Getting Started In The Real Estate Investing World

[Gunnar Conrado]

       I've just recently been bitten by the real estate bug and have been listening to a lot of audio books written and recommended by Bigger Pockets. I'm 22, live with my parents and live pretty frugally. I have little monthly expense and generally save most of my income. My w2 job provides around 50k gross income a year. I have no debt, a great credit score of 770+, so I'm not too worried about obtaining any kind of loans, however I would like to know everyone's opinion on what a good route would be for me. I've been interested a lot in the house hacking strategy and think its a great way to get started, but I'm open to any other methods because I'm willing to continue living with my parents if there are better cash flowing methods compared to house hacking. I look forward to hearing your opinions.

Thanks,

-Gunnar

[Dean V.]

Hey Gunnar!

Good on ya for getting started so early!!  Personally, I'm a big believer in hitting the low-hanging fruit (easiest kill) first, which is part of the reason I'm such a huge proponent of househacking!  It also has some of the lowest barriers to entry, lowest risk, highest error/learning tolerance, and best returns on your investment of any real estate investing strategy out there.

That being said, if you're living with your parents and currently paying $0/mo for rent, the numbers on a househack may not look as appealing while you're living there since you wouldn't really be "saving" any money on rent.  But remember, one of the best advantages of househacking is that if you're trying to build a portfolio, you can purchase a property for low money down and then lather/rinse/repeat every year - meaning after you move out you'll be able to rent the unit/room you were previously living in, potentially making the income/cashflow/return numbers a lot better after only one year!

Without knowing the specifics of your market, I'd say run the numbers on a couple of different scenarios to see what would be the most beneficial for you, but I'm going to take a guess here and say that househacking as a strategy will still probably make a lot of sense for you, and here's why I think that:
- I'm going to assume that you can find a home to househack where you can continue to live rent-free (your tenants pay >= 100% of your mortgage and all expenses including utilities, repairs, etc.)
- If you can find a property that meets the above, you will still be in a better situation than continuing to live rent-free with your parents since you will be building equity in the home (both through your tenants paying down your mortgage, as well as through natural appreciation of the home as the market continues to go up long-term, and also through any forced appreciation you create through home improvements...again ideally funded by your tenants' rent)
- You'll also be able to reap lots of tax benefits that you would not be eligible for with solely W2 income
- You will be gaining the experience of buying, owning, operating, and maintaining real estate, screening and managing tenants, etc. all in a relatively low-risk environment compared to jumping right into a pure investment property/multi-family/etc. (not to say that this isn't totally do-able though!)
- Even if you're just breaking even/covering all expenses

Again, definitely go run the numbers on lots of specific properties in your area fitting various strategies, since everywhere is different...small multi-family properties in your area may have HUGE returns compared to single family homes, in which case I'd say consider going that route and either living in one of the units as a pseudo-househack, or just continuing to live with your parents and renting out all of those units to tenants. Look at turn-key properties, BRRRR, and just straight-up buy-and-hold, and in addition to how good the returns are on each of those strategies, also consider how much time, effort, and money you have and/or want to put into a property as an additional discriminator between them.

Finally, clearly define your goals up front, this will help a lot in your decision (and making the right one).  You mention cashflow, and if that's your main goal then great!  But consider if cashflow in the short-term (beyond covering expenses on the property, enough to build reserves, paying yourself for your time, etc.) is the most important to you since you already have a W2.

Give me a shout if you have any specific analysis questions, would like a second set of eyes on any analyses you run, or anything else you're curious about!

Best of luck!!

Cheers,
Dean