Young first time real estate buyer

17 Replies

Hello! My name is Alexander Carlson, I am 20 years old and I am looking to get into real estate. Now I realize that 20 years of age is not when most people start investing in real estate, or anything for that matter but I believe in getting ahead in the game. I understand that power of compounding interest and currently time is my biggest asset. I live in Lincoln, NE for half of the year and the other half I go to school in Phoenix, AZ. I am considering a partnership with a long time friend who lives in NE year round. Using the FHA loan one of us would live in the first property we would own, renting out the other portions.

I have 2 years of undergraduate work left then I intend on pursuing a real estate law degree. My goal is to be building my portfolio while in my undergraduate program so by the time I get to law school I have an income coming in because of smart investments I have made in years past. I intend on making this my full time career and developing more companies as I go. I was born and raised in a entrepreneurial family and I have seen my father grow a small company into a multi-million dollar one. Because of this I understand hard work and dedication, but I do not want to rely on my family for everything.

Between me and my partner we will have approximately $25,000 to begin our company. 

A few specific questions that I have would be:

- What cost are involved in starting? (e.i. L.L.C., Legal paperwork, business cards, website, ect.)

- Do I actually have to live in the house for the FHA loan?

- If I do have to live in it could I occupy the residents for a summer and then move out keeping the same rates?

- Should I even use a business partner? I have the knowledge and he has the money, seemed like a great relationship but is it always wise?

- Nebraska or Arizona for the home?

- Should I pursue a real estate license before I began any of this?

Advice of any kind is appreciated! I have connection in Lincoln with people in real estate, but I believe knowledge and wisdom are incredible valuable and I will take all of it that I can get!

Thank you for your responses!

You are definitely asking the right questions. I am currently in the process of buying a property using an FHA loan and can answer a couple of your questions. Typically the cost of starting and maintaining an LLC are minimal, however this varies state-to-state. Go to Nebraska's secretary of state website and you should be able to find a fee schedule for the associated costs.

For an FHA loan you do have to live in the property as an owner-occupant for at least one year and in some cases more. Consult with your lender on this as they can give you better direction. In some instances you can get around this, however I would not count on it as it is typically due to hardship or other extenuating circumstances.

Your question about the business partner is one that nobody can really answer other than you. How much do you trust this other person, are you willing to give up half the equity and decision making process to someone else? With your father being a businessman I'm sure he has some experience with partnerships and can give you his two cents. Additionally when you purchase a property using an FHA loan the property is in the individuals name and I don't see how that would work out with a partnership.

Keep asking questions and you are certainly ahead of the curve by starting at this age. I hope I was able to help clear some things up.


Partnerships work well if you structure them correctly, especially if one has money and the other has either time or experience.

LLC's aren't much to form and I would recommend using a lawyer. I have one I use if you want their information. You can use the web site to get business cards designed for cheap and use vistaprint to get them printed.

If you get an FHA loan it has to be your primary residence.

Nebraska market is super hot right now so it's a good place to buy and hold.

I don't have a realtor's license, but it doesn't hurt to have one. I believe my business partner is going to get one.

Good luck. Let me know if you want help.


@Alexander Carlson

I'm very impressed with the questions you are asking for a young investor, I wish I was that savvy when I was 20. I was too interested in fast cars and skipping class. However, I don't think you even need to be thinking about an LLC for some time now. I did everything in my own name for a long time before I started mine and that was only because I wanted a business name and some credibility when I started working with private investors. I also wanted to drive traffic and get leads from my online marketing and website.

For now, work the FHA angle and let the tenants pay your mortgage. It will give you a place to live for free. As for the partnership, if all he/she is bringing is the cash I have a question for you. Can you find that cash cheaper somewhere else? Ie, family. You said you don't want to rely on them for everything but why not set up a win-win for them and make them the partner instead. It sounds like the relationship is there. I have worked with my dad on properties before and it has worked out very well for both of us.

There is plenty of time for you to build these businesses, if you have nothing to lose right now what is the LLC protecting? Insure yourself properly and then when the snowball starts getting bigger think about paying to create the LLC or Corp for liability protection.

Just one guys take on it, best of luck to you and let me know if you need anything. 

I think the house hacking idea is a good idea, I didn't do it. I opted to buy my first rental property and the cashflow that came in offset my rent. 

I'm currently getting my license but not to become a salesperson but for the knowledge, ease of access to properties and MLS info.

You seem like you know what you want, just keep learning.

William, thank you for the encouragement. I will look into the idea of an investment from my father.

Josh, I will probable try the house hack for my first investment. Thank you for your insight!

Welcome to BP! I'm a newbie as well and currently "house hacking", purchased my house two years ago using FHA.

With a business partner here in NE I would recommend getting a house near campus and him live there - purchase another property in AZ for you to live during the school year and trying to use FHA twice to minimize down payment. However, the issue I've run into using FHA is not being able to pull any equity out right away for additional properties. Someone did mention above that FHA & LLC will not work together. I've also heard that if you plan on moving under your LLC in the future (you sell to your LLC) the bank could call the loan due.

Again, I'm new at this as well so my strategy may be different to those who have been at this longer. Good luck! 

If you get an FHA loan you have to live in the house for at least one year before renting it out to tenants, and there is an additional fee for an FHA loan, about $100 monthly for every $100k financed. I'd recommend house hacking if you're starting out. Put down 3.5% on a 100-200k place with the FHA loan and have roommates cover the entire mortgage. Best way to start off learning about landlording and getting your feet wet without massive risk. Just be sure to analyze the numbers properly. I'd recommend the BP rental properties calculator to get a good idea of rent potential from your roommates and accounting for all the expenses you might not initially think about. Best of luck and great job starting off at such a young age!

@Alexander Carlson

You're getting some sound advice, but I'll throw my $.02 in.

If I were you, I'd figure out how to do the deal without a partner, FHA deals are cheap, you can figure that out. In my opinion, you don't need to mess with an LLC yet, you can always move the property into one later if you want to.

Keep an eye out for small multi-family buildings. 3 or 4 units.  I bought a little 4-plex in college and didn't have to pay any rent. Sold the place when I graduated and used the cash to buy my first property up here in Denver.  I worked part-time all through school, graduated with no debt and actually made money. I think I'd put 7,500 down or something and when I sold it netted $20k or so.

Unless you want to be a RE agent, you don't need your license, honestly, I'd say the same goes for law school. I was thinking exactly the same way you were when I was your age.  I started having conversations with land use lawyers and the almost unanimous advice was, if you don't want to be a lawyer, don't bother with law school.  It doesn't mean you don't know RE contracts, land use law, etc, but you can learn it without getting a degree in it.  I like knowing enough to know when I need to call a lawyer...

Good luck, and don't let your tenants push you around because you're young.

Alexander, First the LLC paper work will any where from 100-1000 dollars and website can be from 500 all the way to a couple thousand. Just depends on how nice the website you want it to be. I have created a website and could create your website for you if you were interested. My email is [email protected] Your partner has capital and that is what you need to real estate invest. Partnerships might not be the best in the long run. You have to distinguish the pros and cons. Also, having a real estate license would be beneficial because you can net worth with other real estate agents and investors. Email me if you are interested in me creating your website. I will give you a discount because your a future real estate investor (just like me). Hope this helps a lot. Anthony

As someone who just graduated from law school, I could not agree more with the advice of don't go to law school unless you want to be a lawyer. If you want to be a real estate investor do that! If you want to be a lawyer do that! If like me you want to do both you definitely can.

I have not learned one useful thing in law school, which applies to real estate investing. I am learning a few useful things from my bar preparation. But it would not be worth the money law schools costs. I plan to invest while working as a lawyer. I do not even plan to practice real estate law. This type of law--believe it or not--does not interest me. I believe that you should do what you are passionate about. On the other hand real estate investing does interest me so I will be diving head first into that world as well. Good luck!