How to Prepare for Your First Rental Property (Beginner Steps) (Rookie Reply)

Ashley Kehr:
A lot of rookie investors are not choosing between three deals. They are still trying to figure out whether they are ready, what to do first, or if the timing even

Tony Robinson:
Makes sense. Today’s questions all come from the BiggerPockets Starting Out forum, and each one is from someone who has not fully started yet. And today we’re going to talk about preparing to invest while you’re still young and in college, investing from a very, very far distance and what to do if you have some savings, but you live in inexpensive.

Ashley Kehr:
This is the Real Estate Rookie Podcast. I’m Ashley Kare. And I’m

Tony Robinson:
Tony J. Robinson. And with that, let’s get into today’s first question. So question number one comes from Landon in the BiggerPockets Forums. And Landon says, “Hey everyone, I’m heading into my last year of college and I want to use this time to set myself up to buy a house once I graduate. I’d love input from people who’ve actually done this. A few things about my situation. I’ll be graduating in May of 2027. I expect to be earning around $70,000 in the finance industry. My current savings are mostly in my Roth IRA, but I do have a nice nest egg. I have no student loan debt. My credit score is approximately 720 plus. I’m open to either a primary residence or a house hacking/a rental. My main question, what concrete steps should I take during this final year to be in the best position possible to buy after graduation?
Specifically, I’m trying to figure out number one, financing. Is it worth exploring FHA loans, first time buyer programs or house hacking strategies straight out of school? How do lenders treat a brand new job with no work history? Number two, savings. How much should I realistically aim to have saved for a down payment and reserves? And any saving strategies that worked for you? Number three, education, what books, podcasts, or resources should I be working through during this year? Number four, mistakes. What do you wish you’d known or done differently before your first purchase? Number five, savings. I’d rather spend this year being intentional rather than scramble after I graduate. Any advice or frameworks would be super helpful. All right. So first, Landon, again, to all the folks who are listening that are in college and listening to this podcast, we applaud you. You guys are amazing because it’s incredible that someone who’s in their 20s who hasn’t even started their career yet is thinking about real estate investing.
So I’m going to answer these a little bit out of order because I think the first one to me, Ashley, that I want to hit is just the education piece. I think you’re in the rig spot, right? I mean, you’re in theBiggerPockets forums. That’s a great place to educate yourself. That is a wealth of knowledge and so many questions that you might have have probably already been answered inside the forums by a real person, not AI slop, someone who’s actually lived it, done it, who’s given you some advice. So the forums are a great place. Continuing to listen to the Real Estate Rookie Podcast. I mean, the entire reason we exist as a podcast is to help folks who are in your exact position, the people who want to start educating themselves about all the strategies and the frameworks and the processes. And then I think once you’ve really maybe narrowed yourself down to the correct strategy, then go start reading some of the more detailed books.
If you want a house hack, go read the book on house hacking, the BiggerPockets is put out. If you want to flip houses, go read the book on Flipping Houses by J. Scott. If you want traditional long-term rentals, go read the book on long-term rental investing by Brandon Turner. If you want to Burr, go read the Burr book. So every strategy, there’s a book about this that BiggerPockets is published to give you more insight. So from an education perspective, that’s probably where I start.

Ashley Kehr:
I want to tackle the financing piece and how much capital you actually need. I guess one of the questions was how much do I need to have saved for a down payment? That’s kind of hard to determine based on we’re not even sure which market you’re going to be buying in or what your price point is. But if you’re going to do FHA financing, you would need three and a half percent down to five and a half percent down. If you’re going to do a standard conventional loan, you’ll either need 5% to 20% down. So looking at purchase prices, that’s what your down payment. You’ll also need money for closing costs. So don’t factor in just a percentage of your down payment, that’s all you need. You also will have to pay closing costs like your appraisal, sometimes money to your lender, a fee for them.
So make sure you actually have more than what the down payment is and then you want reserves, say three to six months of reserves. And I want to be very clear. We always say this if you’re buying an investment property for your rental property, but if you are buying your primary home, you should have the same. Expenses will also come up. Repairs will come up. CapEx will come up in your primary home also. So you need to have reserves. You could lose your job, lose your primary source of income. You need some kind of runway to be able to pay your mortgage payment if that were to happen. So three to six months of reserves, heavy on the six month side. He did say he does have a nice nest egg already, so maybe do have that. And then your down payment will vary depending on the loan type you get.
With FHA, you’re going to have to do an inspection of the property that you wouldn’t have to do with conventional, but I am running into some people. And also I had a buyer where they still had to have an inspection during a conventional loan too. And the appraiser called out different things that needed to be fixed before the lender would actually approve the loan. So this is very specific based on the lender as to what they would want repaired, but FHA does have a standard list of things like chipping paint, you’ll need to repair, you need to have all your hand railings, different things. A lot of these are safety issues that should be done anyways, but just be cautious. There’s more hoops to jump through for an FHA loan. A first time home buyer program, I don’t love these because a lot of times they actually require you to live in the property for longer than a year.
I’ve seen them like five years you have to live there in the property. And if you really want to propel your investing journey and start house hacking and moving from one property to another and turning the last one into a rental, it’s going to take a lot longer to do if you have to stay in that property for five years. So also you can’t use those if you’re going to do just an investment property. It would have to be your primary residence or you’d have to be house hacking to start. So I definitely think house hacking should be your route. I highly, highly recommend it. I know everyone’s sick of house hacking, but house hacking is going to get you your best bang for your buck because you’re going to be able to subsidize some of your living costs of housing by having roommates instead of buying a primary or buying an investment property and then paying for rent.
So whether that’s renting by the room or if that’s buying a duplex, a triplex, a quadplex, and that also will be market dependent where you’re investing, which of those strategies will work better. For example, high cost of living cities, probably rent by the room is going to be more affordable to get into where if you’re buying a quadplex, it’s going to be a lot more expensive to get a four unit property and have three people paying you rent than it would be to get a four bedroom house and have three people paying you rent. But that is where I would start as far as looking at your capital needed and which loan product to use. And one thing that you should be doing is not telling the loan officer what loan you want, tell them the property you’re buying, what you’re going to do with it and let them tell you what loan products they have available for you to use.

Tony Robinson:
Yeah, all great points, Asher. I think the only last piece I’d want to answer is the mistakes part because Lana had said, “Hey, what are some of the mistakes that I should be aware of?” And I think you’re already asking all the right questions that should allow you to avoid most of those mistakes. But if I had to harp on one, I’d say it’s really building confidence in your ability to analyze these deals because depending on the strategy that you choose, each one has a slightly different way of analyzing deals. The way that we analyze short-term rentals is different than the way that we analyze midterm. It’s different the way we analyze long-term, different the way that we analyze flips, different than the way that we analyze Burr strategy. So just really understanding the strategy that you plan to employ and then knowing how to really project things like the revenue for that specific strategy, the expenses associated with that and your overall net income.
I think a lot of rookie investors can talk themselves into a bad deal because it looks good aesthetically. Hey, it’s a new construction, so it’s got to be a good deal. Or hey, it’s in this part of town, so it’s got to be a good deal. Or hey, it has this thing, so it’s got to be a good deal. When really what separates a good deal from a bad deal is the actual cold hard data, the cold hard facts. So just educating yourself on how to really, truly confidently analyze, I think is where I spend the majority of my time.

Ashley Kehr:
Coming up, an active duty military listener is overseas for the next few years and wants to know whether he should start investing now or wait until he is back in the US. We’ll be right back after a short break. All right, so Landon has a year to prepare before graduation. Now let’s talk about someone who wants to start, but maybe be physically far away from the market. This question comes from Tavin Walker. “I’m active duty military and expect to remain overseas for the least the next three to four years. I’m interested in getting into real estate investing, specifically house hacking and small multifamily properties, but I’m trying to figure out how realistic it is to start while living outside the US. Does it make more sense to wait until I’m back stateside or is investing long distance not as big of a disadvantage as it seems?
For those who’ve done it, how did you handle building a team, finding deals and managing properties and reducing risk while overseas? I’m looking for honest advice, lessons learned and suggestions on the best way to move forward given my situation.” Okay. Tony, I actually have a question that I don’t know the answer to is if you are stationed overseas and he plans to be there for the three to four years, would you still be able to go and purchase a primary residence in the US not currently living here and won’t be physically there for the three to four years unless you come back to visit, but could he have the option of, even though he’s serving overseas, could he have a primary residence in the US now? I understand if he already had one, you could keep your primary residence here and it’d be your primary, but while you’re deployed, can you go and purchase a primary in the US?

Tony Robinson:
I would assume so. And again, guys, check us in the comments here. Ash and I, neither one of us are active military or veterans here, but I feel like we’ve interviewed guests who’ve done exactly that. They’ve purchased properties while being stationed elsewhere. So I’m sure there’s some nuance to that, but my assumption would be probably, because I don’t know what happens if your family decides to stay back in whatever place and they don’t want to go here to Germany on this tour, your family still needs a place to live, right? So I would assume yes, but I can’t say with certainty. Yeah,

Ashley Kehr:
Because that’s what I was saying is like, yeah, the best way would be to house hack. You buy a house as your primary residence in the US, you’re not even there so you don’t even have to live with your roommates and you still get the benefits of a primary residence loan product, a lower interest rate, a lower down payment. So if you are able to do that, that’s what I would do is because you’re not even have to live with the people that you’re going to be deployed anyways. So it’s not like you’ll actually have roommates, but it would be obviously only do it if it’s legal and you satisfy the loan requirements. But as far as managing remotely, you just need to have a good team, good boots on the ground team, and that’s someone who can show the apartment or show the rooms when you need to lease it.
And also a handyman that can come and make repairs for you. So everything else can pretty much be done remotely for a property or you could just hire a property manager, but I still think you can self-manage it from anywhere in the world if you have those two people. Leasing agent, super easy to find, real estate agent. There’s millions of them to find that. A good handyman that you can trust, you can rely on, that’s available at random times, that’s definitely the trickier one, the harder one to find.

Tony Robinson:
A lot of rookie investors have this perception that the longer or the further the distance, the harder it becomes to manage. But the truth is that let’s say that your property’s in Buffalo, New York and say that you live in California, I’m clear across the country, there’s nothing that I could do to be able to get out there today to go check on that property if it’s in Buffalo, New York. So all of my systems and processes have to be set up in a way that allow me to not be able to quickly get to that property physically. So even if I go from where I’m at in California, let’s say I go all the way across the Pacific, now I’m in Japan, those systems and processes don’t necessarily change just because I’ve gone further away because the inability to get there quickly is still true.
So everything that I’ve set up to be able to remotely manage this Buffalo property from California, all of that translates even if I’m on a different continent. So I think the biggest thing is to worry less about how far am I away from this property and more so about how I set up the right systems and processes that allow me to remotely manage this from anywhere in the world. And we self-manage our portfolio and we’ve done it from here at our home in California. We’ve done it from in Mexico and Europe. It doesn’t matter where we go, where we travel, we still have the ability to remotely manage because our systems and our processes scale and they allow us to move no matter where we are in the world. So I think that is the goal is to build those systems and processes.

Ashley Kehr:
Yeah, so a lot of that comes with the tech stack. So for my long-term rentals, I’m using TurboTenant that does a lot of the property management portion of it, rent collection, maintenance requests, any tenant communication, e-signing, lease agreements, creating any kind of agreements or addendums, that’s all in that. And then as far as my banking and bookkeeping, that’s all through Baseline. So just those two things, I mean, just give you so many capabilities to manage remotely. And then Tony, for your short-term rentals, you pretty much have two or three pieces of software too that do everything for you.

Tony Robinson:
The majority, right? So we use Hospitable as our property management software. We use PriceLabs as our dynamic pricing tool. We use Hostfully as our digital guidebook. And those three together, when set up correctly, along with the physical space being set up correctly as well to kind of guide guests in the right direction allows us to. It is not uncommon for us to have a guest who checks in, stays three or four days at one of our properties, and we never have to actually talk to them. They’re just going back and forth with all of our automated messages. They check out, they leave a five-star review and they talk about how communicative Tony and his team were during our stay not realizing that those are all automated messages. So when done the right way, you can give your guests, you can give your tenants a really good experience without it taking up a ton of your own time.

Ashley Kehr:
I use Hospitable too and I use their AI chat and people think I’m so nice and polite and friendly.This is great. If it was me answering, it’d just be real quick, one word. I’m trying to feed one kid, trying to get one kid ready for football while that’s happening. It would just be short and sweet, but it’s so nice to have a lot of this AI to respond and do a great job with it. All

Tony Robinson:
Right guys, we’re going to take a quick break, but when we’re back, a California listener has $30,000 saved up and wants to know how to actually start building a rental portfolio. We’ll be right back after this. All right guys, welcome back. Our last question is from Alex Sorer who has some money saved but lives in one of the toughest markets to start in. So this is a good one for anyone who’s thinking, “I want to build a rental portfolio, but I don’t know what my first practical move should be.” So here’s Alex’s question. Alex says, “I have about 30K saved up, but I’m based in California, definitely not enough to buy any properties here. The goal is to have a rental portfolio. What are some strategies you guys would recommend?” First, great question, and there’s a lot of folks who live in these high cost of living areas that would like to start building their rental portfolio, but aren’t quite sure that they have enough capital to make that work.
So the things that come to mind for me, number one is can you leverage your primary residence as your first investment property? So maybe 30K isn’t enough to go put 20% down on a traditional rental property, but is it enough for you to put down 5% on a house hack where maybe you go out and you buy either a large single family home, I don’t know your living situation, if you’re single, if you’ve got a family and kids, but assuming that you’re a single person, could you go out and get a four bedroom house in your neighborhood and rent out all of your spare bedrooms and now you’ve got revenue being generated from all of those. And then once you save up enough from all the money you’re saving on what you were paying in rent, well now you take that to go buy your next property and then you turn the bedroom you were in and property number one into another room rental.
Now you’ve got all five bedrooms or all four bedrooms rented out and you repeat that process in the next one. It’s like every 18-ish months when you save up enough cash, you’re just recycling that same process. So can you do it that way? Can you take your 30K and partner with someone else to maybe start flipping homes in California to build up your capital? So guys, there’s so many different levers you can pull even if you’re in a high cost of living area that within that area you can still make it work. We’ve interviewed so many folks who’ve used other strategies on top of traditional single family homes like assisted living facilities, sober living, room rental, which I just talked about, midterm rentals. We interviewed Noble Crawford and he had some properties out here in San Diego, one of the most expensive places to get real estate anywhere in the country.
And Ash, I remember it was like an MBA contract amount of money that he had signed for this deal, but it was like a 10-year or five-year deal worth like $4.5 million or something crazy like that. And he did that in California, right? So I think it’s not only about how much capital do I have, but it’s also what strategy makes the most sense for this area for me to be able to get the best return.

Ashley Kehr:
I really like the idea of being with partnering with someone with the sense of being a private money lender. Obviously, even in my market, you’re not going to find a property to purchase for 30,000, but that could easily cover someone’s rehab project. You’ve got someone that’s in Midwest markets or even in my area in Buffalo, $30,000 can cover a decent rehab on a property. So that could kind of get your money at least invested into something while you continue to save and grow also before you’re able to save enough for a down payment or even investing. If you’re looking at out of state, that takes more preparation, I would say, because you need to learn the markets, you need to build your team, you need to get your agent and start looking at deals, analyzing deals. That is going to take longer to actually execute than it would if you were just investing in your own backyard because you already know the neighborhood, you already know the streets, you probably already know people that are in real estate as far as an agent to talk to or a lender or whatever that may be.
So it’ll give you more time to actually save up, but you can actually start identifying and looking for markets too while you’re still actively saving. Well, thank you guys so much for joining us today on this episode of Rookie Reply. If you have questions for us, go ahead and post them in the BiggerPockets forums. Most likely, one of our members will already answer the question for you, but we’ll still pull it and maybe it will get a chance to be on our show. I’m Ashley Heestoni, and thank you guys so much for joining us.