Beginning my journey (New Haven, CT)?

Question

Hey everyone,

I'm 22 and after a lot of deliberation, I have decided to get into real estate with the ultimate goal of financial freedom. I'm a finance student and have recently been studying real estate finance with an internship therein over the summer. That being said, I have no in-field experience whatsoever and I've made it my goal to do a minimum of one house flip by next year (iirc, most beginners should start off with flips, right?). Anyhow... I'll be heading to grad school in New Haven in August and I'll be there for about a year.

I'm sure there's lots of you who were once in my position and are now well off. If that's you, feel free to drop some pieces of wisdom on starting out below. I'd really appreciate it!

Cheers!

William Collins · Answer

@Amaan Hassanali Your decision to pursue a financially independent life is admirable but I think you need to refine your vivid vision for your clarity of what you want to do to succeed. Based on what I'm seeing with no field experience and the fact you're pursuing your grad degree in August in Connecticut here I would recommend making this also a grad year learning about what you're trying to do. I would come to the state of Connecticut and immediately get involved in all the local real estate meetups and try to offer value to people in return for knowledge about the projects that they're undertaking. There are many meetups including Stephanie Cabral, Brandon Rush, CTREIA, etc All of which are low or no money. The other goal to really look at is house hacking. Your desire to flip houses is trying to pursue a career as house flipping is an active pursuit. If you were looking at trying to build wealth and financial freedom preventing costs is equally as powerful if not more powerful than increasing income. Let's say that you're going to be in grad school for two to four years in one location. If you bought a house to hack you could save on all of your housing costs, potentially have cash flow coming in above your housing costs, be building equity in an asset, and add to a long-term portfolio which you can use the equity in to then assist with any other real estate ventures in the future.

Randall Alan · Answer

So thought # 1 is that flips come in lots of flavors (ie. difficulty / complexity / risk / etc). None of them are the same... and without practical experience, being a beginning flipper comes with a lot of risks. Risks like... do you have the money, the knowledge, the time, the commitment, the ability to forecast costs and after repair values and know if your purchase price is right in the first place, the financial reserves, etc to pull it off?So I'm not saying don't do a flip... I'm saying be careful and don't get yourself in over your head where you are screwed before you even start out.While flips provide be chunks of cash... I think the ultimate goal is to not have to do flips... which is to say have more passive income from rentals. Doing flips is hard work... even if you are farming out all the actual work. Rentals, on the other hand are sort of like being on auto-pilot... once you own a rental, the money just flows in each month (presuming your tenants pay). So you want to figure out how you want to approach real estate and what your goals are. I attended a seminar when I was starting out in real estate, and their "mantra" was "Flip, Flip, Flip, Buy a rental". And I think this is a descent approach. But if you had the financial resources to just buy a rental, rentals is probably a better way to start. It is far less risky and has far less moving parts, and in general is just easier to understand.For flips, it is more what you don't know that can hurt you. Did you catch the termite damage, the foundation settlement issues, the failing septic system, the worn out AC, the roof that needs to be replaced, etc? We have done 6-7 flips... and while that doesn't sound like much, it is a lifetime ahead of where you are at, because you learn at warp speed on flips. We have made great money (ie 6 figures) on every flip but our last one... and on that one we ultimately added it to our portfolio as a rental because the economy was turning and interest rates were climbing, so it will be a rental until the interest rates improve where it can sell at a price point we want. But here is how fast a situation can 'turn' on a flip:We were doing a cosmetic flip that we were going to not have to permit the repairs... floors, wall repairs, paint, etc. A permit would be needed for the vinyl siding down the line. It was a 1925 house, and the windows were sort of sketchy. We opted to replace the windows since we would be redoing the siding. Suddenly we were in the 'grasps' of the permit requirements of our city. It turns out replacing the windows required the entire window and support system of window of the house to be brought up to 2022 (at the time) code. There were 25 windows in the house. The windows we had budgeted $20,000 for, suddenly saw us having to spend an extra $50,000 to bring the house surrounding the windows up to current code. It required engineering drawings, which took hiring an engineer ($3,500), which required hiring a general contractor, ($3,000) etc. Then the reframing work was really tedious because we had already more or less finished the inside of the house, so all the window re-work had to be done from the outside of the house - which worked out because we were redoing the siding anyway... but it was a mess! <Note to self... never replace windows... haha!>. So with one simple decision that seemed harmless, we were suddenly $50,000 less profitable than we were when we started. It was still a profitable deal, as we had forecast clearing about $150,000 on the flip... But we now had way less margin & profit to our deal. So that is the type of risk you can run into on a flip. Think about taking the high school SAT test with a 3rd grade education... that is sort of what it is like trying to start out doing flips. You don't know what you don't know, and there is a great chance you might get a low score on your first flip... which in real estate terms translates to losing money / getting burned. My suggestion, if you wanted to start out with flips, is to go to your local real estate investment club / group and see if you can partner with someone that has experience on a flip. If you do go it alone... don't start out with something complex... start with something that is just a very minor make-over. Finally, know that right now is just a really horrible time in the real estate market to try and do much of anything. Prices are sky high, interest rates are sky high as well. So while I give you a E for enthusiasm... think about your timing and know that the real estate market is cyclical. 2 years ago interest rates were in the 3% range. Right now interest rates for investment properties are in the 7% range; and rates for hard money are closer to 11% plus points on top of that. Given some time all these rates should start to drop and that will be the better time to pull the trigger on what you are talking about.All the best!Randy

Dan Sheeks · Answer

Hey @Amaan Hassanali. I host a bi-weekly Zoom meeting for new/beginning investors who are between 15 and 25. It's a networking group, and we often have expert guests join our meetings. If you're interested, lmk. Dan

Samuel Eddinger · Answer

@Amaan Hassanali - I think the start of real estate journeys is actually wholesaling, not flipping. You can do it on your own time and can with relatively low out of pocket actually make money. That's what I would do with my first foray into real estate.

Samuel Eddinger · Answer

I'd do some google and youtube searches. I personally do not do wholesaling so I am not sure but I think I had seen some things when I searched years ago.I think you can start to follow Pace Morby on Youtube. I think he provides a lot of information on "Subject To" and owner financing which could also be valuable.

Hamlet J. · Answer

Hello Amaan, I agree with Collings. House hacking is the best option for you since you'll be in grad school. Start slow. REI is a marathon. Hamlet

Amaan Hassanali · Answer

@Samuel Eddinger That makes sense. Do you have any resources that you'd recommend to get into wholesaling? Perhaps some books or a certain guide?Thanks!

Amaan Hassanali · Answer

Hi @William Collins! I was planning on doing that so thank you for the meetup recommendations. Unfortunately, I'm only in grad school for one year and chances are that I leave for a different city after. That said, I get your point and I'll look into house hacking. Thanks!

Amaan Hassanali · Answer

Hi @Dan Sheeks, I'd love to be a part of it! I'm sure I can learn a lot!

Amaan Hassanali · Answer

Really appreciate you taking the time to write a detailed response! In that case, I will look into rentals (I presume single-family homes or apartments?) and perhaps wait a bit before I start (maybe during this year's anticipated recession?). If you're available, I'd love to connect and hear more about your journey.- Amaan.