Strategy for a 23 yr old starting out with $100k+ year salary.

17 Replies

Hi There!

Thanks for stopping by. I caught the real estate bug just a few months ago and am now very eager to get started with my first investment deal and looking to hear your opinions on how I should lay out my strategy moving forward

I could write several paragraphs laying out my situation but I decided that it'll probably be easier to read it in a bullet/list form. With that, listed below are, what I think, significant details of my current situation and end goals. Please let me know if you guys need additional information or have any questions.

Current State:

  • I'm 23 and live with my fiance in Bothell, WA (Snohomish County).
  • I work in IT full time and make a little bit over $100,000. Currently looking to save over AT LEAST 25% of my annual salary. Have about $20,000 saved up so far.
  • Also a full time undergrad student (Using the GI Bill, this allows me to pocket an extra $2600 per/mo for Monthly Housing Allowance while I'm in school)
  • I financed my first primary residence in Oct 2016, using the VA Loan with $0 down for $470,000. 
  • Current estimated value is over $500,000 (Possible $30,000 of Home Equity Line of credit for capital?)

Current Strategy/Goal:

  • Cash flow through rental properties *Likely out of state due to the expensive area that I live in. OR cash flow where I'm currently at if I partner up with other investors
  • Turn-key rentals (I'm anticipating to have my bandwidth to be stretched thin due to full time work and school, although this doesn't negate the fact that I will make the necessary adjustments if needed)
  • Buy and Hold
  • Open to the idea of flipping as well but I have zero experience in anything construction related.

I hope that this is enough information to get the discussion rolling. As you may have noticed I don't have an immediate specific plan to get started just yet, which is why I'm looking to hear what you all have to recommend or suggest. Thanks again for your time.

Hi Ricardo, sounds like you're off to a great start! If you're interested in making higher returns I would suggest doing research on smaller markets across the Midwest. If you find the right partner who's an expert in their market, you could do very well. 

@Ricardo Lunk Welcome to BP and thank you for your service!

It looks like you want long term buy and hold in the Midwest so I am going to assume that your long term strategy/goal is cashflow, but we need to know if you plan to focus on SFR's, multi-units, commercial, etc. Once you have your end-goal in mind it is much easier to place the plan/steps needed to get there. I am no help to you on the Midwest part, but if you find a good partner over there who can be your boots on the ground you should be in a great position.

Start attending local networking events to build out a team in the area, or if you solely want to invest in the Midwest start meeting people locally who invest in the midwest and try to have them connect you with people they trust. The forums are a great place to search through for answers and the BP podcasts are as well.

For your first couple deals you could use conventional financing, seems like you have a good W2 job at $100k a year which is a plus and could always have your fiance co-sign to use her income as well. You also have access to VA which is a great program, just make sure you always compare it to conventional financing, assuming you have good credit. Using VA for subsequent use can sometimes be more costly than what you would pay going conventional.

You should start looking up "house hacking" as well as "BRRRR" (Buy, rehab, rent, refinance, repeat.) My wife refuses to share walls with tenants so house hacking is not an option for me, your fiance might not care, either way you should know what they are/how it could benefit you.

My $0.02 on your strategy moving forward:

  • Limit your debts, and your fiance's for that matter. We are a community property state, which means her debt is your debt ;) or atleast, it will be in the near future.
  • AT LEAST 25% savings annually; Pay yourself first through a forced savings plan. Once your paycheck is deposited put 25% directly into your savings or an account that DOES NOT have a debit card. This way you force yourself to save at least 25% and in order to touch your savings you have to transfer it back to an account that has a debit card linked to it. Then at the end of the month transfer whatever remaining balance you are comfortable with to your savings. Seems like you're already great at budgeting/saving if you have $20k in there, so if you already treat your 25% savings as a "bill" ignore this piece.
  • Current residence, keep it until you are done with school. If you are comfortable with the mortgage after your housing allowance is over I would stay there, since I assume it is close to your work. Otherwise you could look into moving into a place with a lower mortgage payment (assuming you can cash flow on your current residence). If you truly want to sell it you can after 2 years (Oct. 2018) to avoid capital gains and free up capital to invest out of state.
  • Start networking/building out your team. You will meet plenty of people who flip, own turn-key rentals, and manage their own rentals. Keep in mind people are much more open to working with "partners" rather than a "mentee". Find something of value you can provide them, if you can't find anything ask them what they hate doing and offer to do it for free, in exchange for working with them on a deal/seeing their process start to finish.
  • Last option is to just jump in, lots of research is great but sometimes the best lessons are learned from simply going through the process. Everyone on the forums is extremely helpful should you have any questions, ask!

Get used to that busy schedule (full time student and job) and get another full time job after finishing school. IT is full of 2nd and 3rd shift positions. Could easily double that income and not have to partner.

@Julian Sibley - Thanks for taking the time to write out a very solid and informative response! I do appreciate it.

In regards to the long term strategy, you are correct. I am looking for cashflow for supplementary income that'll hopefully snowball overtime ( If I have the right tactics in place). In terms of the specific focus of housing types, I am open to most of the homes you listed out. I plan on starting with SFR's and will most likely jump into Multi-units once I get more comfortable with the system. Commercials will be something that I will consider in the future.


I do plan on attending the regular meetups that are in place here in WA. Looking to attend the next one in Kirkland. The main reason why I'm looking at the Midwest as a start is due to the Price to Rent ratio. It just seems more probable to find deals like that in the Midwest in comparison to even our more affordable areas here in the Greater Seattle Area like Everett and Tacoma.

In terms of the House Hacking, I don't think that'll be a possibility for us for the same reason as yours :) I think the closest we could get to house hacking is building a Detached Accessory Unit/Mother-In-Law Suite in our backyard, which we could rent out for about $1000 to $1200 (Our neighbor has one and he's renting it out for that much).

Lastly, I do agree that a partnership would be the best route and I'm very open to that idea. It just seems that majority, if not all of the highly successful individuals in the RE game, ended up partnering up with folks to scale up their business. I'm hoping that this post would help me jump-start my investments since I've been observing/researching on the sidelines these past few months. Baby steps :)

@Ricardo Lunk I didn't even need to read the post, I read the title and if it's true... You're in an awesome spot. TAKES LOTS OF CALCULATED RISK. You are 23 years old @100k/year... You can only go up from there.. that means take so much risk because the reward will be so good that it will be worth your time. And if things do hit the fan, you have SOOOO many years to earn that money back. At 19 years old, I am taking more risk than at first I could stomach, but now I got use to it, which might be a bad thing, but I have so many years ahead of me to make the money back that my Time Horizon:Risk Tolerance is way in favor of taking risk. I suggest you do the same

The math is if you buy 1 $150k SFR/yr for 10 yrs, in a normal equity-gaining city (3-4%), your net worth at the end of those 10 years is $4m. you have to buy them as primary residences to get LTV so get used to moving pretty regularly. Alter your math to fit your market to get the numbers. After that, use that equity and find one or two big hitters to get into some much bigger deals.

@Mateusz Prawdzik - Thanks for the advice. Glad to see like-minded young individuals on the same page!

@Lane Kawaoka - Thanks, and I have been planning on focusing primarily on Cashflow. Never really been a handyman either.

@Jennifer Preddy Egbert - I agree with the acquisition of SFH properties per year; however, I'm not sure I fully understand why I'll need to purchase them as a primary residence to get optimal LTV. Could you help elaborate that further? Thank you.

@Ricardo Lunk if you live in a property, you can finance properties with a lower percentage down and lower interest rate. That's why it can be optimal, but moving every year would get old for me personally.

@Caleb Heimsoth - Thanks for the explanation, it does make sense financially; however, I think I'm on the same boat. My fiance and I would likely not want to move frequently. 

@Jennifer Preddy Egbert - I've only worked with one so far for my primary residence and we've built a pretty good rapport in just a few months of working together. It makes sense to try to keep working with the same lender especially since if better rates are offered.

Hi Ricardo! Welcome to BP!

My wife and I bought a Bothell home in December 2016 and have loved the area. I’m an investor and agent with clients in Everett and Tacoma that are looking at multifamily properties outside the immediate Seattle area. Lots of the secondary and tertiary markets have a lot of value even with Seattle’s inflated pricing pushing people further out.

Send me a message and maybe we can get a coffee and chat!

-Tony

@Ricardo Lunk

I was in a very similar situation as you when I started out in 2011.  I graduated college and landed a $100k+ per year position right out of the gate and had been planning my real estate empire for a couple years at that point.  What you are looking to do seems quite reasonable and I have no doubt if you continue on this path, you will be fine.  You make enough money to where mistakes will not bankrupt you.  You're young enough to make huge mistakes and still have time to recover.

I went a different route in the beginning, house hacked my way up to 4 properties (SFR) and quit my job. If you do room rentals with a big house, you can easily clear $2,500++ and keep to your local market. I'm in SoCal, which is one of the worst buy and hold markets for cash flow. I imagine Washington is just as expensive.

Now I am focusing on out of state rentals simply because my business model can't scale and I don't want to be landlord for 100+ college kids sharing rooms lol. If you do the math on out of state turnkey rentals, it pretty much sucks. It's better than stocks and bonds, etc. but let's be real here - You're a 23 year old making six figures, do you want what everyone else can get easily..? Take a look at the BRRRR strategy, it might make sense for you.

Think of it this way - the cash flow will be the same.  The asset quality for end product will be the same (fully rehabbed).  The tenants paying you rent will be the same.  The property management company can be the same if you want.  What's the difference?  You take the risk in the beginning, buy a dump, fix it up with your team and then keep 30%+ equity AND get all of your operating cash back.  As I stated before in this post, you are young with good income and can absorb this kind of risk.

In my experience since I started buying out of state this year, the hardest part is probably finding the right deal.  That being said, I've managed to build a full team that can source, acquire, rehab, rent and manage the properties.  I'm in negotiations for my 3rd property as we speak, so it certainly is possible.  Next year I plan to add investor capital to the mix (I have some friends and family that want in) and will probably go the direct marketing route.  

There are tons of ways to make your way in this business, I have little doubt you will do well. I would just caution you to think about the opportunity cost of your decisions: What is the most effective use of your TIME and MONEY. Rooms rentals were the most effective use of my time and money in the beginning, but as I become more and more successful I can see the absolute benefits to hands-off BRRRR rentals. I can take on a nearly infinite number of units and my workload (and working capital) stay relatively level throughout.