Am I ready to buy my first deal?

Question

Hello, and my name is Bryce and I just turned 20. I live In Lincoln Nebraska (modest priced midwest real estate for the most part). I have an internship as a property manager of 184 properties, and I have learned SO MUCH about land lording in the past few months. The properties I mainly take care of are below average in condition, and the owner bought them as "Pigs" and put a little money into them and rents them out.

I have been itching to invest in real estate since I was 18. I have read heavily on the subject, and I believe I know much more about evaluating a deal before buying it than a few other people did from the podcast stories I've heard. I have roughly $25,000 to my name from saving while I worked as a kid, and also my college fund no longer needed because of my scholarships.

What is holding me back (give me feedback if you can help):

1. Am I too young to be taken seriously by a bank? Even with a 20-25% downpayment

2. Is buying a pig and putting some money into it too dangerous in a "college town"

3. How difficult is it to refinance? I will need to pull my money back out if I want to continue

4. I still am not an expert on the loan process, as well as hiring contractors, inspectors etc.. (the contractors that work for my boss are probably too busy to pick up extra work)

5. Isn't the market at a peak? I have read a lot about another dip, as the stocks have been leading just like last time (Yes I know our loan situation is better than 2007)

Thank you guys so much! Any feedback is a huge help.

Christopher Brainard · Answer

@Bryce Ewing

1) Age really has nothing to do with the bank taking you "seriously". Based on my experience, how serious they take you depends on how serious you act and how well you present yourself and your business. The biggest limiting factor is going to be your credit, income, and assets - they always take those seriously.

2) I don't think this is any more dangerous than buying a 'pig' and putting some lipstick on it in a non-college town. Low cost houses in Class C/D neighborhoods are risky, no matter where you are.

3) See question #1. This depends on your personal credit worthiness and the income/equity in the house.

4) A mortgage officer will manage the loan process for you, I still know very little about this process and I don't believe it is really critical for an investor, outside of knowing how much money you can have access to and what the cost of that money is. Knowing the right contractors is critical to your success. Based on my experience, there are a lot of bad apples out there and you need to be knowledgeable enough to identify them prior to hiring them and manage them if a bad apple gets through.

-Christopher

David Moore · Answer

@Bryce Ewing

First, congrats on learning at such a young age the benefits of real estate investing.  I agree with Lance above that you need to consider partnering with the investor you are working for.  But also consider that most owners of properties who pay a property manager are paying between $50.00 and $80.00 per month.  Your income is $1100.00 per month.  You, my friend, are a bargain.  So consider an alternative to going to the bank.

Instead, stay in your current role as a property manager, at least for a year, and get your real estate license in Nebraska.  Most states require this to become a professional property manager.  Then, hang your hat with a local realtor, and pass your resume around to other investors, undercutting the normal price for property management, and go into the business for yourself.  You have that 184 number as an opening in your resume.  You would need only 22 rental units total to match your existing salary at $50.00 per month.  Your experience says you can manage 184.  Get a calculator out, and figure out what $184.00 at $50.00 a month does for your bottom line.  There are a lot of ways to make money in real estate.  In the Twin Cities, I bet property managers would kill for a competent manager charging $50.00 a month.

Aaron Impens · Answer

@Bryce Ewing

I have been investing in Lincoln, NE for quite some time now.  I have used nothing but private money to fund my business up until recently.  Private lenders are out there and are a great source of money for someone like you.  Also,  I would be more than happy to help you find your first deal.  I have a few projects going right now that maybe you could look at and help gauge your comfort level and what will fit you best.  I know not having money seems tough but I can tell you that I raised $1,000,000 in private money and I was only 28 at the time.  So dont let your age hold you back.

Also, I am getting into money lending, so who knows, I might be able to help in that department.

Lance A White · Answer

Bryce,

Have you thought about partnering with your boss on a deal? What each partner brings to the deal will determine the split. If you bring 1/2 of the money but your boss has more experience to help avoid pitfalls it may be worth it to go 60/40 or 55/45. We don't use a lot of bank financing when there is so much money out there from private sources. The rates can be a little higher, but there are no pre-qualification, credit checks, or debt to income worries. The deal is king. If you find a great deal, the cash will find you.

Jessica Monroe · Answer

Hey Bryce!

Welcome to  BP - looks like you're way ahead of the pack with experience!

I'm 24 and bought my house in Lincoln, Nebraska a month before graduating (22) with little knowledge of what I was doing other than I didn't like the idea of paying rent with nothing to show.

I would recommend getting into a small mutli family and renting out to others while they pay your mortgage and you're putting in the sweat equity. Being a live in land lord has it's cons but overall at our age I've found it to be the most rewarding and tangible investment.

I used a local bank here in town and can refer you to a few if you'd like. As far as the market goes inventory is low in Lincoln and demand high . My personal opinion on Lincoln is it's an awesome place to invest - university / community college/ growing business right in our back yard with reasonable prices. Good luck!!

Ana Hyler · Answer

Hi Bryce,

You need to start somewhere, and because of you income, it might have to be a low end property. I'm in Lincoln...where are you wanting to get started? What area of town are the units you're helping manage now?

Christopher Brainard · Answer

I think that is a far bigger problem than your age and will be reflected in your debt to income ratio (DTI). Different lenders will have different thresholds for qualification, but even if you have no other debt, this isn't going to leave you with much to pay for a mortgage. I think the highest DTI is 43% for a qualified mortgage - but the specifics would be much better answered by someone who is in the lending industry.

-Christopher

Account Closed · Answer

What kind of property are you interested in owning?  Are you planning on renting to students?

Bryce Ewing · Answer

@Aaron ImpensThat is awesome to hear! Hopefully we can keep in touch

Bryce Ewing · Answer

Thank you guys for the replies!

Am I ready to buy my first deal?

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