College Student New to Real Estate

6 Replies

I'm currently a senior in college in Massachusetts and ever since my school went online, I have pretty much been working nonstop and saving/investing as much as I can. My friends and I have recently been learning a lot about real estate investing and money in general during this time and I am very excited to make the jump into my first big investment.

I know there are ways to get low down payments, like through an FHA loan or private loans, however with a college student's/recent graduate's salary, what do you suggest would be the best option in terms of a down payment? My goal is to first get a multifamily home and rent out a unit (or 2) while I live in the other; I figure it wouldn't be a good idea to put a majority/all of my money into the downpayment (which is what it might take with MA home prices) so I was curious to what anyone else would advise.

I am not in a rush to make this first investment, but I do want to start my real estate investing early if possible. What percentage of my overall worth should I put into this first downpayment? How much should I have saved for emergency purposes or factor in for renovation costs? I would really appreciate any sort of guidance anybody has to offer or would love to learn how someone handled their first investment. Thank you!

Originally posted by @Orlando Rodrigues :

I'm currently a senior in college in Massachusetts and ever since my school went online, I have pretty much been working nonstop and saving/investing as much as I can. My friends and I have recently been learning a lot about real estate investing and money in general during this time and I am very excited to make the jump into my first big investment. 

I know there are ways to get low down payments, like through an FHA loan or private loans, however with a college student's/recent graduate's salary, what do you suggest would be the best option in terms of a down payment? My goal is to first get a multifamily home and rent out a unit (or 2) while I live in the other; I figure it wouldn't be a good idea to put a majority/all of my money into the downpayment (which is what it might take with MA home prices) so I was curious to what anyone else would advise.

I am not in a rush to make this first investment, but I do want to start my real estate investing early if possible. What percentage of my overall worth should I put into this first downpayment? How much should I have saved for emergency purposes or factor in for renovation costs? I would really appreciate any sort of guidance anybody has to offer or would love to learn how someone handled their first investment. Thank you!

Hi Orlando, I purchased my first house hack while I was in my last year of college as well. It's a great way to get started! Have you spoken to any lenders to see if your debt-to-income ratio & credit score allow you to qualify? That is the first step I'd take as it will clarify things.

If you qualify, step #2 is figuring out how much you're going to need for a down payment, what does that average small multifamily cost in your market? Figure that out and you'll know exactly how much you need for the property itself (and don't forget to add a couple extra thousand for closing costs and such).

As far as reserves that depends on a number of factors. What is your savings rate like? If your primary source of income allows you several thousand dollars of savings every month you won't necessarily need the same amount of reserves as if you're only saving $500 a month. Additionally, what is the average age of the properties you're looking at? I'm from OH where many of the houses are a century old and are falling apart whereas here in CO they're newer and require far less maintenance. 

Start with your goal and work through the steps to get there.

Dan

@Orlando Rodrigues

Orlando welcome. Real estate is a great investment. I purchased my first home using an FHA loan. I didn't buy a multi family ( I'm kicking myself for it now) but the down payment was low and I purchased a brand new home. This was in 2016. Rates are lower now. I used my tax return and money from my savings to cover the down payment.

You can do the same thing. If your credit isn't decent 600+, I would work on that. While FHA loans are for lower income borrowers with lower credit...times are different right now and lenders like to see the higher score. So, work on that first of you need to.

You will be able to purchase 1-4 units with a FHA loan. I would make sure you are able to cover majority of the mortgage, if not all without having to rely on the rental income. Looks less risky to lenders. Remember this isn't your forever home so it needs to make business sense. Talk to lenders to see what you may qualify for and terms. This way you can start looking for properties.

Also, have a maintenance schedule and budget. Even though you live there, you're also a landlord.

Hope this helps. Reach out any time.

Happy Investing!

Canesha

Hi @Orlando Rodrigues , I too was finishing up my college degree in Massachusetts when I got the real estate bug. I ended up buying a piece of property a few months after I graduated down here in Connecticut, and while most people will tell you that you need 2 years of verifiable income, this requirement can be waived if you can prove that you have been a student and that you have a job offer.

The truth is you will definitely need some verifiable income beyond what the rental property would generate. As for down payments, you can do as much as you want, or as little as you want putting on the loan products that will be available to you. Most people go in at 3.5% with an FHA loan When they are just starting out. Personally, I would recommend you check out low down payment conventional mortgages instead, because they are cheaper in the long run.

Stick around here for a while and asked lots of questions! You will learn lots of information quickly.

Great post btw @Daniel Haberkost

Hey @Orlando Rodrigues , the first steps I would recommend as a new investor is to get a handle on analyzing the income, expenses and ROI of these properties in Bridgeport CT. Connecticut in general is in a sellers market. You will need to be creative in negotiating to get the price / terms you need.

You can use the Bigger Pockets calculators to start. Right now rents are strong, you can get $800 for a 1 bed, $1100 for 2 bed, and up to $1300 for a 3 bedroom. Use Zillow and rentometer.com to get data and analyze a few from your home to see what type if returns there are.

If these meet your investment criteria then start looking in person by contacting the listing agent.

Let me know if you have any questions.

I just wanted to drop you a note on the new lead paint laws in MA. They now only give you 90 days to delead when you buy a rental. If you don't delead within 90 days, you can be held liable for any lead poisonings that have ever happened at the building, even if it was before you owned it... and even after you delead it you would still be liable for previous issues because you didn't do it in the 90 day deadline. They basically hold the building liable rather than the owner and that liability transfers from owner to owner until someone deleads it and breaks the chain. If you delead, and maintain the standard, you will be in the clear. I recommend a Post Compliance Assessment Determination (PCAD) every 5 years or so.

Here's the law (emphasis added by me):
460.100: Duty of Owner(s) of Residential Premises
(B) Whenever any residential premises containing dangerous levels of lead in paint, plaster or other accessible structural material undergoes a change of ownership and as a result a child younger than six years old will become or will continue to be a resident therein, the new owner shall have 90 days after becoming the owner to obtain a Letter of Full Compliance or a Letter of Interim Control, except that if a child younger than six years old who is lead poisoned resides therein, the owner shall not be eligible for interim control, unless the Director grants a waiver pursuant to 105 CMR 460.100(A)(3).

Note it says "a child younger than six years old will become ... a resident therein...". It is assumed by the state that any rental larger than a 1 bedroom will fall into this category at some point because of the anti-discrimination laws that prevent landlords from refusing a family because they have a child. The law specifically excludes rentals under 250 square feet. Basically this is their way of getting all rentals lead safe. If you don't delead, you will be putting yourself in a dangerous position.

This isn't a bad thing! You can use this knowledge in your negotiations. Assume $5k per unit and count the exterior as a unit. So a 3 family is 4 units = $20k for your negotiations. They rarely cost that much, they're usually half that, but if the property needs windows and exterior doors, it can get expensive. Like I said though, most come in about half that becaue the windows have usually already been updated, so use $5k per unit to negotiate and even if you get a 50% concession you could still potentially get it all paid for by the seller.

I can run any addresses through the database for you and see if they've been inspected or deleaded for you. Right now they’re behind on updating it though, so it may have been inspected and I just can’t see it yet. Sometimes they get inspected but not deleaded and this creates a whole other set of problems. If that's the case, you can't do any renovations until you have it professionally deleaded or it would be flagged for Unauthorized Deleading and you can get fined and the property would never be able to get a Lead Certificate, only a letter of Environmental Protection that states you did illegal work, got caught, then had to pay a professional to clean up the mess. You don't want that.

If you don't already have a lead inspector you like to use, I recommend Anderson Lead Inspections, www.andersonlead.com. No, I don't get a referral fee or anything, I just know he's fair and works to help owners.

Let me know if you need any help or have any questions.

Good luck on your investing!