Starting Out: Advice you would give to your younger self

Starting Out
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Starting Out: Advice you would give to your younger self

Jimmy Ready
Putnam Valley, NY · Member since 2018 · 61 posts · 9 votes

Hello !!

Long time lurker but first time making a post. I wanted to come on here and first introduce myself. 

I have been interested in real estate since age 18. I am now 25 years old and very smart responsible financially. have a savings plan in place and have been contributing 20%-25% of all income earned for the last several years . 

The plan :

My plan starting out has always been to save up $50000 to invest in a multi family unit as a down payment. I am now close to that number and in the next year i should be ready to make the move. I would live in one half and have tenant renting out the other to get my feet wet. What advice would you give if you were in my shoes? 

Specifically:

1) do you think this is a good idea? My personality is the type that likes to overthink things. I am currently still living with my parents and I know if I buy my own home saying "oh the next one will be an investment property ... I will just keep putting it off and never do it. I want to take the leap right to of the gate so I am forced to learn on the fly. i know only some thing you can learn through doing. Has anyone else started this way and if so what were your experiences?

2) having the knowledge you have now.. what is the best advice you have ever received and why?

3) kinda like #2 but going back what would you do differently? Lets say you were talking to a 25 year old version of yourself. what would you say to them?

Thank you for any and all advice. Any direction you could possibly point me in would be greatly appreciated.

Jimmy

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Cosmo Iannopollo
Investor · Wakefield, MA · Member since 2016 · 107 posts · 71 votes
8y

@Jimmy Ready

1) No, it's not a good idea. It's a great idea. I bought a duplex as my first home and it was a tremendous move. Just be sure to familiarize yourself with the rental laws and rental market. Also, some may say to put the 20% down but I think if you can do 5% or less, go for it. You will have to pay PMI but that is spread out and paid for by your tenant. Spending so much money upfront limits what you can do going forward.

2) Best advice is that if you limit your thinking, you'll always have limited results. Don't be afraid to take risks or non-traditional paths. Most people will tell you why they wouldn't be a landlord or invest their retirement account into a property, and these are the people who are hoping to retire at 65 if the stock market allows. 

3) Dear 25-year old me, get invested in something! Learn about the many ways you can make money beyond a paycheck. Yes, this includes stocks, real estate, freelancing, self-publishing on Amazon, etc. 

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  • Jimmy Ready
    OP
    Putnam Valley, NY · Member since 2018 · 61 posts · 9 votes
    8y

    bump

    0Reply
  • Henri Meli
    Investor · Morrisville, NC · Member since 2012 · 1k+ posts · 673 votes
    8y

    @Jimmy Ready . I started investing a little later in life (around 30). I bought a 2BR 1BA which I was able to rent out and generate some income. I already owned my own house. That's how I got the ball rolling for myself.

    But one person inspired me when I was in college. I was renting a room in a house and the owner bought a 4 BR house, converted the garage into a Bedroom and lived in it himself, while renting all the other rooms. That was in Southern California. I think lots of people have talked about this approach on BP and that could be a way for you to get started (House Hacking, BRRR). It helps you understand the process, deal with tenants and banks and learn about the different types of loan and programs, ... etc. That's how I would start. I won't jump right away into multi families.

    2Reply
  • Cosmo Iannopollo
    Investor · Wakefield, MA · Member since 2016 · 107 posts · 71 votes
    8y

    @Jimmy Ready

    1) No, it's not a good idea. It's a great idea. I bought a duplex as my first home and it was a tremendous move. Just be sure to familiarize yourself with the rental laws and rental market. Also, some may say to put the 20% down but I think if you can do 5% or less, go for it. You will have to pay PMI but that is spread out and paid for by your tenant. Spending so much money upfront limits what you can do going forward.

    2) Best advice is that if you limit your thinking, you'll always have limited results. Don't be afraid to take risks or non-traditional paths. Most people will tell you why they wouldn't be a landlord or invest their retirement account into a property, and these are the people who are hoping to retire at 65 if the stock market allows. 

    3) Dear 25-year old me, get invested in something! Learn about the many ways you can make money beyond a paycheck. Yes, this includes stocks, real estate, freelancing, self-publishing on Amazon, etc. 

    4Reply
  • Jimmy Ready
    OP
    Putnam Valley, NY · Member since 2018 · 61 posts · 9 votes
    8y

    @Henri Meli First I want to say thank you for your response I appreciate it. I am just confused a little and I'm hoping you could clarify. So the owner of the house you were talking about lived in the garage wouldn't that be considered a multi family? why do you think it's not good to go the multi family route and live in one of the units to start? 

    0Reply
  • Jimmy Ready
    OP
    Putnam Valley, NY · Member since 2018 · 61 posts · 9 votes
    8y

    @Cosmo Iannopollo any recommendations on how to go about learning rental laws and the local rental market? I live in NY and i have heard from friends its a $%^& to get a tenant who won't pay out haha. Any direction you could point me in would be greatly appreciated. Thanks =)

    0Reply
  • Henri Meli
    Investor · Morrisville, NC · Member since 2012 · 1k+ posts · 673 votes
    8y

    @Jimmy Ready . To respond to your question: It was a single family house with a shared bathroom, living room and kitchen. Everyone had their own bedrooms, but the rest was shared. 

    In a multi family, tenant has their own house (their own kitchen, bathroom, living room, ... etc), but tenants might share the same driveway or parking area or even roof in the same building for example ... etc. 

    Investing in multi family (4+ units for example) has very different rules than investing in single family homes. Multi family are considered commercial properties. The types of loan you need, the way to assess the value of a residential is different than a 4+ units multi family. ... 

    1Reply
  • Jimmy Ready
    OP
    Putnam Valley, NY · Member since 2018 · 61 posts · 9 votes
    8y

    @Henri Meli thank u for the reply, Would a multi family with 2 units be considered residential? That is what I am going to start out with. I know there will be some bumps at first but with a 2 family I can live in one while using the other to gain experience. i agree with what you are saying though. 4 units would be too much for me to start out with

    0Reply
  • Chris Szepessy
    Catskill, NY · Member since 2018 · 636 posts · 668 votes
    8y

    A two-family home is considered residential. I wish I did what you're considering doing. I wanted a two-family house when looking for a primary home, but my wife wasn't that into it. So, I definitely think you're on the right track. It's a great way to start out. Also, you could probably do an FHA loan and only put down 3.5-5%. That could save you a bunch of money on the down payment. Then after a year, you could refinance that house, and get another FHA loan on another two family. You would have to then move into the new house. You could continue doing this until you're ready to settle in one spot or until you have as many properties as you want. It's a great way to buy more rentals with low money down. I'm not sure what house prices are where you live, but the $50000 you have saved now could possibly buy you a few properties. Just get started! Good luck!

    0Reply
  • Rachel H.
    San Antonio, TX · Member since 2009 · 3k+ posts · 1k+ votes
    8y

    @Jimmy Ready If you feel comfortable buying a multi-unit and living in one of your units alongside your tenants, there's nothing wrong with that. Some have done it successfully. Others may shy away from that being too close to your tenants. It depends on your personality. If you do pursue this option, just be sure it's in an area you feel comfortable with. The neighborhood will attract a certain type of clientele. Good luck! 

    0Reply
  • Ashley Cote
    Software Developer · Mobile, AL · Member since 2016 · 42 posts · 29 votes
    8y

    Hey Jimmy,

    One suggestion to consider is if(when) you do the house hack scenario, portray yourself as a property manager instead of the owner. It will prevent any tension between tenants/roommates because you can displace the authority of ownership to someone they don't know and they'll just view you as the middle man.

    Brandon talks about this strategy in some of his blogs to prevent unnecessary confrontation.

    0Reply
  • Jimmy Ready
    OP
    Putnam Valley, NY · Member since 2018 · 61 posts · 9 votes
    8y

    @Ashley Cote thank you ! that is a great way to go about doing things! do you know where I  can find some of these articles or if there is a podcast about such scenario. Any direction you could point me in would be greatly appreciated !

    0Reply
  • Ashley Cote
    Software Developer · Mobile, AL · Member since 2016 · 42 posts · 29 votes
    8y

    @Jimmy Ready

    If you look under the guides on BP (you'll find tons of good ones from Brandon and other authors), the one where he specifically mentions not "being the owner" is called How to be a Landlord

    0Reply
  • Jimmy Ready
    OP
    Putnam Valley, NY · Member since 2018 · 61 posts · 9 votes
    8y

    @Chris Szepessy thank you for the advice!!! I appreciate the kind words. Is there any major drawback to an FHA loan as opposed to a typical 30 yr mortgage besides a higher interest rate? I have never heard of FHAs until very recent so i definitely want to start researching them

    0Reply
  • Chris Szepessy
    Catskill, NY · Member since 2018 · 636 posts · 668 votes
    8y
    The slightly higher interest rate and PMI (private mortgage insurance) are probably the only drawbacks, other than having to live in the house for at least a year before you can move. That may or may not be a drawback if you’re buying in an area where you want to live anyway, though. The low down payment makes it a very attractive option. Do some more research on it and make sure it’s something that works for you.
    0Reply
  • Jimmy Ready
    OP
    Putnam Valley, NY · Member since 2018 · 61 posts · 9 votes
    8y

    @Chris Szepessy ahhh yes forgot about the PMI. will definitely look into this as an option. thank you

    0Reply
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