The ULTIMATE Beginner's Guide to Investing in Real Estate Step-By-Step

What's up you guys! It's Graham here. So, this video is really meant to be a real estate beginner tutorial where I can really cover the basics and outline the blueprints of exactly what's needed in order to prepare for and actually invest in real estate. With this, I'm going to try to keep it as basic and step-by-step and non-complicated as possible. Believe it or not, with this video, this is something that you can begin working on today; it's that easy. As soon as you finish this video, I highly encourage anyone who's watching now to actually go and utilize these techniques. Start as soon as possible; in that way, in the future you're gonna be in a great position to actually go and utilize all of these techniques to their fullest extent, and with that, you will make money.

So, just as some clarification here, what I mean by investing in real estate—I'm not talking about wholesaling. I'm not talking about flipping. I'm talking about actually owning a property as an investment where you then get a tenant in there who pays your mortgage down for you, while hopefully still providing a little profit on top of that long term. Then, fifteen to thirty years from now, you will end up owning that home outright. You will own it free and clear, you will start making a lot of rental income, and with that, you can pretty much just chill and do whatever the heck you want. And that, you guys, is the entire point of investing in real estate.

Now, step one — and this is something I realize I say so often in my videos — but the reason I do this is because repetitiveness actually works. People either don't pay attention, they forget, or they put it off, and it keeps me saying this over and over and over again for it to sink in. And that, you guys, is simply just building your credit score. They pretty much have a million bajillion videos I've already made exactly on this topic, so I will just link to them down in the description. But basically, you need a good credit score because lenders look at that anytime they determine what sort of loan they're going to give you and at what interest rate. The higher the score, the lower the interest rate you pay, and with that, the more money you get in your pocket every single month.

When you have a bad credit score, lenders either look at you and say, "You know what? We're not even gonna let you because you don't have a good credit score because you didn't watch Graham's videos." Or if they're going to look at you and say, "Yeah, we can charge you a really high interest rate if you want that loan." And that makes me very, very sad. So literally just not paying attention to this step and not building your credit will cost you a lot of money over your lifetime. And this is one of these steps you can start immediately after watching this video. So, as soon as you're finished watching the video and after you've hit the like button on this video because you've enjoyed it—hopefully—go in the description, click the video about credit cards, just watch that, and then click the like button on that one, and then begin building your credit.

Now, the second step is to go and save your money. The reality is that you can't really invest in real estate with no money down, with no credit, with salary finance—it just, it doesn't really exist. Those are unicorn anomaly deals that I have never myself seen firsthand in the last ten years of me doing real estate. In probably 999 out of a thousand deals out there, you will need to put down anywhere between 5% and 20% of the purchase price, have the income to actually get the loan, and have the credit score to get the loan at a good interest rate.

So this means that in order to actually save money, not only will you be required to live frugally so that you could save the money that you make, but you're gonna have to actually make money. Now, I know this seems just super common sense—like, "Notion, Graham, you gotta make money." But believe me, I get probably five to ten messages a day from people who ask, "How can I invest in real estate with no money down, with no credit, with no job? How do I do this?" And the answer is that doesn't exist. You will actually need to go and make money to then invest.

In terms of actually making money, that's really up to you to decide how you want to go about that. Maybe you want to take the steady nine-to-five and get the guaranteed paycheck every other week just so you could be able to qualify for a loan. Nothing wrong with that! Or you can start your own business and then try to make a little bit more money and speed up the process. The choice is really up to you as long as you actually make and can actually save money.

Now, the third step here is to actually show your income on a tax return. This means that you can't just go and have one phenomenal month on Shopify and then expect to use that income as a down payment and then invest in real estate just a few months later. Lenders really want to see a consistent, stable, long-term source of income before they end up giving you a loan. This is to prevent people from getting a loan based off maybe just a few phenomenal months that are unlikely to happen again, or also to avoid high-risk borrowers that might not be able to make the payments after a few months and then default after the first year.

So, in order to do this, you're gonna need to show proof of income on the last one to two years of your tax returns. For me, because I'm self-employed, they look at my last two years of tax returns. They take the average of the income between those two years and base my loan on that. Now, for salaried employees, oftentimes banks will look at the last one year of your tax returns and often the last six months of your bank statements and then base your loan off of that.

But it's really important any time you're showing income on a tax return to not go too heavy with tax write-offs, because lenders often look at your net income after all of your expenses. Now, I made this mistake in 2014 when I went really aggressive on my tax write-offs. I basically tried to write off as much as I could to lower my tax obligation. But in 2016, lenders saw my 2014 tax return—they saw all the write-offs and they saw that year was lower in net income than the subsequent years, simply because I wrote off so much. They lowered the amount I was able to qualify for because that one year brought down my average.

Now thankfully this wasn't a big deal because the property I ended up buying was within my price range regardless, but this could have been devastating had the property I wanted to buy been more money and with that, it would require me to show more income that I might not have had. So what I do to get around this is that before I file my tax return, I talk to a lender. I will have the lender look over my tax return before I file it with the state in order for them to determine whether or not the income I'm showing is sufficient for the loan I want to get.

This works out amazingly well because oftentimes if I'm showing too much income, I'm overpaying on my taxes and I can write off a little bit more. But if I'm not showing enough income, I could simply ease off my tax write-offs and be okay to get the loan I want to get. Then, with that final number, what I usually do is give myself an extra 10% buffer on my tax write-offs. That way, I can show a little bit more income just in case interest rates go up and I can qualify for the slightly higher payment.

Now, the fourth step with this is to actually get pre-qualified with a lender. This is such an important step and will save you from a lot of disappointment. What always ends up happening for the people that don't get prequalified is they go out, they start looking, and they find the perfect spot. They fall in love with it; it's amazing, but it's slightly outside what they can afford, and they can't buy it. Then everything else they see after that, they compare to that one deal that's obviously more expensive and at a higher price point that they couldn't afford, and every deal in comparison to that just looks like crap.

So, just save yourself the heartache and the frustration and the wasted time by just speaking with a lender first. It's really as easy as going to a few different banks, having them run your credit, giving them your tax returns and bank statements, and anything else they need, and they will pre-approve you for a loan based off that information. You can then go and take that rate sheet and shop it around in other banks who will run the same information. They will require pretty much the same things, and they will often beat that loan of the first place. Then, you just keep shopping them around against each other until you end up getting the best rate possible.

Now, the advantage here of having multiple banks approve you for a loan is really two reasons. The first one is just having the security in the event the first bank can't perform in giving you your loan. The second is you often just get the lowest price possible on the loan you get.

Now, a lot of people are worried that by going to different banks and having them run your credit, it's gonna dramatically lower your credit score, and this is false. Any time a lender runs your credit, anything within a 30 to 60-day window after that is grouped all as one inquiry. This is to encourage rate shopping so that customers get the lowest price possible. So running your credit score ten times is going to have the exact same impact on your credit as simply just running it once.

Now, as an example on this working firsthand on the last deal I got, I got approved by three banks and was intending to move forward with Chase until the last minute one of their appraisals came in low for rental income and they wanted to give me a slightly lower loan amount. So I ended up going with my backup option, which was the exact same rate, same everything, except their appraisal came in much higher and I was able to get a much higher loan amount. This saved me from wasting a lot of time because I had already done this work ahead of time. I already shopped around the loans and with this, I was really able to get the best loan possible.

So with this, step five is to really do your research and see everything on the market in the area that you want to buy in. Find out which areas you feel are undervalued and poised to go up in price. For me, I invest in areas that are just outside of other areas that have dramatically gone up in price and seen a lot of development. For instance, if I see one area that’s going up in price massively, but if you drive five minutes away, it’s like half the price, I invest five minutes away because I feel like most people will eventually be outpriced of those areas and want to move just further outside of those areas where it’s a lot cheaper and more affordable. That, in turn, will end up driving prices up there, and then it just continues to expand outward.

So in order to notice this and see this, just be really, really good at being able to notice what's going on in your market. Drive around all the areas and see where new restaurants are going in, see where new hotels are going, and see where new apartment buildings are going in. See where things are just generally improving and prices are increasing and then just drive a few minutes away from that. Also, go to see every single open house you possibly can on Saturdays and Sundays. The more you see, the more references you have, so that when you actually see a good deal, you know it. The more you see, the more you know, and the more you know, the better you're able to invest and spot the best deals.

Without doing this and without seeing a ton of properties, you're really gonna have no idea what you're looking at because you simply have nothing else to compare it to. Ideally, you'll want to find something that just needs a little bit of love—just some really light cosmetic work. Maybe the kitchen just looks like crap, or maybe the bathroom is just old. Maybe the landscaping just sucks, maybe the paint is all peeling off. You want to find some really easy light cosmetic upgrades that you can probably do in one to two months maximum that aren't too complicated that most contractors could easily do. These make the best remodels and these often have the best ROI. Once you get into redoing foundations and rearranging floor plans and adding square footage and all that stuff, it just becomes a lot more expensive, time-consuming, and riskier to make your money back on, especially as a beginner. I don't recommend this if you're just starting out.

Now, step six is to make offers on places you think are a good deal. It's really important with this that you know your price, you know what the home is worth, and you've had the patience to wait until you find that deal. Even for me, it took me about six months to find the place I ended up buying, and I lost out on maybe four or five offers because I had the patience. I knew what the properties were worth and I didn't want to overspend on something that I didn't feel was 100% worth it. Also, when I bought my first three properties in 2011-2012, I probably wrote close to a hundred offers on places and just low-balled everybody until I found a few that actually went and accepted my offer. Just have the patience to really take your time with this. Do not get caught up in the emotional rollercoaster of competing in multiple offers to the point where you will overpay for something that's just not worth it.

However, don’t be stubborn, don’t be an idiot, and look at this with a long-term outlook. Over the next 20 or 30 years, overpaying by a few thousand dollars to get the absolutely perfect property is going to be worth it. You're not gonna look back thirty years from now and be like, "I only spent five grand on that property; it wasn't worth it." No! If overspending by a few thousand dollars is going to get you the perfect place, then otherwise you're gonna have to spend another year looking to find something similar to that where maybe the market went up five percent and all of a sudden that few grand you spent is nothing. Go ahead and overspend on that property—you’ll thank yourself years down the road.

Don't be penny wise, dollar foolish, to pass up otherwise the perfect deal just because you get stubborn with it and think you’re gonna find something else. It's more important to find the right property at a fair price than it is to wait years potentially to find the unicorn of a deal that you could buy at a steal because those deals rarely ever come up. Oftentimes, people lose hundreds of thousands of dollars just waiting around for those deals to pop up and they don't exist. Trust me; I have seen this firsthand as a real estate agent. I've seen people wait years to find the perfect place, and in the process, the market goes up 50% and all of a sudden they’re priced out of all the homes they were originally looking at that would have worked amazingly well simply because they wanted the perfect place at the perfect price that didn’t exist.

Now, step seven: once you actually get your offer accepted, is to then do inspections. I recommend doing as many inspections as you possibly can just to get to know what you're getting into and the condition of the property. I usually tell my clients that these inspections are at the very least a break-even from what they're investing. For instance, if they're spending $2,000 on inspections, at the very least, usually you can get $2,000 worth of repairs or credits to compensate you for all the money that you've spent.

I also take this a step further and bring in one to two contractors to give me actual bids of what it's going to cost me to bring the property up to date and fix any issues. The good news with this is that oftentimes contractors will do this entirely for free because they want your business. With this, they actually give you the first-hand experience of what's actually needed and what it's really going to cost. With this, you get your work out of the way because you get bids in escrow. Now, combining the inspections with the contractors, I know everything that's wrong with the property from both a cosmetic standpoint and from a functionality standpoint.

With this, I could then go and negotiate the price with the seller accordingly depending on what's wrong with it, what needs to be upgraded, and what I didn't anticipate. Especially if your plan is to then go and buy the property and remodel it, it's so important you get these estimates out of the way early on so you know exactly what this property is going to cost, what your ROI is, and what the property is going to be worth when you're done with it.

Now, step number eight here is to actually then close on your property. In the process of doing your inspections and everything, chances are you're gonna be speaking with your lender and giving them information that they request from your tax returns, bank statements, credits, and all that stuff I mentioned earlier. At the same time, they're gonna be doing an appraisal on the property to show the bank that they're actually lending on a property that's worth what you're actually paying. The process of closing usually takes anywhere from as low as 20 days to as high as 45 days depending on the type of property, how involved it is with the bank, and how much work you did ahead of time before getting your offer accepted with the bank.

But once it closes, this is where the real fun begins. Step nine is starting to do your minor cosmetic renovations. This is where you end up making instant equity because not only are you buying an undervalued property in an area that's poised to go up in price, but you're also buying a property that needs some work where you can add value by simply fixing it up. That's the trifecta of making money in real estate right there!

Now, in addition to that, the more the home is worth, the more you can rent it out for, which means the more money in your pocket. Now, at this point, most people ask me, "Graham, where do you find your contractors?" My simple answer to this is two ways. The first one is word-of-mouth. If I see someone that remodeled a property, I simply ask them, "Hey, who ended up doing this remodeling? Who is the contractor? Do you mind if I get their contact information?" Most people are very happy to give a good contractor more work because it looks good on them, and it helps the contractor out. In turn, oftentimes the contractor will give the first person cheaper prices in the future because they know they're gonna bring in more business—that's number one, simply word-of-mouth.

Number two comes from Yelp. Anytime I want to look up a different contractor, I simply type in the trade I need, look on Yelp, and then look for people who have really good reviews. I then call them up, get a few bids and estimates from a few different people, and I pick who I feel is going to be the best fit. This is honestly how I found my best contractors so far—it's word-of-mouth and Yelp. It's really that easy.

Also, people ask me, "How do I know how much something should cost?" The best answer is simply by getting multiple bids from multiple contractors. Getting one bid from one contractor doesn't tell you anything. If you're totally inexperienced, you have no idea how much something costs—that's not gonna help you. You need to get multiple bids and you'll be able to see the differences in price, and more people come in about the same. With this, you can usually estimate, "Okay, I think the drywall is gonna cost, on average, this; painting is going to cost this." You can also break it down by material.

Whereas let's say your painting materials are gonna be $500 and they're charging you $2,000; well, this means they're charging you $1,500 in labor. How many people are gonna be there and how long is it going to take? With this, you can usually determine how much the contractor is making and how much they're paying their workers. So yeah, there's a little bit of math there—you'll probably have to use your calculator! But the more you end up doing this, the better you get at doing this. Then pretty soon, you're able to do the second hand just by looking at something.

Also, one last piece of advice is whatever estimate they give you, just always add 15 to 20% more on top of that. Even with the most honest contractors, there will always be things that crop up that weren't anticipated. You’ll want to change things; you'll want to make things better and upgrade things—just trust me on this one. It's always 15 to 20 percent more than what you think it's actually going to cost.

Now finally, step ten: assuming you've done all the renovations and you're hopefully on budget, is then going to find a tenant. My favorite way to then go and find a tenant? I love Craigslist. I have found Craigslist is one of the best ways to get tenants. I get a ton of people asking about my properties. It's absolutely free, super easy to post on there, and believe it or not, is how I found the majority of my tenants.

I also have a video of what I do in terms of getting leads on Craigslist; I will link that video down below in terms of the format I use and everything on that. It's really easy; it's a 20-minute video—everything is down below in the description. But hopefully, at this point, you've rented the property out by using my techniques on posting your ads on Craigslist, you're positive cash flow, and now you're officially a real estate investor who's making money every month. And then, fifteen to thirty years from now, your property's paid off; you're ballin', you're living the dream!

And you make sure you hit the like button. So with that said, you guys, thank you so much for watching. I really appreciate it. If you guys enjoy videos like this, make sure, like I said, just to hit the like button. If you watched it all the way through and you're not already subscribed, just make sure to smash that subscribe button and then smash the notification bell so you can be part of the notification squad where YouTube notifies you anytime I upload a video. Also, feel free to add me on Snapchat and Instagram. Finally, I have a link in the description to a private Facebook group for anybody who's interested in real estate, real estate investing, agenting, wholesaling—just anything real estate—the link is in the description, so make sure to add yourself to that.

Thank you again for watching, and until next time!