Taking the first step is one of the most significant and common obstacles for a new or part-time investor who is looking to get started.
Taking the First Step
What I am referring to is buying that first rental property.
I equate it to the first step a small child takes. As we have all experienced in our own lives, you watch a young child take that first step. You can see how very hard it is for them. They fret over it. They prepare for it. When they ultimately do take it, it’s probably not pretty. They probably do not go too far, and the rewards are probably very limited. Oh, by the way, it’s probably very difficult for them.
It’s exactly the same for a new investor just starting out, or thinking about starting out. When it comes to your first rental property you purchase, you may stumble. You may fall. And, I will warn you, you may not get that much out of it in terms of financial reward.
But just wait. Just like that child, once you take that first step – each subsequent step gets easier. With each property you buy beyond the first one, the difficulty level goes down and the reward goes up. Just like that child who is eventually running across the room, you will be full of exuberance and confidence.
I guarantee you that you will laugh someday about how you fretted over this terrifying first investment-buying step, the mistakes you made and the frustration and worry you endured. But it will all become a memory—just like that child’s first step.
The key, though, is to take the first step and buy that property. And go from there.
The source of most new investors’ hesitation is to buy that first property. They do the preliminary math, or they talk to a friend, relative, buddy or someone else who has taken the first step. They conclude that, “Wow, I am going to buy a rental property and I am only going to generate how much a month?”
That one property is a lot of difficulty for very little return, it may very well be true. I speak from experience.
My First Property
My first property was the most difficult property I ever bought. And the reward it generated was the smallest reward I have ever earned in terms of monthly cash flow. But what I found was, when you prepare properly for your first property and you prepare to go beyond and buy additional properties; that is where you will find the reward, satisfaction and ultimately the wealth you have been seeking.
You have to set a goal or destination just like that child who takes their first step. The child has a plan, “I’m going to get across the room. And I don’t know if it’s going to happen today or tomorrow. But that is my objective and I am going to learn to get over there, not by crawling but by walking and ultimately running.”
You have to do the same thing as a real estate investor. You have to determine your goal, your objective, your plan and your destination.
The Four Steps
1| How much do you want to earn?
As a new part-time investor, determine how much you ultimately want to earn in passive income from your real estate investing.
Let’s say you have a full-time job. Maybe your ultimate goal or dream is to be a full-time investor. That’s great, but in the short term, how much do you want to earn from your rental properties?
Let’s just say for easy math you determine you want to figure out through real estate and rental properties how to generate $30,000 a year in income. This is above and beyond what you are currently earning in your full-time career. That’s step one.
This one is a little more difficult to figure out. Determine what and where you want to buy, by looking at the rental market and rental rates in your area.
Ask yourself, “What should I expect to earn per month off the type of property I can afford and the type of property I want to buy?”
Let’s just say you determine based on the rental rates and the monthly mortgage payment, you are going to purchase a property that will generate $500 a month in passive income or cash flow. That $500 a month is equal to $6,000 a year. So now you have a goal: you want to get to $30,000 a year in passive income or cash flow.
You have determined the type of property you can afford, the type of property you want, the type of property that is accessible to you and that will generate $6,000 a year in passive income. That takes you right into step 3.
How many properties do you need to buy? Take your goal of $30,000, divide it by your annual cash flow per property of $6,000. You’ve just determined how to reach your dream goal of $30,000. You’ve got to buy five houses. Now, for the final and fourth step.
How long do you want to give yourself until you earn that $30,000?
Figure $30,000, divide it by $6,000 per house—you need to buy five houses. So if you want to get there in five years, you have to buy one house per year to get there.
You’ve Got a Plan, Now What?
Yes, it can be done. I will be the first to say it can be done in the professional corporate world. But I also will say with the majority of jobs, a $30,000 raise in five years is not easily obtainable and may not even be feasible or realistic.
When you wrap that context around it, you can start to get very excited about giving yourself that $30,000-a-year raise by buying five properties in five years.
Ultimately, you are creating passive income for the rest of your life, almost like an annuity.
Your experience as a real estate investor will be the same. Keep in mind every single real estate investor out there started small. One step, one house. That is how it all began for everybody. When you put your destination and plan in place and go from a step, to a walk, to a run in your real estate investing, you will see how the difficulty dissipates and the rewards increase.
Maybe that ultimate reward for you is leaving your current job and becoming a full-time real estate investor. Perhaps it’s just creating incremental passive income on the side. It could just be something you want to do in your free time to build wealth in the long term. All of those are great and will serve you well.
Just like every great business is built one sale at a time, one store at a time, one customer at a time, one product at a time, one step at a time. Your real estate investment business is built one house at a time. And your wealth from real estate investing is built by taking that first step, buying that first house. You are going from a step, to a walk, to a run and reaching that end goal. Just make sure you define your goal before you begin and don’t worry about the individual steps to get there.