What to Do with Little to No Income or Credit?

70 Replies

I am currently 20 years old and I live in Central Oklahoma with no money or income to invest. I work at a sandwich shop and make $400/Month. I have no credit and all of my income is allocated towards my bills as I am currently living with my parents. I want to invest in rental properties, what is my first step?

Thank you for your reply Caleb! I have not borrowed any money before so as far as I’m concerned I don’t have a credit score. I work 20 Hours a week and make $7.75/Hour until I take my real estate license exam a week from now to become a full time real estate agent until I can save money from my commission to invest. 

@Griffin McKisson correct me if I’m wrong but I’m going to assume you’re not in school.  

If I were you And you’re not, I would look into doing some sort of trade school and get into a trade such as an electrician or plumber.  It’d still be useful for real estate and statistically speaking much more lucrative, over time.

Lots of plumbers make really good money 8ish years into their career 

You’re correct @Caleb Heimsoth . I am not in school. Also, my father is interested in rental properties and he is an exterior home remodeler. I just paid $500 for a real estate course in order to take an exam next week. Would you recommend I get my license and try to earn commission to go in on a deal with my father with an FHA loan and "house hack" a multifamily house.

Hello Griffin, 

I am happy to hear that you are interested in investing in real estate.  I would suggest that you start listening to the Bigger Pockets Money podcast which is all about money, financial independence, and early retirement.  They have lots of great tips on how to grow what little money you have to start with into financial independence, and they bring on guests that talk about how they did just that.  It is hard to start with no money and no credit, so your first step might be to start growing that zero into some workable numbers.  You can also look into free activities that help to grow your knowledge and experience in the mean time such as reading articles on Bigger Pockets, reading real estate/investing books, meeting and helping other local real estate investors, listening to the regular Bigger Pockets podcast on real estate investing, learning how to run numbers on potential real estate purchases, etc.

Take care, 

Marie

@Griffin McKisson you can certainly do that and househacking is a good way to get started.  

That being said you’re going to have two different major hurdles to doing that.  One is easier than the other.  

The first is your father would likely need to be a co-signer on the mortgage.  That is relatively simple thing to do if he’s up for that.  

The bigger hurdle is going to be that most (not all) lenders will want you to be an agent for 2 years and to get that on your tax returns before they’ll use that income to qualify you for the loan.

Add the fact that most new agents don’t do their first commission until somewhere in the 6-12 month time frame and you’re looking at around 3-4 years from now before it all works.

That’s not necessarily a deal breaker but I just want to let you know that statistically that how it goes.

I know a very successful agent on BP who’s about mine and your age but he started at 18 and so when things are rolling like they are now at around age 22 for him, he’s been doing it for 4 years 

Thank you for your suggestions @Marie Tai ! I am heavily invested in everything you mentioned above except for meeting/helping local real estate investors. I have even viewed properties with agents in my area after calculating their potential ROI. Would partnering with someone that has cash and credit such as my father be a good idea for a first deal?

So if I decided to do any trade school, would lenders not also want 2 years of income? If so, does that mean pursing becoming an agent only ads 6-12 months (assuming my first commission is attained by then) as opposed to a plumber in which it will take me 6-12 months to save enough money to attend a plumbing course? @Caleb Heimsoth

Hi Griffin!

It's awesome that you are starting out as early as you can, I think many investors in general, including me, wish they would start earlier! 

I would suggest to work as a real estate agent for a couple of years to learn the market and save money on the down payment. During this time you will build your credit score, make connections and learn all you can about real estate investing. 

And after a couple of years when you come across a good deal, you will know this is it, and your real estate experience will help you greatly! You'll be able to buy your first deal or partner with someone like your father or other people that you meet along the way.

Sounds like you're on the right track!

Hello Marina! 

Thank you so much for your feedback @Marina Draper . I am so excited and passionate about real estate. Some nights I don’t want to go to sleep because I don’t want to miss out on reading, researching, and learning about investing in real estate. I will take all of the advice that I can get! 

@Griffin McKisson  I don’t know how much it costs to attend a trade school in your area, my main point was that I think it’s a more evenly spread out field as far as income goes.  Real estate agents is a very top heavy field with those at the top making most of all the commissions and those at the bottom making very little.  

The 2 year requirement for lenders is often hardest to get around for those who are 100 percent commission based like agents are.  If you have a salary it’s much easier.  

When I got stared (less than a year into my field) it wasn’t an issue because the lender counted my 4 years in school towards the 2 year requirement because my field of study was the same as my career. So I’m guessing it could be a similar way if you did trade school.

There’s also nothing to say you couldn’t do trade school while being an agent.  I know people in school who do that and as far as I know it works well.  

Since you’ve already paid for the course I would finish it and get your license, and then from there you can decide if you want to do some sort of schooling or not.  

BP is a bit contrarian in general to how I think and operate in that a lot of people on here will tell you to not to “waste” money on education and things of that nature.  Personally I advise against that as I think education is still the most surefire way to build wealth (if you do it right).  

I practice what I preach as I’m starting grad school this fall, while working full time and investing in real estate.  So it doesn’t have to be 1 vs another sort of mentality, you can do multiple options. 

Finally, while a bit off topic going back to “being contrarian” to a lot of BP thoughts, I am all for using leverage (aka debt) appropriately but I also am conservative with it, and will have free and clear rentals before I’m 30, much to the dismay of a lot of people here.

Hope this helps.

I think trade school is a great idea... probably what I would have done instead of a full degree with 20/20 hindsight, and the metrics in favor of this approach have only gotten better over time. I plan to recommend the same to my two boys, though that's up to them of course. Regardless, at your age, and with that two year employment requirement (typically at the same employer or at least in the same line of work) for most loans, finding a good place to work where you can climb within the organization for a while might be the best place to start. 

Now if your father has an actual business, I don't see why you wouldn't want to work for him for a few years, learn some property remodel techniques which will likely help you over the long run, and potentially make a bit more than you might otherwise. I can't comment on how a lender would look at the heredity of the matter however.  

At that point, take those skills, buy a place that needs some work, and do it. I'm fixing up my 3rd house, and though the market has done me some favors, the fact is, fixing up your primary dwelling is a GREAT way to get ahead. If you can combine that with a house hack, well, you just got your leg up into property investing right there. But for now, unless your father is signing for a property, you're going to have to focus on the income side of the equation. 

Stick with it and keep learning... you seem to have a great mentality! I should warn you... you will always run into the naysayers, especially when you're young. Usually they're just jealous or otherwise worried they'll be left in your dust... tune those people out and keep plugging away... and do your homework right!

@Caleb Heimsoth Congratulations Caleb! That is incredible, and I would love to be where you are by age 30. Real Estate is an incredible path to financial freedom, as you know! I thank you sincerely, for all of your advice and answering my questions.

And I would say, if your father is interested in having a rental at all, sit down and analyze some prospective properties with him. Offer to help him manage the place or even request that you be THE property manager behind the scenes. You run the numbers, you learn the tax implications, you familiarize yourself with the lease parameters, tell him what you think a deal would cash flow, factor in your vacancy, help him screen the tenants, etc, etc. By the time you're two years down the road you'll have learned so much it may not even matter if you broke even... it'd be worth it so long you could improve the next time around. 

Hello David!

I appreciate all of your advice on the topic. I will take everything you have said with a grain of salt. This is the first forum I have posted on BP Forum and I have received incredible feedback so it certainly won’t be my last post. Thank you @David Smit .

I meant to say that I won’t take what you have said with a grain of salt, meaning I truly value your advice. Sorry, I worded that wrong!  @David Smit

well you are going to need money . Money In yearly income and in your savings . A bank is going to laugh at you in your current situation . Working at a sub shop isn’t going to do that . And it won’t ever . Don’t give up your dreams in real estate but the reality is You need to focus on getting an education or a much better job . 

@Griffin McKisson you had me scratching my head there! You can edit your posts (for a while at least) at the top right of each post fyi! Good luck! 

I was going to suggest playing the lottery as your first step, since you are light years away based on your starting point. 

Step 1: Increase your income significantly. Get a second or third job, since you are only working 20 hours right now anyway. Put all the money from second job away for a down payment. 

Step 2: While you are doing that, start learning how to rehab a house on your own. It sounds like you have some leg on that if your father is a fixer. You are going to need skills and you can't afford to pay someone else.

Step 3: Find a duplex or triplex that you can buy with an FHA 3.5% down. Live in the crappiest unit and rent out the nice units.

There's a million plans you can make, but investing suggests you have money to invest in the first place. Without money, you need to bring skills or connections, neither of which you have right now.

I know you’ve discussed partnering with your father, had I been more forward thinking when I was younger I would have househacked but at that age I had no money or thought I couldn’t do it. Fast forward to now and while I couldn’t (or wouldn’t) house hack with my current family situation, I would definitely be open to a younger, aggressive partner who would do the house hack part on some sort of multi family and take some responsibility (maintenance, rehab, pay some rental portion, whatever made sense) but utilize funds I have to get started for a split of the profit. Just an idea to ask around to anyone who is looking for ways to invest and find ways you can be an asset to them. Good luck, you sound like your in a great place to keep pushing to get it done...

Hi, Griffin.... No one has really mentioned this, but real estate is typically going to be a negative cash-flow business for your first year - and maybe more. You already know about $500 for the school, you'll also have to shell out for local/state/NAR membership (here in NJ that's about $500 per year - it depends upon your local and state board dues) as well as joining the local MLS - maybe more than one (here is NJ we have 7 separate MLS's - I don't need to belong to all of them but my specific market has 4 that I could join - I have joined 2 for now). They will charge anywhere between $100 and $300 annually. None of this even touches marketing costs. You can expect to spend between $1000 and $2000 in your first year, depending on how much marketing you do (social media, mailers, door hangers, lead generation, etc). And not much less in subsequent years. I don't know what the median home price is where you live; you might want to check that and calculate what an 'average' commission check might be for you. I'm a relatively new agent and did all of this when I was deciding whether or not I wanted to be a Realtor as a second career. I still did it. ;-)

You really need to go into real estate as a career with your eyes wide open. Something like 80% of agents drop out during their first year in the business, nationally. 

@Griffin McKisson First off it's refreshing to see someone that's your age being so serious about their future. My question is, what is the market like in your area?  Is there high demand? What is supply? Are there more renters or buyers? What is the job market like? Is it a broad based economy or mostly retail/service related jobs? 

There's so much that goes in to giving advice to someone in your situation without having details. It matters. If there is a really strong real estate market in your area with qualified buyers, being a real estate agent may make sense. Having your license will never hurt you. 

The person that mentioned getting into the trades had a good idea too. The trades are struggling to find qualified workers, and they good. Knowing a trade helps if you're doing fix/flips, new construction, etc.

One thing you can do to help yourself is get to know your local market. Look at houses, pay attention to the type of cabinets, flooring, countertops, and other finsih work. You want to always be comparing apples to apples. Look at the size of the lot, age of the house, size, etc.  Ask questions. 

Good luck! 

@Griffin McKisson.  Google real estate license abbreviations, pick one n go

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