What would you do in my situation?

[Jacob Rickel]

Hello BP community, My name is Jacob Rickel, 24 , from Kansas City,Mo, I’ve recently found out about BiggerPockets and I’ve been looking into Real estate investing. I’ve been listening to podcasts everyday, looking through the forums, have a full time job 40+ hours a week & go to school 3 nights a week. My Mother has been a realtor in the Kansas City area for 10+ years and has been my biggest motivator to get into real estate investing. She’s letting me live with her to save up for a down payment on a house/duplex whatever deal I can find. Shes telling me I really need 20% down, so I don’t have to pay mortgage insurance because that’s throwing money away. I need someone’s advice who does real estate investing (Rentals) because everyone I talk to acts like it’s super risky which in return, shuts the conversation down. I was thinking buy a duplex and live in half and rent the other half to get my foot in the door or renting. So what would you do if you were in my position.

Thank You for listening!

[Joe Villeneuve]

The top group of people I avoid, are the ones that are constantly saying, "it sounds too good to be true".  Those people are great at recognizing problems (like that's hard), but not good at solving them...so I walk the other way when I hear those words, because those people are a waste of my time.

All those people that tell you "it's too risky" are not worth hanging around...or at worst, asking them for any advice.  Risk is what's left after you implement "risk controls".  You should be finding solutions to the risk...as in "risk controls". 

What you should be doing now is learning 3 things:

1 - How to analyze geographical markets, based on financial profiles.

2 - How Money Works...not how you work for it.  Let you Money pay you.

3 - How to design, and execute, a REI Business plan

4 - How all three of the above work together, in harmony, to be one as follows - 

    a)  The Market tells you where to invest (this is to find the micro-markets)

    b)  The Money tells you how (these are you strategies, which will be different for each market)

    c)  The Plan tells you when to execute the strategy/market combinations

[Matthew Cyriac]

Hey @Jacob Rickel

I am sure your mom comes from a good place but 20% is not needed. There are a ton of mortgage options available for your primary residence without 20% down(FHA w. 3.5% down or many conventional loan options). With the conventional loan options you can have a PMI or loans where you can roll-in the PMI into the loan. To choose between the two conventional, the determining factor will be how long you plan to keep the house.

Now, you do need to show income to be able to afford the payment.  Good luck! 

[Isabella Zhang]

@Joe Villeneuve

Thanks. Your answer fits for my question.

One question more: how do you find a market or sub-market to fit for your budget?

[Jason Turgeon]

Go talk to some lenders (you can probably find some good ones here on BP) who are familiar with your market and see how much they will lend to you based on your current income and available down payment. Make sure they know you are planning on getting a duplex and that they will account for a percentage of the income (usually 75%) in your mortgage qualification calculations.

Armed with that info, you can look at the market if there are duplexes that you can afford to buy now that make financial sense and are in a neighborhood you want to live in. Since you are working and going to school, don't make life hard by looking super far away, keep it within a reasonable 15-30 minute commute from both. If you find stuff that makes sense, go shopping! If you find that you need a bigger down payment to live in your target neighborhood, keep saving. 

It is fine to buy a place that is run-down but liveable. Rent out one side and live in and fix up the other, then swap. It's a great way to get started. But try to stick to cosmetic rehabs for your first one, especially with a limited budget and very limited time. 

[Joe Villeneuve]

Originally posted by @Isabella Zhang:

@Joe Villeneuve

Thanks. Your answer fits for my question.

One question more: how do you find a market or sub-market to fit for your budget?

 The short answer is you have to learn how to find the following information that is grouped within a confined area (the area could be as large as a zipcode, or as small as a few blocks)...all within a subgroup based on square footage ranges:

1 - Property Listings

   a)  Asking prices

   b)  Days on Market

2 - Sold Comps

   a)  Sold Price

   b)  Days on Market (not the same as above)

   c)  Cost of Rehab (not estimate)

   d)  Minimum Profit needed (not wanted)

   e)  Cash Budget to buy

3 - Rental Comps

   a)  Rents

   b)  Expenses

   c)  Cost to control property (buy, rehab, etc...)

   d)  Minimum Positive Cash Flow needed (not wanted)

[Andrew Flora]

don't sweat the pmi if you plan to house hack. That 3.5% down payment is an amazing tool to use. Not investing yet is the waste of money, you are potentially missing out on hundreds of dollars every month that you are not in the game. Why miss out on hundreds every month because you are afraid of the PMI which would likely be less than $50/month? You have to make the jump. People that are waiting and saving are losing due to inflation, your dollars in a savings account are worth less every day.

[Tyler Mullen]

@Jacob Rickel

If I had your set of circumstances I would buy the best 2-4 unit I could find within next 30 days. Something that doesn’t need a lot of in depth repairs, just paint carpet and fixtures, if anything at all. Try to be within 30-75 minute commute to a DT area.

Get all the units rented. Slowly fix things up.

Don't worry about the 20% down, you can refi to eliminate PMI in a few years, that is if you don't sell outright due to your massive profits you'll be rolling into a 20 unit.

[Matt Groth]

@Jacob Rickel my Grandma told me to buy a duplex 30 years ago. I listened to everyone that told me all of the tenant horror stories. All those people also never had tenants, but they knew all about it. Don't listen to those people. Keep researching and learning. I like the 20 percent down, but if the deal works at 3.5 percent, do it. Take your time, and get a good deal. @Joe Villeneuve gave you lots of good tips. Great move getting started early.

[Josue Vargas]

REI is way more complex than means/ways to save the PMI cost. You really need to analyze properties as a whole. The truth is, the PMI is a small % of your overall expenses. Granted, 20% down will be way easier to acquire an investing property, better loan rates, better cash flow, etc.

House hacking is a good way to start and gain experience without much "risk". 

[Frank Wong]

Originally posted by @Joe Villeneuve:

Originally posted by @Isabella Zhang:

@Joe Villeneuve

Thanks. Your answer fits for my question.

One question more: how do you find a market or sub-market to fit for your budget?

 The short answer is you have to learn how to find the following information that is grouped within a confined area (the area could be as large as a zipcode, or as small as a few blocks)...all within a subgroup based on square footage ranges:

1 - Property Listings

   a)  Asking prices

   b)  Days on Market

2 - Sold Comps

   a)  Sold Price

   b)  Days on Market (not the same as above)

   c)  Cost of Rehab (not estimate)

   d)  Minimum Profit needed (not wanted)

   e)  Cash Budget to buy

3 - Rental Comps

   a)  Rents

   b)  Expenses

   c)  Cost to control property (buy, rehab, etc...)

   d)  Minimum Positive Cash Flow needed (not wanted)

Good stuff Joe.  You will need to look at your personal finance and income. How much money do you have to invest?  This question right here will narrow your focus on your target market very quickly. 

What I see as a common trend is so many people want to just jump into investing without getting their education.  This is so important but most people want to just wing it.  How to calculate your expenses and monthly rents is not knowing your stuff.  That stuff is elementary. 

[Michael Powell]

Hi Jacob,

I was in your position at age 24.  I was working full time, going to school, living with my parents, and trying to figure out how to buy my first property.

My big break came when I joined my local real estate investment club and started attending their Toastmaster meetings.  From that group, I met investor friendly realtors as well as deca-millionaire investors.  Little did I know ten years later, I would be investing with a deca-millionaire I met from that club.  

Talk to as many experienced people as you can, get to know them, take them out to lunch, and you'll be surprised how many are willing to help you succeed.  

As a result of my attendance at the club, a realtor brought me some deals - owner financed properties that I got at 5% and 10% down.  It got my foot in the door.  I had still had to learn things the hard way when it came to being a land lord (I had to evict my first tenant!), but some things in life you can only learn by doing.  

[Jim K.]

I have about half a million tenant horror stories that I share frequently on BP. I would still urge you to househack, as you are planning to. Go into it with low expectations, and many of your surprises will be good ones. When bad things happen, take the long view, because there really is a long learning curve you can't always beat in this, and very often your capacity to just keep putting one foot ahead of the next into the terrifying unknown, dealing with one failure after another and not letting it stop you, is the most important skill you will need to develop.

[Dennis M.]

@Jim K. dealing with one failure after another and not letting it stop you, is the most important skill you will need to develop.

That quote is great advise .

I would only add that “ free advise “ from family and friends is usually the most expensive advise there is .

If you want to know about laying bricks take your advise from the bricklayer , if you want to know about investing take advise from people who actually invest

.

[Jim K.]

There's this great clip from the original Conan the Barbarian movie called "The Wheel of Pain" that has really helped me in my visualization of the process of developing my REI skills. The escape of Andy in the Shawshank Redemption, another helpful cinematic metaphor.

[Jacob Rickel]

Thank You everyone for taking the time out of their day to give me advice! I really appreciate it.