20 year old needs suggestions to start my real estate career! (Please read) (Long)

[Jeff W.]

Hi everyone, I would like to start by thanking everyone for participating in this forum full of knowledge. I have been lurking here for the past few months, and finally decided to start an account.

Some background: I work as an Assistant Real Estate Agent, which basically means I need some classes, and a certification from our local board of realtors, but can't really help clients all that much. I am basically stuck to uploading/editing photos and listing that our agents at the office bring in, and inputting them in MLS and our various other websites. The great part about this is I have MLS access and can search anytime I want! I am only 20 years old so I am reasonably happy with where I'm at for the job part, but I really want to move forward to a full time investing career and I know that it can happen!

The problem: My short term plan is to buy a duplex in my area, rent out one side, have a roomate or two on my side and live rent free for a few years, sell it (or refi) and do it again. I am planning on doing this FHA and do have about $8000 saved up, and plan on doing it before this December (so the government will pay my closing costs with the $8K tax credit). There are plenty of affordable (my range is about $150-175K) duplexs in the North Austin area (where I am located) and most of them even have the other side rented out at market rate. My only setback is getting the loan. I have a good credit score (722), but my income is only about $1900 per month, so obviously my DTI will not work, even though I have only about $700 revolving debt as my only other debt (which is paid in full every month). Any suggestions please?

Sorry this was so long! I am an eager learner and looking for a mentor, so let me know if you know of any good ones. I fully expect to be a full time real estate investor within 7-10 years and would appreciate the help getting started.

[Jon Holdman]

Get the debt paid off. Put every penny you can toward that debt and get rid of it.

What's your current living situation? Do you have other bills?

Is the $1900 a month net or gross? Assuming its gross, your DTI is 37%. That's too high to get a loan. Realistically, you shouldn't get a loan.

Can you get a second job to help pay that off?

Read about rental expenses in the Rental Property forum. What are prices in your target area? What are the rents?

Looking at the MLS for zip code 78731 I see the cheapest duplex listed at $279,900 with rent for one of the units showing at $970. That's a AWFUL rental, and you certainly would not live in that rent free even with paying roommates. 78757 is slightly better with $155K for a property that shows one unit having rent of $750. But that's still going to cost you money each month even with both units rented.

My suggestion is:

1) Fix your spending habits. That must be north of $25K in credit card debt (you said revolving). Crazy!
2) Get the cheapest place you can find to live. Parents would be best of all.
3) Get a second job
4) Put everything you can toward paying off that debt, including most of the $8K you have saved up.
5) Spend the time learning about real estate investing. Learn the reality from investors. Not realtors or other folks with a vested interest in you buying something.
6) Once you have your financial situation stabilized and have learned the business, look for rental properties, if that's the direction you want to go.

Congratulations on starting to think about this when you're so young. Fix the spending, fix the financial situation, and you're on your way.