Getting first rental at 19 and expanding

[Taylor Thompson]

Hey everyone! The last year I've spent learning as much as I can about real estate and plan on getting my first rental within a year from now. I will have over $30,000 saved up by then but trying figure out what's the fastest way to get a 2nd property and get closer to financial independence. For my 2nd property I will be house hacking but for my first property I'm not sure which strategy to do. I live in Colorado which is a expensive market but my parents will also help co sign for a loan. I have a higher income so I'm not worried about getting the loan but should I also get a house hack for my first property? Or a mobile home or multi family or a BRRRR? My main goal is just financial independence as fast as possible and how to expand as fast as possible. Any comments would be very helpful, thank you!

[Ben Rhodin]

Hey Taylor,

In my personal opinion, I would get into that first house hack as quickly as you can! It is the best return on investment, and if done right can also produce some decent cash flow. Since it will also cut out your living expense, it will save you additional capital to put towards more properties.

When house hacking you are mostly fighting the clock more than anything else since you can only do it once every year. So the sooner you are in that first property, the faster you can get into the next one. It will also help you towards that goal of financial freedom, as it will begin to free up your time since you won't be worried about making that rent, or mortgage payment every month.

The $30,000 that you have saved up will get you into a nice house hack here in the Denver Metro area since you will be taking advantage of a low down payment loan. However, it wouldn't be a lot for an investment property, as you would be required to put down 20-25% at that point. House hacking will also help you build up your systems, and take you through the process of being a landlord, without a lot of risks. It is a lot like training wheels and really helps you build your confidence in investing. 

After you get into that first house hack, then I would look into ways of getting into a second property, but make sure you are comfortable and have the tenants in place at your house hack first. Then I would suggest getting creative, to make it into a second property as you will be cash limited at that point. So possibly find a way to add value to another investor, or someone that you know has the capital and potentially partner with them. 

BRRRRs and Multifamilies are going to be difficult, as I tell a lot of new investors, it is just hard to make the numbers work because of the competition. Unless you are able to hunt and produce off-market deals, you will usually not be able to get a deal that will produce that perfect BRRRR here in colorado. Multifamilies also just get bid up, and bought up by big players willing to pay cash, and waive inspections, and close in 2 weeks. It's just hard for the smaller investors to compete, not impossible, but you have to get creative.

Really if getting to that financial freedom is your goal, then house hacking is the way to go, within 5 years you will be able to call yourself financially free, depending on your lifestyle. But one of the most important things to keep in mind is that getting to be financially free and retire might hinder your growth, as once you step away from a W2 job, you will have a lot of trouble finding financing for future deals, as any passive income from rentals or other streams of income lenders will want to see 2 tax returns worth of it, to prove that it is stable.

Just some things to keep in mind, and as you can tell I am a big supporter of house hacking (as most people should be). I think you are off to a great start, and you have a headstart on most people starting so young! I would not be worried about achieving your goals, as long as you stay focused and on track!