We get a lot of questions about how to get started in real estate investing. We’re not financial advisers so do not give financial advice, especially specific buy (or sell) recommendations. Besides, investment criteria for a first (or subsequent) investment should vary based on multiple, very personal factors, such as life circumstance, goals and priorities, risk appetite and your talents and expertise.
Instead of making specific recommendations for others, we talk about how we approach real estate investing for our own personal situation, which might give ideas and inspiration on what to do (or not!). We have written about the decision-making process and shared a decision matrix. We have also written about three real estate trends we are following right now, the different real estate investment options we decided NOT to do, how to pick a geography and even whether a house or condo makes the better first rental investment.
Another spin on the how-to-start question that I ask my own mentors is what they wished they had done differently. What do they know now that they wished they knew earlier? It’s a question I like to ask myself from time-to-time to ensure I’m gleaning as much as I can from the benefit of hindsight.
We bought our first rental in 2005. After 15 years of rental investing, we know more about real estate, and we also know ourselves better – what we like to do, how actively we want to be involved, how much risk we are comfortable with. Here are five things we would have done differently:
1 – We would have started earlier
I haven’t yet met a real estate investor who isn’t sorry they didn’t get started sooner. We were 34 when we bought our first rental, but we have met investors who got started in their early 20’s by house-hacking their college apartment, or even earlier by partnering with family. The earlier you start, the better change you have of appreciation working its magic.
Of course, we also have met real estate investors who got started late in life and did just fine, so the main lesson is: get started.
2 – We would have prioritized real estate over the 401k
In addition to starting earlier, we would have scaled up faster. We got to three rentals in 2007 and then stopped until 2013, when we set a goal to get to 10 rentals. At the three-rental point, we were still thinking of real estate as a supplement to our “real” retirement plan, the 401k with paper assets.
It wasn’t until 2013, almost a decade after our first rental, that we realized real estate could be our retirement plan in and of itself. It seems obvious in hindsight, but we missed it, and we missed the lower purchase prices, the mortgage pay-down from rental income and the tax benefits we could have enjoyed along the way. (Happily, the money we funneled into our 401k is doing nicely, and we were able to use some of our retirement money to buy real estate by setting up a solo 401k.)
3 – We would have taken more advantage of our W2 jobs
Getting a mortgage when you are a small business owner is a nightmare, even though we have standalone LLC’s and show profits. The rapid growth of our real estate portfolio from 2013-2016 was made possible by Scott’s office job and reliable paycheck. I left my office job in 2007.
Had we started when we both had the financial profile mortgage lenders love, we could have bought more properties, more easily.
4 – We would have used more leverage
Even now, we’re only 40% leveraged – meaning that our debts represent 40% of the value of our real estate. We own several properties outright – i.e., there is no mortgage. We are still stretching our comfort zone when it comes to using leverage to buy more real estate because we are hard-wired to equate leverage with risk.
However, if you buy carefully to begin with (which we do), the leverage helps you scale much more quickly and keeps you more liquid (since there’s less cash tied up in your properties). Now that we both are consultants, both without the steady paycheck, it is not a good time to borrow more. In hindsight, we should have done so earlier.
5 – We would have changed our team more quickly
Real estate isn’t just about when you buy and sell, but also how you manage the property when you own it.
We have had to change property managers multiple times, and in hindsight, there were times that we didn’t do it fast enough. No one will manage your money as closely as you will, so even if you outsource the day-to-day of managing tenants, you still have to manage your property manager.
In addition to property management, having legal and accounting support that understand real estate specifically is very important, and given our property manager experiences, we know to hire more carefully and change more quickly going forward.
The best time to plant a tree…
I agree 100% with the oft-quoted Chinese proverb:
Even though we would have handled some significant issues differently, everything worked out, and we are moving into our second stage of FIRE. We may have missed out on some opportunities (like an easier lending process), but we still got to 10 rental units. We didn’t start to focus on real estate till our 40’s but built our portfolio, still in our 40’s, in less than one decade.
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What are you going to build in this upcoming decade?
We are Scott and Caroline, 50-somethings who spent the first 20+ years of our adult lives in New York City, working traditional careers and raising 2 kids. We left full-time work in our mid-40’s for location-independent, part-time consulting projects and real estate investing, in order to create a more flexible and travel-centric lifestyle. 
Financial independence and early retirement is not something we originally focused on, but over time realized it was possible. Our free report, 
I am looking forward to the upcoming decade! I think real estate is always a great asset. I was prioritizing the 401(k) as well but luckily the stock market was also doing well during that time. I have been dabbling in medical office buildings (through healthcare REITs). ROI probably isn’t as good, but it is a little more hands-off!
What is your ideal leverage point?
Max
I saw a chart — I think in HousingWire — that showed how REITS performed really well over the last decade, so you probably did great with the healthcare REIT! Regarding leverage, it’s always about whether the unit will cash flow b/c then we can hold onto it through market dips. We probably have less leverage than we should if we wanted to scale more quickly — we’re about 50/50 debt/ equity right now, but it’s not like we see any screaming deals that we would want to dip into our equity for.