Where to start?

Question

Hello there everyone. My name is Pawel. I know this might be a question that's asked here daily, but where should i start? I am currently 22 and going to school for what seems to me an endless rat race with no bright future. I would love to start a real estate business as i have always been intrigued by it. A few things about me: I work a pretty dead end job as a server but make okay money for the education I have. I am one of the hardest workers I know. I have about 13k saved up in my account and would like to invest it in real estate. However, I am not sure what i should do. I love fixing houses so i thought about house flipping although i have snooped around this forum and quickly learned that i would need far more money for that. I was also thinking of buying a rental property as there are plenty in my area. My only problem with this is once i do buy it i  feel like my money will be frozen in that property. Although i have a great credit what would be that chance of me getting multiple loans with my low income? I do not want to purchase one property and be stuck at that property for 5 years while trying to raise capital again. This post might seem like im jumping the gun a bit but i am just looking for some opinions. What would you guys do if you were in my position. Any help is greatly appreciated! Thank you!

Harry M. · Answer

Hi Pawel,
I think it is awesome that you are working on these goals at 22. I didn't get serious about long term financial goals until I was in my mid-late 30's - I just chased raises up until then. I sometimes wonder how much further along I would be now if I was thinking the way you are when I was in my 20's.
Anyway, for buying a rental in the usual way with a non owner-occupied loan, I don't think you are quite there yet with 13k. Not only do you have to put at least 20% down, but you also have to be prepared for expenses after you have bought the property. In my short experience (2 rentals, saving for #3), that was the part I under-estimated. After having bought the property, there is always money required to get it kicked into gear - be it deferred maintenance, repairs, vacancies to fill, whatever.
Here's an idea: how about buying a duplex, and living in one side, while renting out the other? As an owner occupant, you'd qualify for a lower interest rate, and only have to put down about 3.5% down. You'd still have a lot of your 13k intact, and then you could take the income from the property and use it to speed up how fast you can save for #2, for which you'd need the full 20% down.

Anyway, best of luck!

David Beard · Answer

Hey Pawel --  if you really like real estate as a career, and not just an investing sideline, then this alters your possibilities quite a bit.

If you are well organized and comfortable talking with people, you might consider getting your RE license and specializing in short sales.  Most agents avoid short sales, and there will be a (even larger) bonanza of short selling activity in the next few years.  Why?  Banks have wised up, and now recognize that they take far smaller losses on SS's versus foreclosures, so they're now trying to improve and streamline their SS processes.  Initially, you may just make money on commissions and lender negotiation fees, but down the road a bit as you get seasoning, you can make larger amounts as the principal in transactions, flipping them, and buying & holding.  Monica Breckenridge on this site has a nice business doing all of this.

I don't see a good career path for appraisers right now.  Fees have been cut due to sharing with new middleman companies that are required under new regulation.  Many are making $40k per year or less.

The home inspection business will surely flourish, as millions of distressed properties change hands.  Inspectors seem to make about $300 for perhaps three hours of work (site inspection plus report prep), with little overhead other than a vehicle and laptop/printer, so not bad once you get yourself trained and established.

Property management will be a growth business as the U.S. continues its evolution to a renter society.  This is a low-margin business, it requires scale, and terrific systems.

Patrick Snyder · Answer

I think you have a lot of options, especially since you are so young.  Many people will tell you, including me, that you should start slow and build your business over time.  Since you're in school and feel like you're training for the rat race, maybe switch gears and focus on a different degree.  There are plenty of professions related to real estate that can get you familiarized with the business:  accounting, law, finance, urban planning, economics, etc.  You could also get your real estate license, appraisers license, or get involved in home inspection or genral contracting, all of which will continue to benefit you when you become a full-time RE investor.

As far as obtaining your first home, you should be able to find a home where the sellers are willing to hold the mortgage, or a Land Contract, which could get you into a property with little money down.  Owning a home and living in it is the best way to become familiar with what everything costs.

Additionally, spend as much time on this site as you can, because everyone here has good advice and can lead you in the rght direction.

Good luck!

Where to start?

Most Popular Reply