20 year old w/ six-figure income and no expenses. What to do?

57 Replies

Hey everyone! 

I'm a 20 year old from the Buffalo, New York area who is looking to break into real estate. I currently make just over six figures annually with my only expenses being a car and (soon to be paid off) student loans. I plan on living with my parents for the next 3-4 years while aggressively investing the vast majority of my post-tax income.

I've always been interested in real estate and think that it could play a large role in my portfolio. After reading up on the subject for a few months, I'm ready to purchase my first property. 

Some of my questions/concerns:

  1. I am not very handy. As a result, should avoid purchasing properties that require more than a negligible amount of work? (I feel vulnerable knowing so little about home renovation processes. How can I assure that contractors won't take me for a ride?)
  2. Real Estate can't consume my life (yet). I can dedicate maybe 5-10 hours to this endeavor weekly. Would hiring a Property Management company be something worth considering?
  3. What kind of legal entity should I form? From my understanding, LLC's and Corporations have different tax requirements.
  4. I'd prefer to avoid both downtrodden and luxury real estate. 

What would you do if you were in my situation? Any advice is appreciated!

For a first property, have you looked into house hacking? It is a great way to live for free(or even get paid to live). Because you will be saving so much money, it allows you to save money for your next property, all the while building up equity in the multifamily home you are house hacking in. From there you could even get a HELOC if needed, sell the place, etc. If you don't mind me asking, what are you doing to be making so much money so young? That is really impressive.

Originally posted by @Zach Simpson :

For a first property, have you looked into house hacking? It is a great way to live for free(or even get paid to live). Because you will be saving so much money, it allows you to save money for your next property, all the while building up equity in the multifamily home you are house hacking in. From there you could even get a HELOC if needed, sell the place, etc. If you don't mind me asking, what are you doing to be making so much money so young? That is really impressive.

No - I actually haven't looked into that yet. I assumed that staying at home would be the best option for now. That said, I'm assuming that purchasing (and living in) a multi-family unit may be beneficial due to first-time homebuyer tax credits?

To answer your question: I'm a self-taught software engineer. 

@Charlie Campanella

It will allow you to jump into real estate for one. You can't beat having experience. I'd say that a really big advantage to it all is just being able to establish equity now rather than later. If you start in 3 or 4 years, think of how ahead you could have gotten if you started earlier. 

Do you know what house hacking is?

Originally posted by @Zach Simpson :

@Charlie Campanella

It will allow you to jump into real estate for one. You can't beat having experience. I'd say that a really big advantage to it all is just being able to establish equity now rather than later. If you start in 3 or 4 years, think of how ahead you could have gotten if you started earlier. 

Do you know what house hacking is?

That definitely makes sense. I just read up on the concept and it makes a ton of sense to me.

The real challenge is finding a 2-4 unit home that I'd like to live in. :)

@Charlie Campanella It doesn't have to, and probably shouldn't be your "dream home." Look at an investment opportunity, not your end all be all of a place to live.

Originally posted by @Charlie Campanella :
Originally posted by @Zach Simpson:

For a first property, have you looked into house hacking? It is a great way to live for free(or even get paid to live). Because you will be saving so much money, it allows you to save money for your next property, all the while building up equity in the multifamily home you are house hacking in. From there you could even get a HELOC if needed, sell the place, etc. If you don't mind me asking, what are you doing to be making so much money so young? That is really impressive.

No - I actually haven't looked into that yet. I assumed that staying at home would be the best option for now. That said, I'm assuming that purchasing (and living in) a multi-family unit may be beneficial due to first-time homebuyer tax credits?

To answer your question: I'm a self-taught software engineer. 

No real first-time homebuyer tax credits. I’m guessing you are referring to mortgage interest write offs? 

Or you may be referring to local incentives (usually state or city based grants = free money) for communities that need people to buy primary residence in order to stabilize the town.

@Charlie Campanella

First off, congratulations for killing it! 6 figures and only 20! You're doing great :)

I actually posted something very similar to this question in another forum earlier today and I'll link that below, but you also have a lot of other questions that I might be able to help with.

1. Nope! I am one of the least handy people around, it's just about finding the "right" property for YOU. What do I mean? While, right now, you are killing it making 6 figures for your age, heck, I can only imagine what you will be making 3, 5, even 10 years from now. Because this is your strongest asset, use it to your advantage! Your best use of time may be putting more hours into your regular day job. Now, people may disagree with me here on this next point, but it might be okay for you to buy retail.

What I mean is this. My wife and I do short term rentals. We by FAR aren't going to pay over retail, but we are not afraid to pay retail if the numbers work out. We have certain guidelines of what meets our criteria for a STR (something like an Airbnb), and because I care more about location and the right TYPE of property, my "deal" looks different then buying at 70% of value.

For you, it might be the same. With being so young, you can keep your expenses loooooow. Like, super low. Have you done a budget yet to see what you can live off of? Heck, you could be buying a property a year if you live right. 

Long story short, don't be afraid to buy houses that don't need work! Just figure out the right type of property that works for you. You SHOULD always be making sure it cash flows though. 

2. YES, see point #1

Again, your strong point right now is your job, your killing it. I would actually figure out if there is a way you can pick up overtime, freelance work, fiveer, make an app...something to play to your strengths. Capitalize on your strengths. "Invest in what you know" is an age old term and it is probably one of the best out there. If property management takes away from your strength, hire it out. This is what some of the wisest people do.

3. Find the best CPA at your local REI that everyone recommends, locate and hire him.

Here is the link below from my previous response, I hope this helps out a lot. Feel free to message me any time! I would be happy to help.

https://www.biggerpockets.com/forums/12/topics/579...

I'm with @Zach Simpson ; You make great money but don't A. Assume you always will, and B. Live according to your income when you know there's better ways to be spending that money, or rather, investing it. You obviously need no help learning, so start there. Do the house hack, not because you need to but because it's the smart thing to do and because you're likely shy on good credit at your age and possibly tenure at your job/business as well. 

I'd probably pass on the real estate route if you already like what you do and you already do that well. Focus on the leverage aspect instead... if you're making that money you're smart enough to figure out why I say that ;) 

@Travis Rasmussen I'm not big on the concept of STR now, but you could likely convince me otherwise, especially since we're both in pricey markets. I'll be in touch, and I responded to your message btw. #intrigued

If you are willing to live with parents for a few years you will save more that way than house hacking.

I would recommend connecting with local investors and develop some relationships. Learn their business and the invest your capital as a partner on one of their deals.

Learn the ropes like that until you are ready to invest on your own.

Considering your income and lack of expenses, I would pay off the student loans and car ASAP. While you are doing this and living at home, learn as much as possible about real estate and being a landlord. Save aggressively after paying off your debts so that when you are ready to move out of your parents house you can house hack.

Hey @Charlie Campanella ,

There's a few of us 20-somethings in buffalo who get together occasionally and end up talking mostly real estate. You should join us sometime! Buffalo is an awesome market to get started in, but it definitely can get tricky to find quality help regarding contractors. 

Also at 20 with no wife or kids (presumably) keep in mind this is your first prop not your last!! Don’t get emotionally involved and be willing to live in high ARV potential home so your profits allow you to live wherever you’d like!!

Originally posted by @Charlie Campanella :
Originally posted by @Zach Simpson:

@Charlie Campanella

It will allow you to jump into real estate for one. You can't beat having experience. I'd say that a really big advantage to it all is just being able to establish equity now rather than later. If you start in 3 or 4 years, think of how ahead you could have gotten if you started earlier. 

Do you know what house hacking is?

That definitely makes sense. I just read up on the concept and it makes a ton of sense to me.

The real challenge is finding a 2-4 unit home that I'd like to live in. :)

Some of my questions/concerns:

  1. I am not very handy. As a result, should avoid purchasing properties that require more than a negligible amount of work? (I feel vulnerable knowing so little about home renovation processes. How can I assure that contractors won't take me for a ride?)
  2. Real Estate can't consume my life (yet). I can dedicate maybe 5-10 hours to this endeavor weekly. Would hiring a Property Management company be something worth considering?
  3. What kind of legal entity should I form? From my understanding, LLC's and Corporations have different tax requirements.
  4. I'd prefer to avoid both downtrodden and luxury real estate.

Being handy is a learned skill and you can cut your teeth on your first few deals.  You don't need to swing the hammer but learning how to price repairs and find and vet contractors is important.

Yes, using 3rd party PM is an option.  Just vet them heavily up front...lots of posts on BP regarding how to do that.

Don't worry about entities...I invested for 10+ years before I had one.

#4 good call.

Immerse yourself in real estate knowledge...books, podcasts, forums, blogs...and analyze many deals.  You can also consider passive rather than active investing once you become an accredited investor.

20 year old w/ six-figure income and no expenses. What to do?

Answer:  clone yourself!!

Some of my questions/concerns:

  1. I am not very handy. As a result, should avoid purchasing properties that require more than a negligible amount of work? (I feel vulnerable knowing so little about home renovation processes. How can I assure that contractors won't take me for a ride?)
  2. Real Estate can't consume my life (yet). I can dedicate maybe 5-10 hours to this endeavor weekly. Would hiring a Property Management company be something worth considering?
  3. What kind of legal entity should I form? From my understanding, LLC's and Corporations have different tax requirements.
  4. I'd prefer to avoid both downtrodden and luxury real estate.

I get the sense that you have good judgement, which is really 2/3 of what you need.

Consider this -- find a flipper that has a decent track record.  Go visit his/her jobs, see what he/she has going.  See what you can learn from them.  While doing this, getting to know them, be thinking about exploring a potential partnership with one of them.  Be careful here, not to get in a hurry, make sure you can verify their story (hard to do).  Maybe you can buy your way into a 25% or 33% stake in a project... Let that person do the work, you buy the materials -- whatever.  Find some equitable way to participate in a deal, so that you both have skin in the game.  You get to learn while your dollars earn.

I say this with some degree of experience, having already done a flip.  I suck at managing contractors, and I would rather focus my energies on things I do well.   So I won't do another flip ON MY OWN for a good while.  But I am keeping my eyes peeled for somebody I can partner with. 

If you are more interested in doing a buy & hold, then maybe the partnership doesn't work as well, but here the scope of the renovation is not has big either.  Maybe a good property manager works better in this case, since they already know all the contractors and handy-types out there, and I would assume they can easily refer whomever you need.

Congrats on your early success. You are off to a great start and being enlightened and mature enough to already be thinking about investing is a fantastic achievement. Living at home long term and banking the money is not necessarily the best financial move because the money is just sitting in your account and not working for you. At that age it's also tempting to spend it on an uneccesarily expensive car or other frivolous expenses.

My advice would be to live at home just long enough to pay off all debt and accumulate enough for a down payment on a 3-4 unit on Elmwood and then house hack. At 5 units you are looking at commercial loans so you won't be able to use your 1st home buyer credit so stick to 3-4. You will live for free plus your tenants will pay your mortgage (and then some).

After a few years you will be in a great situation to then expand into other real estate endeavors. But what is more likely to happen is you will discover that 1.) You don't like being a landlord and 2.) You don't have the time to take on anymore work. Or even 3.) You will meet a nice girl and get married and have kids and you will want a nice brand new 3000 sq ft house in the suburbs. Life comes at you fast so you never know!

So as mentioned, house hacking is the best way to dip your toes into the real estate world and it's a great financial move to set you up for the future. Especially at your age with nothing tying you down. Best of luck to you!

@Charlie Campanella

It sounds like you want to be a passive investor.  If that is the case I would use a PM company for sure.  

1. This doesn't matter (neither am I). You don't need to know about the home renovation process if you use a PM company. They will give you a breakdown of all cost associated with the reno. If they are halfway decent they will give you a break down of ROI on your purchase, and predict what rent will be after. All you need to do is be good with numbers.

2. Same answer as above.  Use a PM company.  They will give you real time data on your asset, expenses, income, strategy, etc... All you need to do is analyze performance and deals.

3. If you form an LLC you will need to take a commercial loan. Many investors put their first few properties under their name to get the conventional loan mortgage rates. You can move to an LLC later but... you also could potentially trigger a due on sale clause. Very rare but, something you need to be aware of.

4. There is a ton of opportunity out there currently for no update cash flow properties, doubles with one nice unit and one needing renovation, etc, etc...

If I was in your situation I would get hooked up with a team of people that can walk me through my first deal or two.  After that I would decide if I want to be more involved, or if I like the passive income and searching for deals.

Hope this helps.

There are a lot of good answers so far. Have you looked the route of lending money to people for real estate either for them to buy or fix up? I am also in the Buffalo NY area and I have looked in the route or either buying a rental or loaning money to people either so they can buy or fix up the properties they have. 

Beginner tip:  One thing to consider, if you decide you want to DIY the repairs just to learn, you will incur a lot of expenses buying tools you need but do not own.  This happened on my first investment property a long time ago.  I also was not very handy, and did not own much in the way of tools, so everything that needed to be done, involved buying the $10 part to repair it and the $200 in tools needed to do the repair.  I dramatically underestimated the cost involved in "not owning enough tools".  I probably spent more $ on buying tools I didn't own than I did on all the supplies needed to do the repairs.  At least I still have the tools now.  (But I only use them for my own house, I use PM for my investments these days.)

Per @Mike Dymski  

"Being handy is a learned skill and you can cut your teeth on your first few deals. You don't need to swing the hammer but learning how to price repairs and find and vet contractors is important." 

Though you should learn some basics so you're also not wasting money clearing a drain. 

And thus one of the major reasons to leave the parent's place. Get out, house hack, or at least leave the nest and get a roommate. It's not just learning all the details of being on your own, but it's the psychological aspect of stepping out and starting on your own rather than coming home to mom and dad. Frankly it also looks a lot better when you sit down for a loan some day if you're not still living at home but rather lived in your own place for a while, especially if you can show them that you're willing and able to hustle and manage your costs properly by house hacking or having a roommate when you don't need one. 

Hi Charlie 

I really don't think you need to be handy to get into the market because you can have other people do the work for you (contractors) , but you just have to be persistent and having a passion for this industry. I would say form an LLC is the best way to start out. Taking it slow is a good way to start out. Getting your first rental property taking a little time and getting the concept of what needs to be done and learning the ropes and then scaling down the road.

I would also recommend being a passive investor. leading your capital out to seasoned investor who are actively doing this process on a regular basis who know what to do and you just make a percentage on your money but also learning in the process. 

If you have any other question let me know Charlie good luck on your endeavors. 

Hey @Charlie Campanella ! First and foremost, as most of us have mentioned congrats on killing it with your main career. I'm not too much older than you at 24, but guys like you make me want to work even harder to catch up!

Everyone has given stellar advice so far. I would echo the advice of others and get involved with your local REI community. This may mean meet-ups, but I wonder if there is a way for you to merge your current work with software engineering and providing value to a potential mentor? I'm not exactly positive how that marriage would occur, but maybe there is a way for you to exchange work in order to gain some valuable knowledge all while making great contact(s).

Charlie, congrats on killing it so early! 6 figures is just a starting point for you if you're looking into real estate! 

The best part is there are so many options we could sit here and list them all day however, since you're young (close to the same age as me) I would focus on building a portfolio quickly. The BRRRR method is awesome and can get you controlling large amounts of debt quickly. This is the route I would go, looking into multi family value add scenarios using the BRRRR method to buy new property every 6-12 months.

The real question is what do you want out of real estate? 

Depending on the level of risk you feel comfortable with the sky is the limit.

DM I enjoy chatting with investors around my age!

@Charlie Campanella

Credits to you for making six figures at such a young age. Now the questions is whats the percentage of your check that your banking?

Some of my questions/concerns:

  1. I am not very handy. As a result, should avoid purchasing properties that require more than a negligible amount of work? (I feel vulnerable knowing so little about home renovation processes. How can I assure that contractors won't take me for a ride?)

My Answer: You cant be sure that they wont take you for a ride. The value is in the learning process, you can hope to get a great contractor but if they happen to screw you over you need to make the best of it. I would say learn from the people on BP so you don't make the same mistakes. 

  1. Real Estate can't consume my life (yet). I can dedicate maybe 5-10 hours to this endeavor weekly. Would hiring a Property Management company be something worth considering?

My answer: 5-10 hours a week is plenty to get started. You need a realtor to get started 

  1. What kind of legal entity should I form? From my understanding, LLC's and Corporations have different tax requirements.

My answer: At the stage in your career you dont need an entity unless your buying multi-families. Stick to a 2-4 units for now using an FHA loan ( that would involve you moving out of your parents house to live in one unit)

  1. I'd prefer to avoid both downtrodden and luxury real estate. 

My answer: Good choice, not needed at this stage in your career 

Good luck 

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