If you had to Start from Scratch
Member since 2021 · 25 posts · 12 votes
Hypothetically, if you were a year out of college, working a good paying W2 job and were looking to invest in real estate what would be your ideal first move? Would it be single family rental, multifamily rental, an FHA house hack, wholesaling, or something like house flipping? Also, what would be realistic amount to have ready for an investment on a property? Would you advise someone who's been saving for real estate investing for a year to potentially wait another year to have more money to get in the game or jump into the game right now?
As always, thank you for your comments
Hello @Chezare Bonilla
Ah...to be young again. I agree with @Joaquin Camarasa on every point. But me personally, if I had it all to do over again, I would have dived right into a househack needing a little work right after college. Particularly if single without children. What a great way to learn and prepare.
@Chezare Bonilla this type of question is asked regularly on the forums, so here's my response copied from a previous thread:
Before you do anything, it's advisable to study up, get experience, and learn as much as you possibly can about RE. Fortunately, there are innumerable ways to learn--listen to BP podcasts, read books, watch youtube videos, do an apprenticeship with a RE investor, work as a carpenter's apprentice, go to REIA meetings, etc., etc. Spend a couple years immersed in RE before making any big decisions with your money or your commitments (luckily, since you're young, time is on your side to learn all this stuff).
Once you've spent some significant time learning (both via RE media, and via actual field experience like an apprenticeship), then you'll be in a much better position to decide what to do with your time and money.
If your goal is to actually own profitable real estate, then house hacking a single fam or small multi fam property is a great way to get started. Generally, I'd say that house hacking is a much better way to start than BRRR'ing, flipping, or certainly wholesaling.
Why? Because, house hacking is comparatively simple and beginner-friendly (and therefore has the highest likelihood of success), but strategies like BRRR'ing, flipping, wholesaling, etc. are far more complicated, and have a far higher chance of failure because they involve so many "moving pieces".
Here's an analogy: would you tell a beginner skier who has zero experience to ski a double black diamond (the most advanced terrain) for their first run? (obviously, no). Beginners should start off on beginner terrain, where they actually have a chance to learn and succeed. A house hack is like that beginner run (but wholesaling is like the double black diamond).
With a house hack, you can make money while learning many of the essential skills you'll need to succeed in any other area of RE investing (e.g.; how to analyze properties, how to engage in a strong due diligence process, how to screen tenants, how to manage the property, how to build a network of contractors, plumbers, electricians and other pros, how to manage the book keeping of the property, etc., etc., etc. If you want to succeed in RE investing, getting this experience will be critical). So, you can make money and learn invaluable lessons with a HH, but it's typically a much lower risk strategy than BRRR'ing, flipping or wholesaling--which are strategies that (when executed poorly) can easily bankrupt a beginner.
Moreover, house hacking can be very lucrative, and there are multi-millionaires who built their fortunes on repetitive house hacking.
Now, having said all that, house hacking isn't necessarily easy (if it were, everyone would do it)...it's just easier than the more advanced strategies...House hacking still takes significant due diligence, skill in analyzing the market and the property, time and effort to learn about tenant screening and property management, the ability to anticipate appreciation/depreciation trends, etc., etc., etc....and even with lots of skill and preparation, things will still go wrong (vacancy, plumbing leaks, bad tenants, etc.)--but that's the nature of the game. As James Brown sang: you gotta pay the cost to be the boss.
Good luck out there!
@Chezare Bonilla this type of question is asked regularly on the forums, so here's my response copied from a previous thread:
Before you do anything, it's advisable to study up, get experience, and learn as much as you possibly can about RE. Fortunately, there are innumerable ways to learn--listen to BP podcasts, read books, watch youtube videos, do an apprenticeship with a RE investor, work as a carpenter's apprentice, go to REIA meetings, etc., etc. Spend a couple years immersed in RE before making any big decisions with your money or your commitments (luckily, since you're young, time is on your side to learn all this stuff).
Once you've spent some significant time learning (both via RE media, and via actual field experience like an apprenticeship), then you'll be in a much better position to decide what to do with your time and money.
If your goal is to actually own profitable real estate, then house hacking a single fam or small multi fam property is a great way to get started. Generally, I'd say that house hacking is a much better way to start than BRRR'ing, flipping, or certainly wholesaling.
Why? Because, house hacking is comparatively simple and beginner-friendly (and therefore has the highest likelihood of success), but strategies like BRRR'ing, flipping, wholesaling, etc. are far more complicated, and have a far higher chance of failure because they involve so many "moving pieces".
Here's an analogy: would you tell a beginner skier who has zero experience to ski a double black diamond (the most advanced terrain) for their first run? (obviously, no). Beginners should start off on beginner terrain, where they actually have a chance to learn and succeed. A house hack is like that beginner run (but wholesaling is like the double black diamond).
With a house hack, you can make money while learning many of the essential skills you'll need to succeed in any other area of RE investing (e.g.; how to analyze properties, how to engage in a strong due diligence process, how to screen tenants, how to manage the property, how to build a network of contractors, plumbers, electricians and other pros, how to manage the book keeping of the property, etc., etc., etc. If you want to succeed in RE investing, getting this experience will be critical). So, you can make money and learn invaluable lessons with a HH, but it's typically a much lower risk strategy than BRRR'ing, flipping or wholesaling--which are strategies that (when executed poorly) can easily bankrupt a beginner.
Moreover, house hacking can be very lucrative, and there are multi-millionaires who built their fortunes on repetitive house hacking.
Now, having said all that, house hacking isn't necessarily easy (if it were, everyone would do it)...it's just easier than the more advanced strategies...House hacking still takes significant due diligence, skill in analyzing the market and the property, time and effort to learn about tenant screening and property management, the ability to anticipate appreciation/depreciation trends, etc., etc., etc....and even with lots of skill and preparation, things will still go wrong (vacancy, plumbing leaks, bad tenants, etc.)--but that's the nature of the game. As James Brown sang: you gotta pay the cost to be the boss.
Good luck out there!
Thanks for the advice! I do agree house hacking seems like the way to go!
@Chezare Bonilla
If I coul talk to my younger self, I would suggest a house hacking strategy for my first property. I really like a duplex as usually these will priced reasonably for a first timer. You may be able to cover the mortgage with the revenue resulting in living rent free in your own home. That would be a great start!