Neil Patel’s Guide to Making Money in Real Estate

real estate

Can you guess what my favorite place to invest my money is? If you guessed the Internet or technology sector, you’re wrong.

It’s actually real estate. And it’s not because I dream about owning multiple homes in different cities. Nor do I care to brag to my friends how awesome my home is. The reason I love real estate is because there is a ton of emotional sellers that you can make money off.

When you can’t find emotional sellers, you can typically find someone who is in a financial jam that is looking to just wipe their hands clean.

If you are looking to invest in real estate, here are a few things I’ve learned over the years:

You can always find a deal as long as you look for it

Have you heard people say that the real estate market is turning around? Or that there is no quick money to be made in real estate anymore?

Yes, they are correct about the real estate market turning around, but that doesn’t mean you can’t make money quickly.

I recently bought a penthouse condo at the Mandarin Oriental in Las Vegas. The developer was looking to wipe his hands clean because he has been stuck with these units for one too many years.

A buddy of mine who runs a hedge fund decided to buy up a lot of the penthouses. Because he was buying in bulk, he was able to negotiate a good deal. I myself decided to go in and was able to buy a 2,160-square-foot unit at $250 a square foot.

We were able to get a good deal because banks aren’t financing units within that building due to it having less than 50% occupancy. So the sellers were looking for cash buyers. Plus, we were buying in bulk, which helped the building get closer to 50% occupancy.

Within 60 days of buying it, I now have a buyer in escrow for $356 a square foot. After paying realtor fees, I will make $175,132.80 in profit, which isn’t too bad. How was I able to make a 32% return on my money in just a few months? It’s because I had an awesome realtor.

Never work with rookie realtors

If you want to make money in real estate, you need to find a good realtor. Here are some qualities I look for:

  • Realtors who are experienced and successful – these tend to be the ones who are most well connected and learn about deals before anyone else.
  • Realtors who are good at math – if they can understand market trends and what is considered a bargain, you are more likely to make money. They’ll guide you and tell you what to do and what not to do.
  • Realtors who won’t give you answers when they are unsure – if you push a realtor to give you an estimate on what someone is likely to sell a home for or what a unit is worth, they will probably give you an uneducated answer. But if they tell you they need to do their homework and get back to you, you are working with someone who is smart.
  • Someone who is hungry – you don’t want a realtor who just takes you to all of the open houses you are interested in. You want someone who will knock on doors and look for deals that aren’t on the market yet. And trust me, there is a ton of deals that aren’t on the market yet.

Now that you know what to look for in a realtor, you need to retrain your brain when it comes to buying real estate.

Retrain your brain

Most people buy based on their emotions. That’s the last thing you want to do because emotions will cloud judgment and cause you to lose money.

If you follow the 6 rules below, you’ll be able to find a great deal and buy using logic:

  1. The best sellers are motivated sellers – you should only be bidding on properties that have been on the market for 6 or more months. These sellers are either really stubborn when it comes to negotiating or they will be desperate to sell.
  2. Views are everything – it took me roughly 60 days to have a serious buyer on my Vegas property. Sure, I am making money on it, but it would have sold faster and for a lot more money had it had a good view of the Las Vegas strip. Yes, that would have cost me more money, but I would have made a higher return on my investment. If you can, buy a property with a view because such properties are more desirable.
  3. Plan for the worse case scenario – I recently found a condo in San Diego that I liked because it had a great view and was on the market for a very long time. The issue was it was priced at $2,000,000, which didn’t make sense to me. Assuming I had put 25% down, my mortgage payment would have been $11,188 a month (which includes property tax, home owner dues and insurance). If I had wanted to rent that unit out, I would have realistically gotten $7,000 a month. That means I would have had a negative rental disparity, owing $4,188 a month. In essence, that would have been a bad buy because it wouldn’t have given me a positive cash flow. And you should always be cash-flow-positive with any rental property.
  4. Know your buyers – eventually you are going to sell. So before you buy, make sure you know to whom you could ideally sell. For example, had I bought that $2,000,000 condo I mentioned above, I would have had to target someone under 30 as it’s a place for a younger person. The issue is, not too many people under 30 could afford to buy a $2,000,000 condo, which makes it risky.
  5. Optimize for returns – you typically make money on the buy, never the sell. No one buys a home for more than it is worth, which means if you buy for less than property’s market value, you’ll be making money from day one. Not only should you aim for a good deal, but you should also buy in a strong market that is growing, has a ton of job openings and doesn’t have a ton of inventory.
  6. Schools and kitchens matter – although I don’t care what a kitchen looks like or what kind of a school district is near, other people do. Don’t take these aspects for granted because homes with these types of desirable attributes usually sell fast. Plus, homes with good school districts usually have a lower crime rate.

Now that you know how to be logical, you need to know some tricks of the trade to get the best deal.

Real estate tips and tricks

I have a few tricks up my sleeve to maximize my outcome. You can easily follow them too:

  1. Don’t use clean numbers – when I put offers on homes, I use random numbers. For instance, instead of placing an offer for $500,000, I will place an offer for $490,492. That number is so random, it usually makes people feel that I don’t have much more money, which typically makes them friendlier to negotiate with.
  2. Close fast – people who close fast tend to get the deals first. If you can, offer cash. If you want, you can always refinance later and pull out the money. Or if you can’t offer an all-cash deal, try to get pre-approved for and start working on your loan, which should help. I would also recommend that you stay away from major banks like Bank of America or Wells Fargo as they tend to take months to approve a loan versus a small mortgage company.
  3. Never show interest – the more interest your show, the harder they are going to be when negotiating with you. Let them know that you are looking at other properties and that if they can offer a better deal, you’ll go with them.

Conclusion

If you haven’t ever invested in real estate, you should consider trying it out. There is a ton of money to be made in real estate, especially over the long run. You just can’t be impatient as it is very rare that you’ll make a killing in the first year or two.

Before you buy your first property, however, make sure you really think it through. If you make a mistake and want out, you’ll lose 6% in realtor fees.

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Comments

  1. That Mandarin Oriental in Las Vegas condo you just bought literally made me go “woah….. :o”.

    Btw Neil, what are the risks involved when you are purchasing real estates like that? Wouldn’t it be more beneficial to invest in internet startups instead considering the fact that if they succeed the ROI would be much higher?

    - Stanley

    • hi Stanley

      Before Neil answers, please allow my short reply…

      The Internet provides higher ROI, however, there’s a risk in any type of investment, online or offline… plus there are short, medium and long term type of investments…

      Real estate is more like a medium to long term investment rather than short… so when it comes to investing you should diversify your spreads, and consider both online and offline investing – short, medium and long term. Low, medium and higher ROI. At the same time.

      Does it make sense?

    • The risk is low if you can find the right deal. I invest in real estate to diversify.

    • “Wouldn’t it be more beneficial to invest in internet startups instead considering the fact that if they succeed the ROI would be much higher?”

      It’s diversifying your income, just like in business. 30% ROI in a few months isn’t that easy to get with internet startups. At the end of the day it’s a matter of opportunity (good deal) and investing in what you know and understand. I have been giving this quite a bit of thought lately.

      Thanks for writing this post Neil! Love it.
      Views in a high rise = Location for single-family home

    • Great post, i am happy to read it..Thank you..

  2. Hi Neil – the UK property market is perhaps a little behind the US, but the principles are exactly the same.
    I particularly like your ‘dirty numbers’ suggestion – not tried that one.
    Another great team member to have in your corner is a smart mortgage broker who will find you the best finance deals, keeps you apprised of the new offers from lenders and can get you through the pre-approval process.
    I

  3. Hi Neil,

    Great article as always!

    Do you have any “Killer” resources for someone like myself that hasn’t tried real estate investing yet, but is wanting to learn more?

    • For the “killer resource” go check out BiggerPockets. It is THE place for real estate investors (flippers, landlords, new construction…whatever you want). It has a great group of people that are active on the forums, along with lots and lots of articles about getting started in real estate investing. There are a lot of great contributors, but to get up to speed quickly, focus on some of the beginner articles by Brandon Turner.

      BTW, I am not associated with BP in any way. I have been using it as a resource for the last couple years and it has been worth its weight in gold.

    • Rus, I would just suggest looking online there are a ton of resources.

  4. Thanks for the heads up and education on the real estate outlook Neil! Is it ever wise to go it alone without a realtor and save some money on the fees? I was thinking about getting into the real estate business but was unsure of what I needed to have to get started. The points you provide on retraining your brain and being patient have really helped me.

    • Welcome to my world, Neil. I have spent my career buying, fixing and selling “distressed” real estate. And I am at it today, and coaching others on what works and what really doesn’t.

      Today’s real estate market is not just recovering; in some cities it is roaring back. This is without precedent and the profits available extraordinary.

      Your advice concerning working with knowledgeable real estate professionals is important. This is no time to rely on anecdotal “evidence” or purveyors of get-rich-quick insider secrets. The Litmus Test of reliable advice? Ask if they’ve ‘been there and done that’–personally!

      This market is not just for High Rollers. In our (metro Chicago) market, we are buying “distressed” homes (read foreclosures) in the city proper for about 1/3 of what nearby ‘comparables’ are selling for. With a little leverage we are committing $20-30 thousand per deal, and netting profits (after return of capital) of $40-60K.

      Not bad for the ‘little guy’. And not too risky. These properties make great rentals and will continue to appreciate as the market fully recovers.

      I and my students generally work at the lower price points. But the margins are there. After we buy and fix, we’re “all in” at about 60% of what we expect the property to sell for. (I call it my 65% Rule.) Works in every market and, quite frankly, in any decade.

      This is not speculative ‘riverboat gambling’. It’s a Business Opportunity. For those who plan and execute well, it is likely the opportunity of a lifetime.

      So, come on over. The fishin’ is easy. And the fat lady has yet to sing her last aria. (To mix just a couple of metaphors.)

      Thanks again, Neil. Provocative post as usual.

      p.s. And keep on investing!

    • Steven, glad I could help. If you have any questions feel free to reach out!

  5. Nice Post , Can you suggest any good website to learn about real estate business.

    • I’m sure there are a number, D.P. Mine, UrbanRehabber.com, is focused on “grass roots entrepreneurs” interested in real estate investing and dealing (buying and selling). Starting small and scaling up as experience and capital grow.

      Once you do the first one, they are all the same. Rinse and repeat, “for fun and for profit” as we like to say…

      Best of luck.

    • I would suggest just google some queries. That will usually bring about the best results.

  6. Neil,

    What’s next? 7 ways to make money at Las Vegas!! :)

    Cheers

    Badri

  7. As a commercial real estate broker, I couldn’t agree more that the best deals are off-market (“You want someone who will go knock on doors and look for deals that aren’t on the market yet”). But this seems to conflict with the point that “you should only be bidding on properties that have been on the market for 6 or more months”. If a commercial deal is marketed for that long, the price is either way too high, or it is a property that no one wants for whatever reason. Neil is correct that you can make money in real estate, but the “steals” are rare and difficult to find. As with anything, there is usually a correlation between risk and reward. Unless you are going to focus on adding value to real estate full-time, it should be looking at as a way to preserve capital and build wealth slowly.

  8. So what you’re saying is….partner with a hedge fund manager and buy 1/2 million dollar properties with cash. No doubt you can negotiate good deals when buying in bulk and with cash but sadly 99% of the people here cannot match this strategy.

    All other pointers are just general real estate advice. Negotiate hard, find a good realtor, blah blah blah.

  9. Average Joe :

    Great post if you have money, but for us blue collar people it may take some time before we can even think about implementing your tips.

    • Dude, it’s true money helps- but- there are ways you can get started without a lot of money. For example, buying a duplex that you live in half and rent the other half out can help you live 100% free. Or learn how real estate investing works and then partner with someone who has the money but not the knowledge!

    • Take another look at my post, Joe. My students come to the mission from every walk of life and at every age. And, yes, it is even possible to get involved with “no money down”. But, like everything else, you must be prepared. It’s not for unschooled amateurs looking for quick cash.

    • Average, to each their own. Investing is great because its available at all levels.

  10. Neil – Another awesome article, and one that I was always hoping to see from you! I agree- there is so much potential in real estate, as long as a person does their homework. I recently bought a 4-plex for under $100k that cash flows like an atm machine, because I looked at 50 properties that didn’t. It’s all about buying smart and doing your homework.

    And you are absolutely right on the real estate agent thing. I always use that same word “hungry.” In a competitive market like today, you need to move fast sometimes.

    If you are up for it – I’d love to chat more about your real estate investing. We’ve also got the top real estate Podcast on iTunes… any interest in sharing your story there? :)

    Get in touch (or I’ll harass you over email soon!) I love talking with people in other industries about their real estate investing, especially those in the internet marketing world since the connections are so similar.

    Talk to you soon Neil.

  11. Hi Neil,

    Insightful post, as always. I have, for long, trusted tangible assets such as realty. In fact, I recently made an acquisition for my sister.

    I live in Bangalore where, despite soaring land prices, the return in the form of rent / lease hasn’t risen on the same lines, although there is a steady demand.

    The market shows no signs of slowing down. So, my question is – should I bet on the market right now, and take a chance against the worst case scenario (unable to sell / not enough rent to break even on loans)?

  12. Anyone in the Raleigh, NC area looking for a realtor to help with any of this should definitely checkout Dogwood Properties. Born and raised in Raleigh they know the area like the back of their hand and real estate is doing well here as we’re consistently name in the top 3 places to live in America.

  13. Neil, awesome point when it comes to views. Living down by the Jersey Shore, views are a plenty and prices have come down dramatically. Hurricane Sandy has left quite a mark, but I would imagine that will equate to awesome opportunities the further prices fall.

    • Waiting for prices to fall further, Paul? If the prices already reflect extraordinary value, waiting for the bottom will only attract better funded competitors. The Jersey shore will always hold its attractions.

      Just keep your carrying costs in line with what you can realize in rental income today while you await better times.

      Go for it!

    • Paul, good point. It’s a sad reality but people should consider investing in properties like that.

  14. Sam Mayaveram :

    Interesting article, but I would add that the motto of investing in property should be “hope for the best, plan for the worst” – assume you will not have a quick sell and you will be tied into the property longterm. There are often great property investments to be made short-term, but generally speaking, property is not a short-term investment.

  15. Unless I’m planning on building a monster portfolio of rental units or there is a juicy flip available, I’d rather invest in REIT’s on the stock exchange.

    Better liquidity, better leverage, no dealing with tenants or construction crews, and definitely better fees.

  16. Brenda Layman :

    Neil, you are so right that in Real Estate investing, you make money on the buy, not on the sell. Many people found themselves in the the position of accidental landlord after they found that they could not sell houses they bought at the height of the market for the prices they needed in order to pay off mortgages. They decided to lease those properties and planned to sell when the market recovered. Now the market is recovering, but they are finding that houses that have been leased almost invariably have maintenance issues that result in lower sale prices. Often, the best course of action is to sell the house “as is” if there is any money at all to be made, then take that money and put it to better use. The flip side of that is investors who underestimate the amount of money they need to put into properties for upkeep and repairs. Tenants = wear & tear, and that must be accounted for.

  17. I always found real estate, or at least looked at it like something huge or unachievable by me. But now I look at it differently thanks to you. I appreciate the effort you’ve placed in this article.

  18. Hey Neil,

    Wonderful post there. These are the exact same principles taught by Robert Kiyosaki of the Rich Dad Poor Dad series

  19. Sent this to a friend of mine in real estate. Love the quick highlight of another industry. Do you plan on doing any more?

  20. Awesome point Neil!

    I see an good investment property as a three course meal.

    Appys = Positive cash flow

    Main Course = Mortgage paydown

    Desert = Capital Appreciation

    You gotta have all three!

    As a real estate investor who raises money to buy investment properties, I place heavy importance on team and geographical specialization.

    I only work with realtors that have extensive experience in investment properties. This way we both speak the same language.

    Same goes for lawyers, property manageer,etc.

    You also need to study the area you’re investing to avoid the “bad” neighborhoods.

    I invest in Alberta, Canada but have very specific neighborhoods where I buy because I’ve studied the are inside out.

    Real Estate investment can be very profitable and it’s possible to buy without your own money.

    Cheers!

  21. What’s Quicksprout about? SEO? Content Marketing? Real Estate? Btw, i’m gonna show this post to my uncle, he would find it useful

  22. Hi Neil,

    Thanks for this post.

    I was thinking about investing in real estate and I was trying with different ideas. One of the ideas that struck me was to invest in a project, say an apartment by taking out a housing loan.

    A lot of the developers have tie up with the banks which puts the liability of paying the installments on the developer and not you, until the possession. But the best part is, when the project is complete the property value would have appreciated so much that it will be worth all the wait and you wouldn’t have to pay a penny to the bank. Sell it when it’s completed and enjoy the appreciated value.

    But there is a risk involved in this because since they are apartments you cannot guarantee it will appreciate as much as you would expect it to and not all developers complete their projects on time. But if you get your hands on something good that should prove to be a good mid term investment.

    • Sanjay, great points. You really need to see what the true value of the property is before you dive in. Mid term investments usually yield the best results!

  23. Something out of the blue from your usual online marketing tips!

    There are some great tips you gave, even for a season investor I learnt something new. Love the random pricing and the idea of buying from motivated sellers.

    Just added your notes into my investment property manual ;)

  24. Thanks Neil for giving this tried and tested methods for Real Estate investments. Though the basics are simple, not everybody gets it right.
    People who make money seldom explain how they really did it. I appreciate that you share your experience & knowledge.

  25. I gues Neil has come to realize that his ideal clients also buy real estate and do other stuff……hardly wanting to learn about SEO. They want proof, sure but do they want to leant?

    The learners won’t be his clients…… :)

    Well this is my take on Neil’s change of subject. We’ll see if it holds true with future email+blog posts.

    By the way I am one of the interested ones in this new course.

  26. I heard about the 100-10-3-1 rule somewhere. Look at 100 properties. Filter 10 of them on paper. Visit 10 and choose 3 which are good and finally buy the 1 which offers the best bargain. I guess I read it in rich dad poor dad by Robert Kiyosaki.

  27. Neil i started reading this with no interest as i usually expected seo tips and tricks over here. But you did it well that i have completely read the post and though i should appreciate you

    Well done Neil

  28. There are some great tips you gave, even for a season investor I learn something new

  29. Good stuff Neil. I’m a real estate agent & investor in the Boston area and things are crazy. Some neighborhoods here have increased $100,000 in less than 3 years due to skyrocketing demand. There are always deals out there but in markets like this off-market properties and/or things that were listed way too high and have sat are the way to go, everything else is going to multiple offers here and people just get silly and over bid on those. I think the one big point for investors though is that you have to be patient and realize if the market isn’t giving you what you need to just wait it out. Good article though, didn’t expect it.

  30. It seems great experience you have in real state business, I will try your concept.

    Thanks @Neil

  31. Neil, You are a gem. All your content’s are thought provocative and unique. Your marketing approaches are very near to the earth. It makes sense.

    I will be looking for more such pieces from you.

    Thanks,
    Sandip

  32. Very informative post Neil.

    My big interest aside from online marketing is real estate. I will note the points you make and take advantage of as many of them as I can on my next purchase. It just might be Las Vegas too, but at a much smaller scale than you. It will be maybe my eighth property I’ve bought (and sold all except one) and I am looking forward to it.

    Thanks again for the great tips.

    Charles

  33. The penthouse you speak of at $250 / sq ft is hard to believe tbh. Theregoing for over $750sq/ft [1] and I doubt that they just said, “Hey this guys paying cash, lets give him 66% off!

    [1]http://www2.citycenter.com/luxury_las_vegas_condos/search/unit-details.aspx?Unit=2524

    • I apoglize. You stole it! Found the record, and the listing for the property before was around 771k. Its crazy you got about 200k knocked off, but whats more crazy is this same penthouse sq in the same building is going for 4x as much! Nicely done sir.

  34. Hey neil, do you have any “Killer” resources for someone like myself that hasn’t tried real estate investing yet, but is wanting to learn more..?

  35. Hey Neil,

    Aside from that bulk Condo deal in Vegas are you using a buyer’s agent to find such deals?

    What I mean is, are you paying your real estate agent a commission yourself?

    I heard some years ago that to get really good deals like you got it is best to hire a real estate agent to find you really good deals.

    Thanks,

    Charles

  36. Neil, how much does it matter to you to save part of of the 6%?

  37. “Realtors who are good at math,” Awesome! I have met so many real estate agents who can’t count. It awes me that people trust people who can’t do algebra to sell the biggest asset they own.

  38. As a real estate agent, I hope lots of other entrepreneurs take your tip to diversify Neil!

  39. i have a friends and she is a real estate agent and she earned a lot of money from real estate.

  40. Very good.
    As a real estate agent, I hope lots of other entrepreneurs take your tip to diversify.

  41. Nice.
    I will note the points you make and take advantage of as many of them as I can on my next purchase.

  42. BTW there are quite a number of Apps and Websites that are useful for Real Estate Shopping. Here are a few:

    1. Redfin
    2. Realtor.com
    3. HomeSnap
    4. Zillow
    5. Trulia

    • Ashok, I am familiar with these. Great point these are great tools for finding out where to get the most bang for your buck!

    • Ashok, all good sites, I use them extensively myself. Not to forget though it’s good to use them for your research, but no one will replace a really good realtor that “knocks the doors” at the houses that didn’t hit the market yet. I think that’s the point Neil tried to come across. When everyone sees that listing on zillow it may no longer be a deal you want to die for.
      Good RE deals require
      1) a lot of research (schools, crime, views, rentals, occupancy, seasons, neighborhoods, development, lawsuits, etc etc)
      2) planning strategy (the best case scenario and the worst case scenario for this year and the next 10 years)
      3) a good realtor (you could become one yourself)

      If all pieces are together you will win. I did a few times. So did I lose some when one of those three components were missing.

  43. We have a project at Bangalore surrounding layout development you can invest on tat

  44. Funny! We arrive at the same place, but different reasons: You focus on the neverending emotional aspect, and I focus on the amazing cashflow available investing in working class neighborhoods. We are both right :-) And THATS why I love real estate investing.

  45. Hi Neil,

    I’m from Vancouver, recently got an internship at a Real Estate Marketing Firm. I’ve always been following your blog, and found this post incredibly interesting.

    Just wondering if you have any experience with Real Estate Marketing, and would love to hear some tips or perhaps read a blog post about it!

    - Kelvin

  46. hey, What’s Quicksprout about? SEO? Content Marketing? Real Estate? Btw, i’m gonna show this post to my uncle, he would find it usefull!

  47. Nice ideas there Neil, I could use some of this in my country. Will have to start right away. Thanks again Neil, keep up the good work.

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