BiggerPockets Real Estate Podcast

From the Forums: One Thing That Most Beginner Investors Should NOT Do

Dec 4, 2024

Wondering if you should borrow private money for your first real estate deal? Experts weigh in on the risks for beginners. Struggling with tenant screening? Learn how to navigate red flags like late payments while managing inherited tenants. Plus, discover effective strategies for raising rents without losing good tenants. Also, get insights into the 70% rule for house flipping and how to spot a steal in the market. Whether you're investing, renting, or flipping, these tips will sharpen your strategy!

35:35

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Quick takeaways

Beginner investors should avoid using private money for initial deals without a solid financial foundation, as it poses significant risks.

Assessing tenant red flags requires understanding the context of their financial history before accepting lower-qualified applicants or opting for vacancy.

Deep dives

The Risks of Utilizing Private Money for Your First Deal

Using private money to fund your first real estate investment can be appealing for new investors seeking assistance in landing their first deal. However, it carries significant risks, particularly if the investor has poor financial habits or lacks experience. Borrowing someone else's money while not having a solid financial foundation can lead to detrimental consequences for both the investor and the lender. It's crucial for beginner investors to self-reflect on their financial literacy and consider alternative strategies, such as partnering with friends or family, rather than immediately resorting to private money.

Intro

2min

Navigating the Risks of Borrowing Private Capital for Beginners

2min

Investing Decisions: Partnership vs. Loans

6min

Navigating Tenant Screening and Rental Strategies

12min

Tenant Screening and the 70% Rule

6min

Revisiting the 70% Rule in Real Estate

8min

Should you borrow money for your first real estate deal? We’re not talking about taking an interest-free loan from your mom; we mean using “private money” to finance your investment. This type of investment property financing is usually reserved for the more experienced investors, but is it a bad idea for someone with such little experience? Is there another way to finance your first deal that gives you more wiggle room if you make a mistake?

This is just one of the BiggerPockets Forum questions we’re answering today from investors like you. One investor on her second rental wants to know whether bankruptcy or late payments is an immediate red flag in a tenant application. She’s struggling to fill up her property, so should she take on a tenant with sub-optimal finances? What do you do when you inherit a tenant paying substantially under-market rent? How do you raise rents the right way?

Finally, Henry the house flipper shares his thoughts on the 70% rule and gives his own house-flipping formula you can perform on the spot to see if your deal is a steal!

Looking to invest? Need answers? Ask your question on the BiggerPockets Forums!

In This Episode We Cover:

Whether you should or shouldn’t borrow private money for your first real estate deal

Tenant red flags and what to do when you’re struggling to fill a vacancy

Raising rents on inherited tenants and why we DON’T ask for market rates

How to attract better tenants to your rental property (and whether to lower the price)

Henry’s house-flipping formula that beats the 70% rule calculation

And So Much More!

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