How to start?

Question

Hello all! I’ll get straight to the point. I really want to get into real estate investing, and I feel as though house hacking is my best option to start with. Here’s the situation. I’m 18 years old, going to flight school for one year, and then I’ll be starting a fight career starting at a very low salary. In order to live in Dallas (where school is), they have rent for $800/mo, and of course I can rent for much more elsewhere. I feel as though renting is the opposite of what I want to do to start this journey, but with no credit (yet), no money (yet), what is the best way to break into this thing as young as possible? Thanks.

Melissa Hartvigsen · Answer

Hello @Daniel King,First, I recommend reading Dan Sheeks "First to A Million: A Teenager's Guide to Achieving Early Financial Independence". It lays out a plan for how to budget, build credit, and get into real estate investing (if that is what you want), or how to set up other income streams. The appendix of this book has an excellent "to do list" and additional reading that will help you.Next, How to get the loan:To piggy back off of @Erin Church to qualify for a standard loan you generally need at least 2 years of steady income history, at least a 640 credit score (though the higher the score the lower your interest rate). Or, you need to have a qualified co-signer. They must have the credit and income history the bank requires but do not have to live in the property with you.Once you have the above, you should shop around with different lenders to find out which loan program best suits your needs. Of course there are FHA loans, and conventional loans, but there are other loans sometimes called "Portfolio" or "Private Lending". The last two may have more flexible loan guidelines, but come with higher interest rates. How to build credit: One way to instantly get credit is to have a responsible adult with good credit and responsible credit card usage add you as an "authorized user" to their account. Within 30 days, this gives you a real boost on your score. If this option is not available to you, you can get a secured card through your bank or credit union. They basically have you set up a savings account that will pay the bank if you default on the credit card. After 6 months to a year, you may be eligible for a regular credit card, and then they would close the account and send you the savings deposit back. The trick to keeping your score high with your new credit card is to never use more than 30% of the available credit, and to pay the ENTIRE balance every month. Example. If you have a $500 credit limit, the maximum you should charge on that card is $150. When you go above 30% of the available credit, the credit bureau actually deducts points from your credit score. Part of having good credit is having a mix of installment loans (like home loans) and revolving credit like a credit card.The rest of getting good credit is built on time and payment history.Budget for your purchase:I tell my clients to budget for at minimum 6% of the purchase price to be ready. That is because your loan program may require 0%, 3%, 3.5%, 5% or more down. The 6% number I use is to account for closing costs and additional expenses that are not typically financed like the home inspection and appraisal. However, as a first time home buyer doing a house hack, you may qualify for some down payment or closing costs assistance. By shopping around for a lender, you can find these programs.Finally, if you cannot purchase as soon as you want to, do not be discouraged. Keep building your credit, income, and savings so you are ready to go.Best wishes,Melissa

Ryan Thomson · Answer

I wish I was thinking like you at your age! Here is an interesting idea. Use your knowledge and drive to convince your parents (or other co-signer) to get a home near your school. Co-sign with them and put some money down with them if you can. Buy it as YOUR primary residence with your parents as the co-signers. This would allow you and your parents to only have to put 3.5-5% down. Then you rent out the rooms to your friends. This will probably allow you to live for free. You can both cash in on appreciation and loan paydown. If you really wanted to scale, you could do this each year. Rent out the last house to a new group and move with your friends to the next house. This is a great way to scale and you only have to put 5% down if its your primary residence each time. You obviously need to convince your parents or (someone who would co-sign and help with the downpayment) about how good of an idea this is. But if they are savvy money people and they trust you (which I bet the do), then this seems very doable. Maybe give them part of the equity or a monthly fee until you refinance and get their co-signing off the loan.

Ryan Thomson · Answer

@Daniel King if not then starting to save money and build credit is a great place to start. I have a great lender that works with us in Colorado Springs to help people with their credit. They do loans across the country. Let me know if you want an intro.

Lucia Rushton · Answer

@Ian Jaeger would be a great connection for you here in DFW who is in the biz.

Jeff Nash · Answer

Daniel it’s great to here about your situation and good luck! @Denver McClure would be a great person to connect with and discuss.

Tanner Pile · Answer

@Daniel KingPartnering with someone to co-sign on a loan would be the best option or you could start by finding and negotiating good deals for investors in your area to get the experience of being in real estate and finding deals while also having a side hustle to get money for your first investment. Good luck!

Rick Albert · Answer

So I do want to start with saying that renting in the beginning isn't a bad thing. Many people here rented first. It's part of life. Nothing to be ashamed of.I would start with talking with an experienced real estate agent and loan officer. That way you can set expectations on what is needed, and then create milestones to get there.

Corin Prendiville · Answer

As many others have said I would focus on learning everything you can in the next few years while you get your life in a position where buying is a good option.Rent-hacking is another option that can help you learn the ropes of being a landlord and getting comfortable with renting out rooms to others while you rent yourself. If you can rent a 2 bedroom and rent out the 2nd room to someone for half or more of the rent you can cut your living costs down. You could also look into airbnb arbitrage, personally I think it is a bit saturated right now but it is probably easier to get into than purchasing a house in your situation. It sounds like you are pretty busy with getting your career setup and that is okay. Focus on learning when you can about how to invest, how to grow your networth, what a good house-hack buy is, etc. In the meantime get good at budgeting and living below your means, focus on yourself and be ready to tackle the real estate game when the time is right. If you can afford to put any money away then do that.At your age the most important thing is building the skills so you have a reliable and substantial income that gives you options for investing. Real estate is primarily a game of investing, there are careers in real estate but until you have cash in the bank it is hard to make serious plays in the world of real estate investing, and most of the short-cuts are trading money for time which you may not have a lot of right now if you have a career path lined up.

Brady Ferguson · Answer

I would definitely focus on building your credit score, savings, and real estate knowledge. I would do this through opening a couple lines of credit (I recommend discover student cc), saving at least 30% of your post tax income, and networking as much as possible eon bigger pockets and local real estate meet ups. Let me know if you ever need anything!

Hamp Lee III · Answer

Real estate is a long game.It’s great that you’re thinking about investing now. Many people can grow faster in a few years than some do in a decade.Keep learning. Attend meetups. Keep saving. Your time will come. Be ready.I wish you all the best.