A Hands-on Investment Guide from Industry Pros
By Simmy Horwitz
You are interested in becoming an investment home buyer, but you are not sure how to get started, well you have come to the right place.
Thirty years ago, it was diamonds. Fifteen years, e-Bay. Today, especially if you live in the Lakewood area, there is no denying that real estate is the hot industry.
Yet a few common complications often stop potential investors from entering the field in the first place: how do I get started? How do I know how to spot a good deal? How do I obtain the capital to purchase an investment home or homes? And what do I do once I own it?
Here to clear the air are several industry experts who have generously agreed to share their acquired knowledge. When questioned about their willingness to participate, each answered confidently, “There’s enough to go around for everyone.”
First Steps
Buying a home is a big purchase that can’t necessarily be completed in your first day on the job. Those looking to get started in the industry should be aware that there is a certain amount of patience and time required to ensure that you walk away with a good deal.
“When I’m looking for a house, I’ll go look at ten houses a day and maybe end up with one or two,” says experienced investor Yitzy W. “You want to make sure that you’re getting a house with the best margins – meaning the difference in price between what you buy it for and what you’ll sell it for – and that needs the least amount of work.”
Some investors caution that it needs even more time than that.
“You have to learn how to be patient; it’s time-consuming and can be frustrating,” says Avrumi Mashinsky, licensed real estate agent and experienced investor. “You can try 100 leads and if one works out, great. It’s a wide market. Once you learn your niche, the process will go faster.”
Mashinsky recommends getting started as an employee for someone else, if possible.
“I was lucky enough to get a job with someone in the industry and I was able to learn a tremendous amount from him,” he describes. “The jobs are usually commission-based, so they don’t mind hiring you, and if you can afford it, it’s an incredible on-the-job learning opportunity.”
Mashinsky suggests asking as many questions as you can about each step of the business while staying within the context of the deals that you are working on, so that your employer will be happy to answer. Once you have a basic handle on the business, it’s financially much more worthwhile to venture out on your own.
For those jumping in on their own, Yitzy W. proposes working mainly with foreclosures.
“The bank usually sells them at discounted prices because they’re not in the real estate industry; they just want to recoup some money. Check out the house and if you think there’s enough of a margin for profit after repairs, then you purchase it.”
Financing the Deal
It seems as if these investors are made of money, but where does someone just entering the workforce get the funds to start their business?
“There’s a concept in the industry called hard money lending,” explains Mr. Barry Hertz, of Ditmas Park Capital. “This is where someone wants to purchase an investment property and can’t get a typical mortgage, either because the home needs repairs or because the bank process will take a few months and the deal won’t last, so they need someone who will lend the money quickly.”
Ditmas Park is one such quick-money lender who enables first-time investors to obtain their first investment homes, as well as enables experienced investors to expand their operations by distributing capital into multiple deals.
“I prefer to work with a professional company, like Ditmas, for my loans,” says Mashinsky. “They’re very efficient, very on top of things and I know I can trust them. It’s a personal and reliable experience.”
When a lucrative deal is on the line, having the connections to a reliable lending firm such as Ditmas Park is an essential asset. As an investor’s business grows, even though his own personal capital will likely grow with it, lenders are imperative to be able to leverage their funds and purchase more than one home at a time.
Rehab and Recoup
The house is yours; now the real work begins. Should you fix it up yourself or outsource to a contractor?
“It depends on the person, but if you’re handy, willing to work and have the time, it’s a great asset to be able to do the repairs yourself,” says Mashinsky. “Learning each step from the ground up also puts you in a better position even if you outsource later on. You can buy the materials yourself and just pay for labor, or you’ll just be more knowledgeable when negotiating with a contractor.”
Yitzy W. sees value in both but points out the difference in focus.
“If you do it yourself, you’re spending all your time in the one house instead of going out and finding new properties. Finding a contractor you trust allows you to make outsourcing financially worthwhile.”
Once the house is fixed, there’s the question of selling it or renting it, which again, depends on the scenario.
“Sometimes, a house will be cheap enough that it’s worth buying, but it won’t sell high enough for a real profit. Then renting is smart,” says Yitzy. “You also get long-term residual income this way.”
For those that need to recoup their investment, the only option is selling, but this allows them to have more time and money to move onto the next deal.
“In general, finding the right deal is the real kuntz in this business,” Yitzy concludes. “There are lots of properties for sale and lots of people doing this. The one who wins is the one who finds the right properties.”