Beginner looking for advice

[Nelson Martinez]

For those willing to take some time and hear my situation out to give some advice,

I'm a 19 year old college student (in Lancaster, PA) at Thaddeus Stevens College of Technology working part time (full time over summer) as an IT Technician at my school district that i graduated from last year, I'm also working on my real estate license through Real Estate U online. At my college I'm majoring in Residential Remodeling with the hopes of using those skills to help me manage and or complete some smaller scale jobs. I will graduate in two years and know for a fact that i do not want to be in the IT industry for more than 5 more years. Although I'm aware I will most likely use my income and stability from IT once i graduate to propel myself forward in the Real Estate field. With all of this, I know i want to be in the real estate industry for the rest of my life and will do anything to get myself there. I don't come from much, and i know with real estate i can create the wealth i want to share with my family, future family, and myself. My shallow plan so far is to continue saving for the down payment on my FHA loan for a hopeful good multi-family property deal in 4-5 years and start my portfolio out that way. With this background, i think as confusing as i may seem with this, i would like to hear any of your opinions on what i should do in any aspect of what i presented. Here's some extra context that can play into your advice/opinions.

- I have 0 debt (including college, I'm blessed to receive grants)

- I have a partner whose on board with my dreams and willing to support me through the risk

- My parents are open to me staying at home for a couple years after college to build savings/establish myself

- I really want to specialize rentals so i can retire off of that income.

- I'm already working on my credit

To add,

I apologize if this seems out of order or confusing, this is my first post and I'm not to sure how to go about asking for advice on this forum, but after reading other beginners i decided it was time to create an account and put myself out there. Thank you if you made it this far and I'm looking forward to any and all advice. Have a wonderful day!

[Randall Alan]

Quote from @Nelson Martinez:

@Randall Alan

Thanks for the great detail. Im glad you added a financial advisors standpoint of retirement. I also am not sure i can live on the 4% rule as you lol. I believe real estate retirement is so much better than stocks, especially when you compare the withdraws to be "atm" like,which makes sense. Congrats on all your doors as well. I have one final question, how did you increase your $300/door to $650/door even after PITI? Thanks again Randall!

@Nelson Martinez

Mostly through buying affordable properties that will rent at market rent for the area. About 60% of our properties we have bought off of the MLS. But we have also bought properties from wholesalers, off Craigslist, off the County foreclosure market, etc.

In short, most of our properties were bought at between $75-$85/sqft when the market was at about $125/sqft in our area 4-5 years ago.   Those same properties are now selling for $200-$225/sqft today. 

Market rents when we started were in the $800 range for an 800 sqft apartment.,, today they are at $1,200 for the same unit.  So while some of our costs have increased… like taxes and insurance, they haven’t increased by how much the market has gone up… so we make more profit. 

In addition, by taking the flips that we have done and using some of the proceeds to pay off other mortgages, the principle and interest payment on those properties moved into the profit column raising the average profit per door on our properties.  

We have also cash-out refied properties to lower the interest rate on the property, and likewise used those funds to pay off other higher interest rate properties as well.  While this meant taking on more debt on the refied property, it ultimately saved us money because the refi rate was lower than the mortgage we paid off.  

We also took a few properties we liked the least and sold them at the top of the market.  Again we used most of the proceeds, including a lot of market appreciation we had gained in them, and paid off other loans in our portfolio.  

Each of these moves pushed our net profit per door upward.  Our 37 doors sit across 25 properties.  We financed 21 of those properties, but today… 5 years after we started, we only have 7 properties still financed - although we did do a consolidation loan that merged 5 loans into a single loan at a lower interest rate.  So losing a lot of interest has also helped our numbers as well.  

Today’s market looks completely different than all of that.  Rates are super high… and property prices have doubled.  Most of what I just mentioned worked by  having bought as the market is appreciating and mortgage rates are low.  The real estate cycle has now turned for the time being to correct itself back towards contracting… but you have to recognize it is a cycle… it will turn again.  It will probably take at least a year or two  to do it… but it will happen.  Once investment rates get back into the 5% range (versus the current high 7’s), a lot more properties will make sense to buy.  In the mean time you save, watch, learn, and analyze deals and watch for the tide to turn towards a buyer’s market.

Randy