- Investing in real estate can be intimidating for beginners, but there are ways to get started.
- The self-described ‘clever investor’ Cody Sperber started investing in real estate with no money to his name, and now he’s done hundreds of millions of dollars in deals and flipped over 1,000 houses.
- Sperber says investment strategies like wholesaling and rehabbing are great ways for new investors to get started.
- Visit Business Insider’s homepage for more stories.
Cody Sperber started investing in real estate with no money to his name. Now, he’s done hundreds of millions in deals and has flipped over 1,000 houses.
Beginning his investment journey with $30,000 worth of credit card debt, Sperber’s first deal was wholesaling, in which an investor finds heavily discounted real estate and then sells it to a cash buyer. He turned the deal into a $40,000 profit, and eventually began rehabbing houses, similar to what you’d see on home renovation shows.
From there, he built a real estate investment empire, and even went on to cofound a real estate investing course, 100 Million Academy, where he offers eager investors step-by-step guides to the investment strategies he knows so well, from wholesaling to rehabbing.
Sporting the nickname the “clever investor,” Sperber knows what it takes to get started investing in real estate, and shared his top three strategies for anyone who’s just getting started.
1. House hacking
House hacking is essentially purchasing a rental property — like a duplex, triplex, or fourplex — and then living in one of the units while renting out the others. Sperber said this strategy has three clear advantages.
First, it provides additional cash flow because it essentially “unlocks your ability to earn more income on a monthly basis and eliminates your biggest expense.” It allows you to decrease living expenses like mortgage payments to very low numbers, he said — sometimes even zero.
Another benefit to house hacking is it allows for flexible lending options. “The best option in my opinion is financing the property through an FHA loan,” Sperber said, the best option to him because it allows an investor to put down only 3.5% on the purchase of the property.
“You are going to want to have additional funds available for closing costs and potential renovation cost,” he said. The more funds you have available to put into a property, he said, the more you’ll be able to charge in rent, and the more appreciation you’ll recognize in the long run.
Lastly, tax benefits come with house hacking. Expenses for personal residences like insurance, repairs, utilities, and HOA fees aren’t tax-deductible, but they are deductible for rental properties. To do this, he said you’ll need to hire a CPA and keep detailed records of all receipts. Consulting with a CPA or accountant on tax benefits is a critical step that Sperber said investors shouldn’t overlook.
2. Virtual wholesaling
Virtual wholesaling is just like regular wholesaling, except it’s done in a virtual market, Sperber said.
“When you’re wholesaling, you’re controlling real estate and then using creative paperwork to control it and then flipping the paperwork over to a cash back-end buyer that’s looking for a good deal. And you do it virtually,” Sperber said.
“Why would somebody want to wholesale in another market?” Sperber asked. “A lot of times people that are in more challenging markets decide to wholesale virtually so that way they can make more money using that same skill set.”
Though Sperber pointed out that wholesaling is “a numbers game,” and not every deal you try will end up closing, he said it’s one of the easiest ways to break into real estate investing and make quick cash. Eager investors can do it in any market, he adds, and technology allows the transactions to go over even faster.
3. Rehabbing houses
Much like on TV, rehabbing is the practice of buying a cheap house and fixing it up so it’s worth more, Sperber says.
But there are a few things to consider before you get started, according to Sperber. “With rehabbing, have a 10% fudge factor on your budget,” he emphasized. “This adds into the small cosmetic items, labor costs, and staging costs that you may not think about.”
Sperber adds that investors should make sure they know which walls are load-bearing and which ones aren’t, in addition to matching textures whenever they patch up walls or open up floor plans by adding beams. Using non-name brands in cheaper rehabs is another strategy to keep in mind, and purchasing materials in bulk, from carpet to flooring to paint, can go a long way. Also, he said to never get rid of good materials, lighting, or appliances when you demolish the original site.
Looking for rehab properties that have existing irrigation is a plus, and staying away from projects on a busy street, underneath power lines, or behind commercial properties are always advantageous for an investor, Sperber said. And rehabbers should find out the permitting timeline in the city where they’re rehabbing and try to submit multiple plans for permits instead of one large permit submission.
Sperber said some of the biggest pros to rehabbing are that you never have to swing a hammer — if you hire a great contractor, they will manage the entire project. Rehabbing also usually results in much bigger paydays then wholesaling, he said.
Rehabbers don’t need a license or previous experience in real estate, as long as they build a great team around them. This team should be: a good agent, general contractor, and investor-friendly closing agent.
When it comes to contractors, Sperber said most new investors try to save and find a cheap one, but quality should come before cost. “There are always unforeseen issues with old houses,” so make sure your contractor can handle anything.
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