How should I begin in real estate investing

Question

Hey, I'm a 21 year old student in my third year of university. I have 22000 dollars in student loan debt, i recently had a credit card go to collections but paid in full in January of this year, but other than that i have no consumer debt. I work as a server at a restaurant and i have 3000 dollars in savings. I know that i have to pay off the debt first and work on my credit score in the mean time, but my question is this.

1. Should i focus all my earnings to paying off my debt or to save while paying off the debt?

2. Is there anyway of working on my credit so that i can start investing sooner?

3. What should i start doing to ease my way into investing i.e. reading books, looking up how to do deals, basics of real estate investing?

4. Is there any way to start investing now?

5 If you were in my position right now with debt and credit score, what steps would you take to start investing?

thanks in advance for your input and advice

Roy N. · Answer

@Drazen Quizon

Welcome to BP!

You have received some good general guidelines from @Mindy Jensen, but the details in your case will differ a little since you are in Canada.   The list of 21-books contain some good references, but there are Canada specific books which may serve you better - if you plan to invest here at home.

Though @Bill Paesano is speaking from experience and good intentions, the information he provided is not applicable to you.  That said, there are government agencies or non-profit groups in several provinces who will assist you with getting control of your situation and repairing your credit history.   A good place to start reading is at the Office of Consumer Affairs.   Additionally, if you feel tempted to call upon one of the many {web based} companies that have sprung-up in recent years purporting to {help you} repair your credit - give this a read first, then say no thank-you, roll-up your sleeves and do it yourself.

Your first step is to control your spending to be subservient to your income ... as Mindy pointed out, live within your means and be frugal to pay down debt and save.   A good starting point to learn the basics about money management for Canadians would be a visit to Gail Vaz-Oxlade's website or picking-up one of her books.

Now, let me take a stab an answering your questions:

Fortunately, the answer to this one is simple mathematics.  Everyone should put aside a small emergency fund first - for when Murphy comes calling.  After that, unless your planned savings or investments produce an after tax return which exceeds the interest rate on your debt, you are better off applying any surplus earnings/windfalls/funds to your debt.  In this day an age in Canada, saving your money in the bank earns nothing.  Putting your money into a safe, liquid investment is going to earn a 3 - 5% return (2.5 - 4% after taxes ... assuming you are in the lowest tax bracket).  Student loans in Canada are typically at Prime +2.5 to Prime +3.5 (5.2 - 6.2%) ... unless your after-tax rate of return on your investment exceeds 6%, you are better off paying down your debt.

Read some of the references above, but the easiest way to start is to meet or exceed all required payments on your existing debt and pay-off any arrears as quickly as possible.

All those are good ways to get an education.   You could also look for a {part-time/summer} job that is related to the industry:  labour for a construction crew; working for a real estate broker; find a successful local investor or landlord and see if s/he needs an assistant.   You could always become a real estate agent (if sales fits your demeanour).

Investing takes capital, experience, and drive.   We are all full of the third item when we start out, but you typically need some-to-a-lot of either capital or experience to own a deal. That said, if you learn how to find and analyse a deal, you can bring a deal to someone with capital and experience and perhaps gain both an education and retain a small part of the deal for your efforts.

I would get my personal debt under control and finish my education.   If time permitted, I would begin to educate myself on real estate and start networking to know who are the players in the area(s) where I might like to invest.

I hope that helps a little.

Mindy Jensen · Answer

Welcome to BiggerPockets, @Drazen Quizon.

You don't say what your credit score is. You look like you're in Canada, and I'm not familiar with their credit scoring system.

What is your student loan interest rate? Student loans usually have a long repayment time, like 10 years. Having that hang over your head isn't awesome, but it also isn't the end of the world. Focus on keeping the credit card balances next to nothing.

You're in the third year - how many more do you have? Do you work over the summer? Do you have a job during the school year? Every dollar you bring in is a dollar you don't have to borrow.

Do you have a budget? Do you know where you spend your money? Write down everything you spend for a month. Then review it, and see if you are spending less wisely than you should be. Do you buy your coffee outside of your house? Make it at home. Do you eat lunch out frequently? Bring it from home. Small tweaks like this won't really change your life, but they will change your finances. Look at what you spend, and find ways to spend less.

You are already a member of BiggerPockets. Take advantage of all the site has to offer. Brandon Turner wrote a list of 21 investing books for real estate investors. Check them out from your local library.

He puts on a free webinar every week or so - sign up for them and start learning. Download the podcasts and start listening to them in whatever order you want.

There is a ton of free information here at your fingertips. Jump into the forums and start reading.

Julie Toh · Answer

Hi Drazen, welcome to BP.  You asked some good questions and @Roy N.has provided excellent answers from a Canadian perspective.  In response to your Q4 "Is there any way to start investing now?"  You can figure out your financial readiness by reading the CMHC website: http://www.cmhc-schl.gc.ca/en/co/buho/hostst/hosts...

As a mortgage broker in Canada, I have clients whose income is commissioned based or from tips (like you) and have qualified for a mortgage. However, to qualify for the best mortgage rate in Canada, you need a credit score of 680 minimum.  Feel free to reach out to me with questions.

Drazen Quizon · Answer

@Mindy Jensen

That's a very good point! I will definitely prepare a list of questions before I make the initial inquiry. Thank you for the heads-up, because I definitely did not think of that.

Mindy Jensen · Answer

@Drazen Quizon, I'm not sure the repayment rules for student loans in Canada. The repayment without interest sounds awesome, and the lower your balance is when you start accruing interest, the better. However, make sure there aren't any penalties for repaying early. Check to see if making an early payment starts the interest accruing early, or starts the payments to be due early - like if you start making payments, your payment schedule is accelerated... I don't know if any of these actually happen, but it would sure stink to have to continue to make payments because you made one already...

In the US, on-time payments make up 35% of your credit score. Your late payments may have hurt your score, so concentrate on making on time payments every single time.

You seem to be headed back on the right track with your budgeting and low spending. Keep that up. Repairing your credit score will take a little time, too. Starting now, you could graduate with an awesome score, and be so far ahead of the game.

Drazen Quizon · Answer

@Roy N.

Thank you so much for the information it helps a lot!! I was actually just reading a Dave Ramsey book last night and thought of that with your Murphy's law reference.

Thanks again for the information!

Drazen Quizon · Answer

Thanks for the reply Bill! I'll definitely look into the book and FHA loans.

Hey Mindy thanks for the reply as well!

My credit score is 625 according to my equifax report, and can only qualify for high "delinquency rates". It is a score that ranges from 300-900 where scores closer to 900 are more favourable. Hopefully it's similar to the U.S

My student loan doesn't actually have an interest rate right now because I'm still in school. It starts 6 months after my last day from university. But I do have an option of paying it off as I go with no interest. I'm going to look into it next week to see what kind of payment plans are available to me.

I do work during the school year so I had to drop a few courses a long the way to keep my gpa up. My goals for school is to graduate with high grades, so I think i would have two more years to go on top of the conventional four. I also work during the summer.

I have created a budget and actually tracked my spending for the month of September. I found that the majority of the expenses I do have, are a few drinks every other weekend and for takeout when i get lazy to make food at home. But Im usually able to prepare 3 meals a day for myself at home with the exception of exam weeks.

Would you suggest to slim my expenses down and pay off the debt as fast as i can first, and then start investing in real estate?

Mindy Jensen · Answer

Thanks for the Canadian additions, @Roy N. !

Bill Paesano · Answer

I was in your same position 13 years ago. Read the book "The Fix Your Credit Workbook". It's like $6. It teaches you the tricks of leverage and saved me THOUSANDS when I was fixing my credit.

If your credit score is decent you could get an FHA loan on a multifamily or single family and live for free/cheap and rent out units to students. Depending on your market you might be able to find a decent place for $3K. I found my first multi and only had $4K and have lived rent free for almost 5 years now. Good luck!

How should I begin in real estate investing

Most Popular Reply