors.
4. Come up with 3 investing strategies that can help you reach your 10 year goal.
5. (Stretch) Create your "1 Year Roadmap"

As always, if you have comments, questions or want to chat, reach out using the links in the footer. If you enjoyed this content and want to get notified when we publish a new post, use the mail list form below to subscribe.