How would you, If you were in my shoes ?

Question

Hello everyone

I am here to share my personal situation and ask for some advice from more experienced people.

I have graduated from high school in 2020 and didn't go to college. In a year I have tried different things, but mostly losing money. I have learned that I have to be more educated to control any risk in anything that you're doing, so I am gaining knowledge from any resources that I can.

So by now I have around $20,000 in my savings and I am taking time before deciding where to start. I don't have huge bills or family, so It is easier for me to start working on my financial life. I am mostly interested in Real Estate, but I am aware that there are many choices in different fields. I should add that my brother works in Construction(remodeling) and right now I'm opening a company to get direct job from people to him so he could earn more, I am interested in this because it will provide me more communication skills as well as kind of sale skills. Also I will learn a lot in Remodeling so I will spend less money when I will be flipping properties.

I am planning to buy my first property in months, but since I don't earn that much I will not be approved for big mortgage, so I am planning to buy an apartment, fix it and rent it.(I need to wait 6 month after the purchase before I can sell it) So that's what my plan is. I keep working my job, help my brother with business which I start(he doesn't know english well), if everything goes well, I will earn more and will be able to save more money for more property purchases, when I have everything that I need, I will be able to buy houses for cash and flip them right away.

Am I too naive ?

And is there anything else I should think of ? I know the option with finding an investor, but It will be easier if I will have experience of running construction business.

If you went thought all of these, what would you recommend for me ?

I am sorry for typing that much, I just feel like I can do it in here.

Thank  you so much and enjoy your life:)

P.S by the way, I live in Illinois

JD Martin · Answer

Well, first off nice job saving $20k by the time you're 20 years old. Most people I know that age don't have 2 nickels to rub together.

Some thoughts:

1. You might consider skipping opening the company to generate sales leads. I can tell that English is not your first language, which is fine, but unless you plan on hiring someone to do that kind of marketing that will be an unnecessary hurdle considering there are a ton of ways to make money in real estate that doesn't involve direct face-to-face sales. If your brother is good at what he does, he should generate enough referral business that he won't need anything you can gather. Besides, cold-call lead generation is going to be the least profitable niche he works in. Most everyone I use on rehab jobs I met through referrals.

2. Buy a duplex/triplex, live in the worst unit and rent the other units. That lets you qualify for traditional financing, and you can get first-time homeowner FHA on something like that such that $20k might be all you need for a down payment (or less). Points for something you can add value to but can still qualify for financing - meaning the systems work but everything is run down looking and old. Get your brother to come in there and help you remodel the worst unit (that you live in), and after you've been there for a year rent out your unit and do it again.

JD Martin · Answer

Well, it depends on how much you pay for the home, your interest rate & down payment, but in general most people find that they have little to no cash outlay on a duplex/triplex/quadplex. Let's say a triplex costs $300k where you are and each unit can rent for $900. You're going to put down your 20k and borrow $290 (closing costs) and have a mortgage of about $1500-1800 depending on insurance, property tax and PMI. You live in one and collect $1800 from the other two. It sounds like you're breaking even but in reality you're making the amount that you could rent your unit for ($900). After you live there for a year, you can buy another owner-occupied, so you move out of this, rent yours for $900 and now you bring in $900/month and do it again.

Ashley Cross · Answer

You sound like you are well on your way. I wish I had the courage to do what you're doing that young. I think it would be beneficial for you to get a mentor and work with someone directly. It's great that you have tried things but learning directly from a mentor will help mitigate your risk moving forward. Good luck with everything.

Marcin Talaga · Answer

@Daniel Botvynko If I were in your shoes, (and I was in a similar situation years ago so I can draw on personal experience), I would go work for a year with your brother.  Get on his payroll, learn the renovation side of properties, save up some more money, and then buy your first property with a conventional 5% down loan.  The mistake I made years and years ago was quitting my job to pursue Real Estate, when I should have pursued Real Estate while I still had my good paying job.  When I wanted to buy my first flip I had the downpayment, and I had all the knowledge, but I quit my salary job and became self employed so I couldn't get a loan from a bank (enter facepalm emoji.)  I ended up taking a 16% hard money loan from private lender and made it work eventually, but looking back I could have done it better.  The best way to start investing in Real Estate is to have a regular job that pays the bills while starting your investing career as a side hustle.  Then when things are rolling, you can quit the day job and make the side hustle your full time.  You can buy your first property with as little as 3.5% down fha, or 5% conventional, but if you don't have a job and you don't have tax returns you won't be able to.  You are young.  Start slow and build up from there.  If you can work construction and learn that side of the business in the mean time, it'll only help you even more down the road when you start to accumulate properties.

Scot Howat · Answer

Buy and hold.  That's it!Get as much mortgage debt that you can right now.  It'll never be lower than what it costs right now, probably not ever again in our lifetime.  BUY!

Daniel Botvynko · Answer

@Crystal Smith

Thank you for the feedback, I know that everything takes time.

The first step in this progress is to learn as much as I can, so I will not rush :)

Daniel Botvynko · Answer

@Ryan Kelly

Thank you, I will read this book as soon as I can.

Daniel Botvynko · Answer

@George Skidis

I appreciate your help, I will also join REIA to be able to learn much more from people in this field.

Daniel Botvynko · Answer

@JD Martin

Thank you so much for the advice, I will take notes.

Crystal Smith · Answer

I think you plan is fine- Keep working at your job; help your brother with his business in construction/remodeling. Look for opportunities with your brother while working in the construction/modeling business. Maybe work for a few investors and eventually partner with an investor.

How would you, If you were in my shoes ?

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