Beginning in real estate investing

[Malik Hollier]

Hello everyone, my name is Malik Hollier, and I am a young homeowner here in Colorado Springs, CO. I have people in my life that remind me that real estate is a vehicle that can lead to financial freedom which I believe is my true goal when it comes to real estate. I am very interested in becoming a real estate investor but I am not too sure where to start exactly. I've been educating myself as much as I can but am definitely open to connecting with those that are very experienced in the field and have some investment properties. Thanks in advance!

[Leo R.]

@Malik Hollier if you're already a homeowner, you've already started! Take what you've learned from buying and operating your first home, and use it to start building a portfolio.

My suggestion is to house hack, house hack, and house hack some more.

In my opinion, house hacking (a single fam or small multifam) is the single best way for people to get started in real estate investing.

Why? Because, house hacking can produce great financial returns, it teaches you essential RE investing skills, but (compared to more advanced strategies like BRRR'ing or wholesaling), it is comparatively lower risk, simple and beginner-friendly (and therefore has the highest likelihood of success).

More specifically:

1. A HH can produce great financial returns. A HH can substantially lower your living expenses, while creating cashflow, appreciation, mortgage pay down, and tax benefits. Lowering your expenses while increasing income is the fundamental recipe for building wealth, and a HH accomplishes this in a single step! A HH can also involve opportunities to force appreciation and/or rent (e.g.; by adding an extra bedroom in a previously under-utilized space). When executed correctly and repeatedly, house hacking can be very lucrative, and there are multi-millionaires who built their fortunes on repetitive house hacking! Although it's a strategy that's good for beginners, there are plenty of very experienced RE investors who continue to HH, because it's such a powerful strategy.

2. A house hack will teach you the essential skills you'll need to succeed in RE investing. With a HH, you can learn how to analyze properties & markets, how to find an investor-friendly agent, how to spot value-add opportunities at properties, how to engage in a strong due diligence process, how to screen tenants, how to manage the property, how to build a network of contractors, plumbers, electricians and other pros, how to manage the book keeping of the property, etc., etc., etc. If you want to succeed in RE investing, getting this experience will be critical! In my experience, a HH can provide incredibly valuable lessons that no mentor, real estate course, book or podcast could ever teach (though, I'd still highly recommend reading up on relevant RE resources, listening to podcasts, etc.).

Plus, if you decide to do one of the other strategies in the future (such as BRRR'ing or out of state investing), you'll be much more prepared to do it if you have a few HH's under your belt--a ton of the lessons you'll learn from a HH can be used to succeed in other areas of real estate ...in fact, I'd say that a HH should be a necessary prerequisite to the more advanced strategies (like flipping) for most folks!

3. Compared to other strategies (like flipping, wholesaling, etc.), HH is relatively simple and lower-risk, and therefore has a higher chance of success. I always use this analogy: would you tell a beginner skier who has zero experience to ski a double black diamond (the most advanced terrain) for their first run? (obviously, no; a beginner could easily get themselves killed on double black diamond terrain!). Beginners should start off on beginner terrain, where they actually have a chance to learn and succeed. A house hack is like that beginner run (but BRRR'ing, wholesaling, and out-of-state investing are more like double black diamonds).

The fact of the matter is: real estate is often a high-stakes endeavor, and the more advanced strategies (like BRRR'ing, wholesaling, flipping, out of state investing, etc.) can easily bankrupt a beginner when they're executed poorly.

Now, having said all that, house hacking is not necessarily easy (if it were, everyone would do it!)...it's just easier than the more advanced strategies...House hacking still takes significant due diligence, skill in analyzing the market and the property, time and effort to learn about tenant screening and property management, the ability to anticipate appreciation/depreciation trends, etc., etc., etc....and even with lots of skill and preparation, things will still go wrong (vacancy, plumbing leaks, bad tenants, etc.). Plus, house hacking requires some sacrifices--you have to share your house (or a small multifam property) with tenants, and when you're first starting, you might have to occupy the worst bedroom/unit in the place to maximize your returns (that's the nature of the game. As James Brown sang: you gotta pay the cost to be the boss.)...but, as time goes on and you build your wealth, you'll be able to step up to nicer units--and eventually get your own place (just remember to keep "lifestyle creep" under control by making sure your increasing expenses don't outpace your increasing income). 

Good luck out there!