@Nicholas Stevenson
So I applaud your enthusiasm! But I think there are some holes in your plan around financing. First, at 17, you can’t legally buy a house… so waiting till 18 is the first step.
It takes a lot more than having the money for the down payment to close a deal. Banks want to know how they are going to be repaid. What’s your credit score… it plays a role in your interest rate, and who will finance you. You mention you are unemployed. That’s a huge issue…as the bank wants you to have a debt to income ratio that lets you cover all your monthly expenses plus about another 20-30%. They also look at your employment history… like for continuous employment…it’s a sign of stability. It’s entirely possible you won’t find a regular lender who will write you a mortgage until you start to satisfy some of those types of risks.
You may say, "I'll use the income from the rental to help my DTI ratio out. Odds are the bank won't let you count it… at least not initially… they will want to see 1-2 years of rental history to count rental income - so they know it's consistent. They also know those units can sit empty - generating no income… maybe your tenant squats in the house and pays no rent and ties you up in court for 3-6 months… now how does the bank get there money? So they want you to have financial reserves.
As for BRRR…don't even think about it right now. For the Renovate step…. Where are you going to get your money? What if you misjudge the repair expense? Our latest flip just hit a $40,000 unanticipated cost! To put it in perspective, we will still clear 6 figures in profit… so that part isn't catastrophic.. more annoying! But how would you handle that if you put all your money into buying the property?
Wholesaling is a tough slog. The concept is easy enough, but the competition is fierce. We own about 40 rentals… we get 3 mailers and 3 phone calls a day (LITERALLY!!) wanting to buy our properties. You are competing with lots of experienced companies with dedicated marketing teams cold calling thousands of leads a day. You are literally a marketing company. Expect lots of rejection - and when you do find a deal - you are frequently dealing with desperate people in desperate situations. We have bought a number of wholesale deals… at the end of the day it was people in bad situations… divorces, people desperately trying to avoid foreclosures… and it tends to be people getting exploited to some degree all in the name of profit - not so much for them; but for you and your buyer. (Not exactly the way they probably sell wholesaling, eh?
So what do you do? My first suggestion would be to partner with somebody. Adding another person to the team – even if it’s a family member – helps you overcome a lot of your shortcomings. Yes they will be essentially cosigning your deal, but it’s a small price to pay to be able to get started so young. Plus if it’s a family member, you know you can trust them.
You could also try to partner with somebody that has more experience… You just have to be really careful not to be the one who gets exploited as well! Definitely have a written agreement with whomever you partner with that spells out who’s contributing what, as well as how you will split any profits, etc., etc.
As for what I would recommend you buy, it would be probably a duplex that you could house hack as well. This would let you minimize your rent expense, and save up for your next deal. If it is a pure rental property, having 2 renters gives you a little assurance that if one side of the unit is empty, you can still earn income off the other side to help cover your expenses. You definitely want to buy the property for a personal use scenario. Otherwise you would have to put 20 to 25% down on a pure investment property. After 6 months you can move out and rent out both sides and look at buying another property for yourself (rinse & repeat.)
Again I applaud your enthusiasm, but you are going to suffer some of the consequences of being so young and lacking a lot of the things you need from an experience perspective (credit score, employment history, etc) in trying to get started in real estate. Truthfully, I would probably encourage you to pursue a more traditional employment situation, while you make real estate your side hustle for the short term. It will help you have a more desirable employment history and help you qualify with the banks. We are also coming into this high interest rate environment, and it will probably be with us for a good bit. This makes it really difficult to be as successful as it was when interest rates were lower. The bank ends up making more money, and you end up making less due to the loan terms (high interest rates)
All the best!
Randy
