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!