I am 17, have little money, and want to invest. How?

Question

Hi guys, I am 17 and am just starting out in real estate. A little background on me-- I quit my landscaping job in August and started working for myself by starting my own landscaping business. I started it from absolutely nothing and since then I have done over 40k in business. I was on track to make around 100k but ended up losing a couple of the big contracts I was counting on due to poor circumstances which had set me back. Now it is the winter season and while most companies will plow snow, I can't be out from 1am-6am then still go to school at 7am and be able to function. So after reading rich dad poor dad I got the idea to start researching real estate investing as a way to generate long term passive income that I can use to support the family that I would like to have in the near future. Just recently I have partnered up with a couple of like minded people around my age and we are now all pursing this goal of being successful in real estate investing. Currently we have our eyes set in a previously blighted area which is now making a come back. We are trying to find multi family properties that we can buy, fix up, and rent out. We can't decide if we should spend twice the money to get something downtown, or if we should start a couple miles outside of downtown which is in the ghetto. I have been thinking that since the less expensive property is so far outside of the downtown area it may not see the same economic growth that we are seeing around downtown. Another thing is that the downtown property has two residential units upstairs, and two commercial units downstairs. The other property has one commercial unit downstairs and one big residential unit upstairs. The downtown property has a firm price of 320k which must be paid in cash (or loan), and the other property may not have as firm of a price, and maybe we could even have a lease to own or land contract agreement. Either way it went we would need some sort of financing, and we have no idea how we would get that. We don't have a lot of cash or collateral. I'm hoping that you guys might have some ideas / advice for us on what the next step would be. Thank you! - John

Jacques Cyr · Answer

@John Haddad Welcome to BP. It's great that you're looking to invest, and you're willing to do the tough stuff now in order to enjoy the future. I second @Steven J.'s comments about understanding the Ghetto (look at Trulia or other crime reports and school districts. as @Cara Lonsdale mentioned you'll need to build your credit. One thing you could do starting now... is to go into local AA area credit unions and start to build a report with the loan officers. Ask questions... talk less... listen and ask for advice. They may be able to point you to other investors that you could partner with, etc. (perhaps...). Make sure you've run your numbers when you go into the bank (taxes, insurance, maintenance, etc.).

Good luck and feel free to ask any questions. Jacques

jacquescyr.com or rubiconinvestmi.com

Steven J. · Answer

Welcome to BP  @John @John Haddad!  First of all, CONGRATS on starting a business and making money! 40K is a great start to someone who is just getting going. You've obviously got some good skills to make things work! Way to go!

Ghetto vs downtown... my suggestion is neither. The 'ghetto' as you put is possibly a war zone if you're using that word. Is it really a ghetto or just a slang term you're using to describe an undesirable area? As for downtown expect that you'll have seasoned sellers who know what they want, how they want it, and when the want it. I think if you're starting out, and do this well before you tackle seasoned sellers/buyers, call around to other properties for sale as an interested buyer. See how you stack up to negotiating and hearing 'no,' 'that's insulting,' 'do you think I'm stupid?,' from the sellers. It will give you a true ring side seat into what people go through on a daily basis. Spend your time screwing up on deals that don't matter if you screw up; you'll learn a ton!

Michael Guzik · Answer

Hey @John Haddad welcome to BP! I'm in the same situation as you in that we are both young and trying to get our first property. My advice is do not go in "the ghetto" this will be your first property and you do not need to be making this harder than it already is by putting yourself in a bad area. However if you are seeing the path off progress move in that direction and the area is getting better ie coffee shops, mom and pop restaurants, diners are starting to be built then I would consider it. My opinion is to build your landscaping company as much as possible. That is awesome to be your own boss and control your income like that. I see no reason why you shouldn't scale that business and set aside money to pay for a property and "house hack". The best situation that I see is that you scale the landscaping business and become an entrepreneur and then save the money from that business to put into real estate. It is your life so do what you think is best. However consider this do I want to be working for someone from 9-5, 5-7 days a week? Do I want to have my own schedule and work when I want? Would I rather make myself money or help make other people money? Which career will give me the most time to do the things I want? I truly think that if you work hard, provide a great service and are honest you can scale that landscaping business no problemo and funnel that money into REI. Good luck and keep working hard!

Cara Lonsdale · Answer

You will need to wait until you are 18 in order to be able to sign and execute legally binding documents, which any Real Estate transaction will require.

In the meantime, you also need to build credit if you are able.  You will run into the same issue since credit card companies will most likely require you to be 18.  However, you may be able to find a prepay CC that will report to your credit bureaus.  If not, another option is to have your parents add you as an authorized signor on one of their cards.  Then go out and use it a few times to buy gas and other small things, pay them off right away, and continue this for several months in order to establish your own credit profile.

Also, if you are able to put utilities into your name (the water bill, the electric bill, the gas bill, etc), that can also serve as a credit reference in some circumstances.

By building these credit profiles, you will be preparing yourself for when you are ready to make your first purchase.

Also, make sure you are reporting your business income on your taxes properly.  You will need to have at least a 2 tax year history of your income to show a lender to qualify you.

Save up money where you can, but put it in the bank where it can be documented by the lender.

Once you are 18, have a credit profile established, and have seasoned employment, and funds, then you are ready to contact a lender to be pre-qualified.  From there, it is a matter of starting your search with the pre-qualified amount the lender gave you.  Be sure to ask the lender about first time home buyer programs and down payment assistance programs to help you with the costs associated with your first purchase.  You will have to live in the property for at least 12 months to honor the commitment you made with the lender, but after that, you can move out of that house, and rent it out as a rental.

Then start the process all over again.  Find your next property to live in for the next year.

Best of luck to you!