Hey Everyone!
Big News and hopefully some helpful tips for anyone that’s new!
I just hit “financial independence” with my two rental properties, 5 units total (living in one) at 24 years old. My monthly income just peaked $5000 and my expenses with my properties principle, interest, taxes, insurance, utilities, vacancy, cap ex is at $3,200. Leaving my monthly cashflow at $1800 and living somewhere for free.
I broke down my expenses for the last 3 months and they are right around $1700 on average. That being said, if I were to quit my W2 job I would be able to survive!... This is a big step for me and I am happy to share this with everyone here. I house hacked my first triplex in 2019 and am house hacking a duplex now. This stuff works!
This is not a “I made it” post. There is still a ton of work that I need to do to achieve my real estate and passive income goals. Looking to close on a Quad (house hack)in the next few months.
My goal here is to create a post for anyone who is brand new. To give some hope and some tips that I think can be useful for just starting out!
I tried to do this in order from thinking about real estate, to analyzing real estate, to financing real estate, to fixing up real estate and finally being a good landlord.
- Bigger Pockets is an incredible resource with tons of great information. For someone that’s new (maybe too much). There are so many avenues and different ways to make money in this space that it can be overwhelming. It is good to know these different avenues, but you will constantly question your decision and once you find something that seems good... You will see something that looks better.
What does your market need? Where can you add the most value? What seems the most doable with your current resources? Figure that out and TAKE ACTION! It doesn’t need to follow all of the rules! If the numbers make sense and gives you a better return then the bank is offering, and you have multiple exit strategies... Do it!
-Read books and listen to podcasts! There’s a good chance you won’t find one podcast or one book that spells out all of your personal goals and how to achieve them. However, if you write down one or two things from each resource that fits your goals you can develop your own personal plan! We are all products of the collective of information we take in.
Sub tip - Get off social media! (At least negative social media) and by negative I mean the news. Places like Facebook are able to see what you spend the most time watching and give you more of that. If you are outraged by what one group is doing or not doing they will give you more of that garbage, divisive propaganda and keep you angry or worried. Spend more time watching positive stuff, self help, and financial information. Again, you have the choice to be constantly taking in negative crap or stuff that will make you better. It’s your choice!
- Talk to a lender! This goes before analyzing deals and before financing deals for the basic fact that what Zillow is telling you what your mortgage payment will be is not right... And since most assume you need 20% down to buy a property it may seem like a further out goal than it really is.
Once you find a good lender they will be able to tell you a good estimate on what you qualify for and not only what you can afford but what makes the most sense. This information can also guide you towards things you need to work on. Whether it’s eliminating debt/expenses, building credit, saving more money etc. This is the first step.
- Based off the info you get above^ in most cases your situation will be easier if you increase your savings. Whether this is done by frugality, increased income or my favorite BOTH! This will speed up the process. If you are currently working 40 hours a week and say that you don’t have time for a side hustle. This might not be for you. I know a lot of people, myself included who got their start by working their asses off. 80-120 hours a week to get to the goal. This does not have to be your permanent lifestyle either. We preach a short term sacrifices for long term rewards. If you are willing to do this you will be successful. Whether it’s re-selling clothes from the thrift store online or painting houses, cleaning gutters, power washing, dog walking it doesn’t matter. Maximize your time and resources and income!
- Learn skills/trades that will be useful in your real estate career! A lot of investors disagree with me on this one. I think that the more skills you know, if something goes wrong at a property you have the knowledge and skill set to fix them yourself. Eventually you can hire this stuff out but in the beginning you will save SO MUCH MONEY and later on when you do hire it out you know what needs to be done and won’t get taken advantage of. Personally I have done everything at my properties, construction, electrical, plumbing, HVAC, painting etc. All of my jobs and experience in the past has made all of these much easier. Again it’s not essential but will definitely help. In your side hustle time go shadow a friend who does trade work and help them and learn if necessary!
Sub tip - Get your Real Estate License too! A lot of investors will disagree with me on this one too. Haha. However, the knowledge I gained from this course was extremely helpful. I knew that my goals were to purchase at least one property per year for the next 4-5 years. The cost of the course and hanging my license for the first year was just shy of 3k and about 2k per year after that. Year one I got my own commission on my property and helped a friend buy a house made like 7k. Year 2 I went to a Referal agent made about $3000 off of 3 referrals. Now year 3 I have went to eXp (they offer 3 personal deals per year 100% commission) and 80/20 after that. I helped a friend buy a property and plan on doing 2 personal deals (estimating close to 20k). So the numbers make sense and even if you only do one deal and decide that sucked you at least can break even with a ton of knowledge!
-Analyze every deal! (Even the bad ones) Get your reps in. It will be time consuming at first but like everything with more practice you will get better and faster at this. It will give you the ability to look at a property/ purchase price and determine whether or not it’s even worth a full analysis.
- Use the right loan! This kinda goes back to having a good lender but if you are house hacking (the best strategy for building wealth in my opinion) don't miss out on the first time home buyer 5-10% down conventional loan! A lot of people start out with the FHA Loan 3.5% down and then are not eligible to get the latter. We started with this 5% conventional loan. Then because there wasn't any triplexes or quads available we did 15% conventional on a cheaper duplex. We are now looking to maximize our returns with the FHA 3.5% down loan.
- Network! Talk to everyone and find out how you can add value to them. I mean everyone! Not just the successful people you know. Every single person that you talk to, act interested in them and add value too might not give you a deal or help you monetarily. You can’t view it as a 1 to 1 (he owes me) type of mentality. But the more people you help and add value too the better things will normally go for you. Don’t over extend yourself too much where people take advantage of you. Basic niceness and caring about what people are talking about “praying” for people considering others problems. The more people you talk to the better chance is you will know somebody who can help them.
-Honesty. A lot of people here want to know how they can get around telling the tenants that they own the place. To me this only makes sense if your goal is to be a slumlord who differs maintenance and doesn’t fix stuff. If you take pride in the property be proud to own it. My tenants have all seen me working hard so that they have a nice place to live at and they appreciate it. The same way that you appreciate and expect honesty and openness from your tenants you should give the same to them.
-Use Facebook marketplace. For everything, listing rentals, buying appliances, tools, cars etc. I think this has been one of the best tools I’ve used with being a landlord.
-Set 1 or 2 days for a few hours for open houses. If you try to make everyone else happy and fit everyone’s schedule you will drive yourself crazy. Tell applicants those are the days if they can’t make it, let them know “I’m sure you would be a great tenant and I’m probably missing out but this is all that works for my schedule” if they are serious they will find a way to make it.
-Background and credit check yeah it’s necessary... I made the mistake of not and renting to the first person who told me they would pay the year in advance. It all worked out and I didn’t lose money but definitely caused some headaches. For background checks I use PAEdockets it’s a free app that can pull up an individuals court records. Then for credit checks I require all applicants to download credit karma and show me the app 600 minimum (not the most important factor) if their background is clean and income is above 3X the rent amount good credit is just a bonus.
-Appliances included in rent. In my leases I put in that these appliances are included in as-is conditions. If the fridge/Window AC/washer/dryer go bad I will give them $100 towards replacing it. They can pocket the money and grab one from their parents, buy a used one for $60 or put it towards a new one that costs $300 it doesn’t matter to me what they do. If there was a working appliance there when they got in they must leave one. This gives them a heightened sense of ownership and if they have to replace it surprisingly it doesn’t break a often!
-Finally Don’t buy a new car. Lol
Again, in the scheme of things I am brand new and have a lot to learn myself. These tips would have been helpful for myself going into things. Maybe I would’ve saved myself some aggravation along the way if I new these things. I hope something in this helps someone starting out!
Best of luck and feel free to reach out to me directly with any questions or if you want to connect!
Jake
