What is possible for me? Young and Poor

Question

I want to get a head start in real estate but I don't exactly have a nice big income. I make almost 20k a year and have about 12k in savings. I can save pretty easy right now because I do not have many expenses.

One of my main goals right now is to move out on my own, but I do not want to throw my money away every month by renting.

The perfect scenario for me would be to purchase a low cost home or apartment and rent out one of the rooms to a friend and from there, build up plans for my future.

The two main problems for me is my low income and my lack of experience in real estate.

Is it possible for me to buy a house with this situation or should I focus less on real estate for now and put more focus on increasing my income?

Michael Evans · Answer

@Corby Goade: Great advice!  Buy a multi-plex (2-4 units) using an FHA loan (3.5% down) and ask your mortgage broker about down payment assistance programs.  In CA we have 3% down payment assistant programs, so you only have to put down 0.50% for an FHA if you qualify.

I would become a Bird Dog and connect with a couple of experienced Wholesalers.  Attend meetings at your local Real Estate Investment Association to develop a network of real estate professionals.  Learn and understand that the roles are in a real estate transaction (I have a list of 24 at the end of this post).  Identify your strengths and weaknesses and determine what role you are willing and able to play.  Then find a mentor for that role.

God Bless You!

Real Estate Business Roles

• 1.Bird Dog:
• 2.Wholesaler:
• 3.Seller/Investor:
• 4.Buyer/Investor:
• 5.Listing Real Estate Agent:
• 6.Buyer Real Estate Agent:
• 7.Real Estate Broker:
• 8.Loan Agent/Officer:
• 9.Mortgage Broker:
• 10.Escrow Company:
• 11.Title Company:
• 12.Appraiser:
• 13.Home Inspector:
• 14.Attorney:
• 15.Accountant/CPA:
• 16.Mortgage Company/Bank:
• 17.Hard Money Lender:
• 18.Private Money:
• 19.Equity Partner:
• 20.Loan Servicer:
• 21.Insurance Agent:
• 22.Government:
• 23.Rehab Company:
• 24.Management Company:

Corby Goade · Answer

Hey Kyle- you are in a GREAT position. You have time on your side and a little cash. As a matter of fact, you have much more cash and time than I did when I started out. You should be able to get a loan for 5% down, maybe less.

I'll reiterate some advice I got a thousand times and wish I would have taken when I started out. Look for a duplex or triplex that you can live in and rent out the other units. If you are diligent in your search, you should be able to have your tenants cover all of your mortgage and maybe even have a little left over to save. Scrimp, save and keep your day job. While you save, build equity and learn how to be a landlord, you will be putting yourself in a position where you can move out, rent your unit to someone else, and start that whole process over again. Your passive income and equity will build exponentially. By the time you do that four or five times, you may be able to quit your job and start getting serious about real estate investing.

On a side note, your "low" income shouldn't be much of a hindrance. Find a lender that you trust, and they will walk you through the process. Basically, if you find a property where you can charge rent to cover the mortgage, the lender will count that potential income as YOUR income and will help you get your loan. That's your first step- find a bank/mortgage officer that will be patient and walk you through the process.

Best of luck!

Robert Leonard · Answer

@Kyle R. I've read a lot of good advice here for you to ponder.  I'll ad a few points from my perspective.

You don't know what poor is.  You already hit the lotto in life when you were born or arrived in the USA.  You have 12k in savings which gives you a positive net worth that puts you ahead of far too many Americans who have a negative net worth.  I measure my progress on a quarterly basis by the growth of my personal net worth.  Sadly, the average person over 50 has barely twice the amount you have saved for retirement!  Once again, you are way ahead.

You have the discipline it takes to be an investor.  Otherwise that 12k you have would be in the pockets of your "friends" at the electronics and audio equipment stores.  You are on the right track.  Look up a guy named Clark Howard.  He has a lot of information on his website for free that will tell you how to establish credit. I am not affiliated with him or his company in any way.

For every piece of what you are trying to put together, you can learn it by reading.  You don't have to build your library yet by buying a bunch of books. It's already been built and paid for by taxpayers - your public library.  There are books on every topic you can think of and you have what it takes - you can read.

Don't just hack your housing, hack your whole life.  If you don't want to go away and serve our country for years at a time, you can still serve as a reservist.  Every branch of the military has a reserve component.  You can get paid to learn a whole new career field that will give you the higher income you need to accelerate your earning and investing potential.

Keep learning and moving forward doing what you CAN DO!

Paul Choate · Answer

$12,000, youth and - I am hope- drive is bringing a lot to the table.

So what can you do?

ACT!

If your biggest worry is getting a loan, go apply for one! I was in the same place about 8 years ago. I did not have an income but had saved up cash while in the military. I did not apply until I was sure I would qualify and I wasted a lot of time as I could have received the loan years before. I missed out because I did not know what I did not know. I decided I would not qualify all on my own based on what I had read. I was wrong. Read and research and then go and talk to two or three lenders and ask them for a loan app and what the likely hood of your getting the loan is. If you are worried about the number of inquiries on your credit report, then don't actually give them permission to pull your credit. Just talk to them. They are in the business of making loans. The worst that can happen is they will say no, and I did that to myself.

Now, before you can do that, you need to search for a property that you would be willing to buy. Learn all you can on this board but the most important thing is to act. If you are turned down for a loan and all you can do is make owner financed offers, then make some! $12,000 is more than enough to get into a house. My first owner financed deal was $2000 down and about $3000 in repair costs. I would never have found it unless I was out talking to sellers. Even if you are turned down you will learn. I never had an offer rejected until I had purchased 4 houses. I left a lot of money on the table somewhere...

Know what you can do and are willing to do because it will require sacrifice and hard work to start out with little. If you took your money and put it down on a new car; few people would be surprised. They might even admire you! If you buy a fixer house, everyone is going to think you have lost your mind. When you make mistakes, you need to be able to cover them with money or your time and often both. Know going in what you are willing to commit in time and money.

In summary, what you can do is act now. You will learn from these experiences. You don't know what is out there until you try. You should get dozens of no's before your first yes. It won't be luck that helps you succeed. It will be acting, hard work and perseverance. That is how I started a little older and poor.

Bob E. · Answer

I would add that if you get a 2-4 unit property you can live in one of the units and if it has a second bedroom, rent out one of the rooms in your unit.

Paul Timmins · Answer

@Kyle R.

Welcome. Multi is the way to go. My first was a 2 family I also grew up in one. Fill in the foundation below.

Check out the Start Here page http://www.biggerpockets.com/starthere

Check out BiggerPockets Ultimate Beginner's Guide - A fantastic free book that walks through many of the key topics of real estate investing.

Check out the free BiggerPockets Podcast - A weekly podcast with interviews and a ton of great advice. And you get the benefit of having over 80 past ones to catch up on.

Locate and attend 3 different local REIA club meetings great place to meet people gather resources and info. Here you will meet wholesalers who provide deals and rehabbers.

Two Great reads, I bought both J. Scott The Book on Flipping Houses,  The Book on Estimating ReHab Costs  http://www.biggerpockets.com/flippingbook

Consider checking out HUD homes for small multi's owner occupied gets first crack.

You might consider Niche or Specialized Housing like student housing. Rents can be 2-4 times more. Remember you don't have to own a property to control it.

Download BP’s newest book here some good due diligence in Chapter 10. Real Estate Rewind Starting over

http://www.biggerpockets.com/files/user/brandonatbp/file/real-estate-rewind-a-biggerpockets-community-book

Good Luck

Paul

Nathan Astrup · Answer

Ive got nothing to add to this as I am in the same boat as the OP, but this is GREAT info for a newbie!

Kyle R. · Answer

Thanks for the reply Paul! Your posts are helpful and give me inspiration.

I found a few places that look decent in my area. I'm going to try and get pre-approval at my credit union and get the ball rolling.

Paul Choate · Answer

One of the reasons I like bigger pockets is that you can get the real story vs all of the things people are trying to sell you. Here is my advice based on my experience. You have to separate out what your resources are and what your market allows. Then you have to find deals that match both.

What everyone is recommending is related to your ability to purchase a home as an owner occupied. It is a really big deal and gives you lots of advantages. You need to keep learning until you understand why that is so important.

You have found a limit for your resources of approx. $100,000.00 for a conventional loan. You have found that your market is much higher than that. I am not familiar with your area. I have read many people say that even in California you can find reasonably priced houses within an hour or two of any place. So you need to learn how to find the actual selling prices of homes in your area and then find homes in your price range. This may involve traveling. Realistically, It may involve waiting until you save more or relocate to a better area for your price range. That may be the only way you are going to be able to get into a property with conventional financing. You have to be out in the market for months to know what is a good deal and what isn't.

Quick example: I put your county into www.homepath.com which is Fannie Mae's website. I set the max amount for $150,000 and 45 properties came up. Most of those are condos and trailers but there were 2 houses under $90,000 (both are under contract but this is just an example). Even in your area there are options in your price range.

When I started, the houses I could afford were not on the MLS. I had to call FSBOs and drive the neighborhoods to find those homes. If you don't have the money then you have to put in the time and go with lower priced homes. That generally means fixers.

My first rental house was a shell. You could see the sky in the bathroom. I paid $4000 for it. I then put $30,000.00 worth of labor and materials into it (besides my sweat equity). I rewired and re plumbed it. I put a new roof on it. New insulation, drywall, flooring, HVAC etc... It was the worst deal I have ever done. It was the most work as well. It took me almost a year to get it up and going while I started my law practice. Today, it rents for $500 a month and I have done less than $1000 of maintenance on it since 2006. Would I do it again knowing what I know now? Not financially or time-wise, but the education was invaluable. I feel comfortable tackling anything because of that house.

In real estate you need to take the long view. The most important thing you need now is education and experience. You can't expect to do that in the conventional way without conventional means. Good luck- but more importantly-start, work hard and keep learning!

Kyle R. · Answer

Many people here said to buy a multifamily home. I don't know if home prices are that much lower in other areas but for me to even afford a single family home (about 150k, there''s not much cheaper for houses in my area), my debt to income ratio on the mortgage would be close to 70% which no one would lend to me at that.

I did the pre-qualify calculator on my credit union website and it seems I'd be able to afford one condo unit for about 100k.

The only other affordable things I can find are manufactured homes but I am staying way away from those (grew up in one with bad experiences.)

What is possible for me? Young and Poor

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