FINANCE!! FINANCE!! FINANCE!!

[Sherrod Mcgowan-green]

Does it really take saving $10,000 or more to put a down payment on a house ? ZERO DOLLARS DOWN seems unrealistic . As a young college drop out , with a steady full time job , where can I find the patience or time for that kind of money ? I need strategies , opinions , and openness about this topic . IS THIS A MYTH??

[Mike H.]

Here would be my strategy to how you can become a real estate investor.

Your first key word in your post that caught my attention is that you are in fact "young". And you do have a steady full time job which means you have the income to cover your bills.  But you don't get ahead in this world easily without having college and just having a steady full time job - not unless you get some training in a meaningful trade to where you can really bump your income (i.e. electrician, plumber, etc). You're simply going to get by......

As a young person, the one thing you do have is time and energy. Go become a realtor or go get a second job somewhere. Every penny you make there can be socked away towards that first down payment. It won't take long.

If you could manage to either get 5 listings or get 5 clients that buy a house (or some combination thereof) in one year, you should have your 10k in a year. A year isn't that long.

If you work as a bartender or at best buy on weekends and a couple nights a week, you should be able to make 10k in a year or 18 mos tops.

Thats how you get your startup money.

Then what you do is use that to buy your first house for yourself - but only buy one thats a deal. As an owner occupant, you can qualify for great financing to where you only need to put down 3 to 5%.  

Not sure what area you live in, but on a 150k house thats 5k to 8k.  And then you need 6 mos of reserves on the payment.  But again, if you're buying a 150k house, you should NOT be paying 150k. You need to buy your own home as an investor.

At a minimum, you should only buy your first house if you're able to get it at 80% of the ARV (after repair value). So on that 150k, the most you should be paying is 120k.

That lets you gain 30k in equity.  Over time with appreciation and principal paydown that equity is only going to grow. And eventually, you can get a heloc to pull that equity out and use to buy more houses.

That is what I would recommend. So to save 10k from a steady job for someone young with no college may sound daunting. But you're young. Go get a second job and you'll have that money in no time.

Here's a perfect example. I just got a house under contract in my town. They listed it at 72k. It will appraise out at 140k. It doesn't actually need any work for someone to move in. It has a small kitchen but everything is in decent shape.  So some young owner occupant could have bought the house themselves and picked up almost 70k in equity. 

But I'm guessing they didn't like the size of the kitchen or the flooring in a couple of the rooms was too ugly.  For me, I actually offered 78k and got it. I'm going to replace all the flooring throughout, paint, do some other minor rehab stuff and be all in at about at about 95k to 100k.  

Still a nice equity capture and when i'm done, it'll literally be like new with a more open/modern floor plan. But thats the perfect example of what a young person could do if they can get that down payment and can be patient waiting for a deal .......

fyi: Two years ago my younger sister came into a big chunk of money. She wanted to buy a house with it so she'd have no mortgage. I told her I would help her but she just had to be patient to get a good deal.  Well, the money was burning a hole in her pocket. Wouldn't listen. Ending up paying retail. Then ended up rehabbing stuff she didn't like about it. She now has about 220k into a house thats only worth about 190k......

Thats the kind of wasted opportunity that most people - even people whose relatives invest in real estate - just miss out on.

Had she waited about 6 more months, she could have got almost the same house for about 140k and then spent her 30k for all her "must have" stuff. Had she just been a little patient, she would have 50k more in her bank right now.