Getting Started - First Deal

[Hyatt Simons]

I grew up during the real estate bubble and saw my parents go from one house to the next capitalizing on the equity every 2-3 years to build wealth. In that time my parents also purchased rental property and property to flip and did that successfully. However, family issues have left me without those resources for advice in my own ventures, so I am turning to this forum for advice. Looks like a great place to be.

I am currently pre-qualed for $200k for a duplex or $160k for a SFR as a first time homebuyer. I am considering duplexes for the rental income and SFRs for rental income but also for potential equity. I am not sure at this point which path is or will prove more lucrative for me - eventual passive income or capital gains.

I know my local real estate market pretty well. I am also currently studying for me RE brokers license but working with an agent for this first home.

Any tips, tricks, thoughts, or advice for a newbie? Im very curious how you got your start. I am 22 and would like to make a career out of real estate ideally. My fall-back career is accounting but my heart is in real estate. Unfortunately, its not a field you can just study for and be good at.

Thanks everyone and anyone for responses!

-Hyatt

[Jon Holdman]

You are correct that you will be paying whether you're renting or buying. Whether the money goes to rent a house or to rent money (i.e., interest on your home loan), its gone forever. Either way, you're coming out of pocket for a place to live. Do the math and figure out which route costs you less. Keep in mind that buying and selling real estate is very expensive. If you aren't settled down and think you may move in a few years, you have to consider the transactional costs of buying and selling. In good times, that's roughly 10% of the cost of the property. Right now its more like 13-16% due the seller concessions that are required to sell a house.

This worked out for your folks because we were in the midst of a bubble and prices were rising rapidly. Prior to this bubble, roughly prior to 2000, this strategy didn't work nearly as well. I don't expect it to work again anytime soon.

This statement is a bit backwards:

During the bubble, prices skyrocketed, making homes unaffordable for many but dumping a lot of cash into the economy. When bankers work up one day and, like Wile E. Coyote, realized they had ran off the cliff, the bubble collapsed taking the economy with it. That bubble was an anomaly, just like the tech bubble and the tulip bulb bubble. Do not use it as the basis for your investment strategy. Do not use prices at the peak of the bubble as any sort of reference point for values.

Don't get me wrong. There are a lot of advantages to owning. Just realize those advantages come with a price.