19 Year Old Interested in Rental Properties with 20K - Wisconsin

[Zachery Ferencevich]

Introduction:

Hello,

I am a 19 year old college student, almost 20, and just recently became interested in investing in rental properties (In fact, probably just a month ago).  Right now, I live in Wisconsin and I am going to college for IT, but haven't decided on whether or not IT is the right path for me. I honestly hate spending money on college when I can be using this money to buy a rental property and finally be able to start out in real estate (The earlier, the better). Unfortunately, the guilt of my parents disappointment in me dropping out of college is a bit too much to bear. Therefore, I'm in a tough position. But regardless, I do have 20K dollars so far and continuing to save up more. My job pays about $15.50/ hour and I'm trying to live as frugally as I can. I do live with my parents right now, and I doubt they would ever kick me out. This may be an advantage for me to start out in RE. My long term goal is to be able to live on a part time job at my current workplace (2-3 days/week) and be able to live the rest on my rental properties. My parents are very skeptical of my idea. They went into real estate long ago and had a bad experience with a tenant. They never tried again after that. 

We were talking the other day about whether or not to sell my grandparents home when they pass. It's a $155K SFH (NO MORTGAGE) that would be immediately ready to rent. I'm trying to convince them not to sell it and to rent it out. They just don't understand what I'm trying to do here. Instead of working and saving all my money up all of my life for my retirement, I'm trying to take the money I have now, and make it WORK for me. And I think they can do the same.

Problem #1:

          Anyways, back to my situation. I live in the small city of Hartford Wisconsin (pop. 15,000). I'm very excited to look for my first rental property. I'm still deciding on whether to go with a SFH or a duplex. I am leaning more towards a duplex because since I live at home, I will be able to rent out both sides. But god knows what an entire duplex will cost. I mean, I only have 20K, and I don't want my mortgage payments to be too high. In fact, I would love to not have a mortgage at all but that would take me years to save up for. So maybe I should just go for a SFH. I'm not sure.

Problem #2

          The biggest fear I have right now is how difficult it will be to find tenants. Maybe, instead of looking for a property in my city, I should look in a large city such as Menomonee Falls or Milwaukee. When I looked on Zillow, I only found 1 property available for rent in my city! That tells me two things. It's either the market sucks here, and so no one in their right mind is going to be renting out homes in this tiny insignificant place. Or, the market is sooooo good here, that every time a rental property shows up, it gets taken the next day. However, maybe I should just play it safe, and go to bigger cities that are somewhat near me, and may have a bit more demand for rental properties. I'm not sure lol. 

Problem #3

         Let's say I have two tenants in my duplex paying $800/ month for each side. I have a mortgage to pay, and I work my job full time. The duplex costed $300K in total. I put $15K down with a 30 year loan costing about $1700/month. I'm making $2000/month with my full time job. Plus $1600/month for rent if everything is working PERFECTLY. That's $3600.00 minus about $1700/month. Now I'm making $1900.00/ month. It would take me forever to pay off this mortgage and I would still be living with my parents.. I get stuck here.. Even if I threw $3K/ month at that mortgage, it would take me almost 8 years to pay it off!! Right? 8 years to wait to buy another property!??! And that is if everything works out perfectly! This doesn't even include general maintenance on the property, property taxes, or my own personal expenses. I sure as hell don't want to buy another property while I'm paying a mortgage, right? Then I would end up with 2 mortgages! I wonder what other people would do in that situation.. Remember, this whole time I'm living at home, so that helps. Please note, I could have totally botched the math on this, as I have never been good with numbers..

My Dumb Solution:

          I have dropped out of college and now work full time at my job making about $35,000 a year due to working a bunch of overtime. In 2.5 years, I save up for a great down payment on  a single family home that I am able to rent out. Of course, before buying it, I will get it inspected and make sure it is ready to go. I will also make sure it is located in a bigger city. It will be a $200K home that I will rent out for $1200/month. $70,000 dollar down payment makes that mortgage about $470/month. Puts me at a $730/month cash flow plus my full time job. I can have that baby paid off in 4.3 years if I put $2500/month towards the home. I suppose that's a little better. But we are still at 7 years just for my first property. AND I'M STILL LIVING AT HOME!

Listen, maybe I'm going at this the wrong way. Real Estate seems like a great way to guarantee financial freedom in my 30s, however it also seems like a great way to live with my parents until I am 30 if I want to make the most money as fast as possible. If somebody could please address all of my issues, that would be fantastic. I greatly appreciate you all reading my rant. I tried to organize it as much as possible. Thanks!

[Kevin Sobilo]

I know where you are coming from. I come from a small town of about 10-15k people and I do software development for a living, but I also buy distressed properties and rehab them into rentals (not in my own town area)

Parents always want their children to be safe, so its normal for them to not want you to take any chances. I wouldn't let their feelings factor into the decision making. If they have some useful experience, I would listen to that though.

I would consider your first purchase a learning experience. Even if it doesn't go as smoothly or as well as you hope you will learn TONs and gain the confidence needed to go forward.

One rental isn't going to give you financial freedom and to progress into more properties you will need to be able to get loans. You can more easily do that by keeping a solid paying job to start with and make this your side hustle.

Also, since you are just starting out I recommend making a list of EVERY type of trade or profession you think would be involved in your rental business. (real estate agent, plumber, handy man, accountant, etc)... Then figure out where you want to add value. If you are just a passive investor with no value to add to the process then you need to pay for every bit of advice you need including someone to tell you which is a good deal.

If you can figure out what kinds of work you want to take on in the process, then you will be able to better define your role and also work to develop your skills. I work a part time as a real estate agent, so that helps me with my real estate investing in many ways. I am also registered and insured as a home improvement contractor. It took some time, but I enjoy doing a fair amount of the hands on work myself. Everyone is different, perhaps you prefer accounting/bookkeeping, then you should develop those skills and learn tax laws etc.