Getting first rental at 19 and expanding

10 Replies

Hey everyone! The last year I've spent learning as much as I can about real estate and plan on getting my first rental within a year from now. I will have over $30,000 saved up by then but trying figure out what's the fastest way to get a 2nd property and get closer to financial independence. For my 2nd property I will be house hacking but for my first property I'm not sure which strategy to do. I live in Colorado which is a expensive market but my parents will also help co sign for a loan. I have a higher income so I'm not worried about getting the loan but should I also get a house hack for my first property? Or a mobile home or multi family or a BRRRR? My main goal is just financial independence as fast as possible and how to expand as fast as possible. Any comments would be very helpful, thank you!

Hey Taylor,

In my personal opinion, I would get into that first house hack as quickly as you can! It is the best return on investment, and if done right can also produce some decent cash flow. Since it will also cut out your living expense, it will save you additional capital to put towards more properties.

When house hacking you are mostly fighting the clock more than anything else since you can only do it once every year. So the sooner you are in that first property, the faster you can get into the next one. It will also help you towards that goal of financial freedom, as it will begin to free up your time since you won't be worried about making that rent, or mortgage payment every month.

The $30,000 that you have saved up will get you into a nice house hack here in the Denver Metro area since you will be taking advantage of a low down payment loan. However, it wouldn't be a lot for an investment property, as you would be required to put down 20-25% at that point. House hacking will also help you build up your systems, and take you through the process of being a landlord, without a lot of risks. It is a lot like training wheels and really helps you build your confidence in investing.

After you get into that first house hack, then I would look into ways of getting into a second property, but make sure you are comfortable and have the tenants in place at your house hack first. Then I would suggest getting creative, to make it into a second property as you will be cash limited at that point. So possibly find a way to add value to another investor, or someone that you know has the capital and potentially partner with them. 

BRRRRs and Multifamilies are going to be difficult, as I tell a lot of new investors, it is just hard to make the numbers work because of the competition. Unless you are able to hunt and produce off-market deals, you will usually not be able to get a deal that will produce that perfect BRRRR here in colorado. Multifamilies also just get bid up, and bought up by big players willing to pay cash, and waive inspections, and close in 2 weeks. It's just hard for the smaller investors to compete, not impossible, but you have to get creative.

Really if getting to that financial freedom is your goal, then house hacking is the way to go, within 5 years you will be able to call yourself financially free, depending on your lifestyle. But one of the most important things to keep in mind is that getting to be financially free and retire might hinder your growth, as once you step away from a W2 job, you will have a lot of trouble finding financing for future deals, as any passive income from rentals or other streams of income lenders will want to see 2 tax returns worth of it, to prove that it is stable.

Just some things to keep in mind, and as you can tell I am a big supporter of house hacking (as most people should be). I think you are off to a great start, and you have a headstart on most people starting so young! I would not be worried about achieving your goals, as long as you stay focused and on track!

@Taylor Thompson I would definitely recommend house hacking for the first investment. There is no better investment to leverage a return on as little as 3% down. Then, while you're in HH#1, set fastidious savings goals to hit your downpayment for HH#2.

I house hack with a separate living area because I prefer to have some privacy and my own living space. But, if you really want to cash-flow and you're willing to sacrifice some privacy short-term, then rent by the room. If I were you, I'd find a few of my buddies to be roommates. With that set-up, you could easily cash flow and you'd be ready for HH#2 by the time 12 months rolls around.

Get started building the real estate portfolio, and then down the line you can either 1031 the properties into larger MLF or use a HELOC to pull out some equity for other investments.

I see a lot of new investors get lost in the details of planning everything 3-5 years out. You make your money when you buy. Start looking at the market where you want to live, and see what the going rate is for the home set-up you want. Then, when the target property that hits the criteria comes on the market, you will be confident in acting quickly. Being the first to make a strong offer can make a big difference in getting a home under contract: sellers like to see confident buyers who want to the closing table.

Stay focused on saving towards that down payment - the sooner you get started on property #1, the sooner everything else falls into place.

@Taylor Thompson That is the best way to maximize your investment returns, by sacrificing your own comfortability and in the long run, will really help you on your journey. 

I completely understand that fear, but while it may seem that everyone is house hacking, it also seems that way when you are surrounded by RE investors, there is still plenty of inventory of renters out there, and always more people moving to Denver for work, and don't want to jump straight into their own place, or don't know house hacking. There are a lot of factors as to why people don't house hack, or purchase their own place. 

My clients haven't had any real issue getting renters in place, even during the whole Covid situation. That is also the best thing about house hacking, if you don't fill every room you aren't in a worse situation than you would be renting your own place, or paying your own mortgage. Each room you do get rented is just helping you cut out that living expense, which will always be your largest expense. Instead of if you had an investment property, and also paying rent, if that sits vacant you'd have to worry about paying both your own rent and the mortgage and all other expenses for your investment!

Usually the biggest hurtle for young investors is access to financing, but if your parents are willing to co sign and you have the cash for a down payment then go for it. 

I would suggest getting in to a house hack ASAP so you can get into a property with little down, save on living expenses and conserve some of the capital for the next deal.. I know CO is expensive so you will have to get creative. I would encourage you to look for properties that have an unfinished basement. Depending on zoning requirements, you can finish out the basement turn the property into a duplex and add massive value to the property. 

In terms of getting in to that second deal, I would suggest look into owner finance opportunities. They are out there, you just have to know where to find them and how to approach the conversation. I like targeting small time landlords (no LLC and own 2-5 properties). This tells me that they are not a professional and problem don't have the systems in place in order to make land lording easy.

Feel free to message me if you got any other questions.


@Ben Rhodin how much do you think I should have in reserves? I plan on doing downpayment assistance and plan on buying my house hack around $400,000 but will only need 1% down which is going to be around $4,000. I also plan on having seller pay all closing cost so it will be less money out of pocket but not sure how much I need exactly to be safe. I was thinking around $15,000 would be safe but what do you think?

@Taylor Thompson It really is hard to state a standard amount of reserves, as it depends on your risk tolerance and the condition of the house. If you arent very risk aversed and the property is pretty new, and you can verify the age of the major components of the home (water heater, roof, furnace, etc...) then you could be fine having $10,000 as reserves. If you are risk-averse and the property is a bit older and might need some major fixes then you might want to keep $20,000 or more. 

However, some people don't keep a set number, as that bank will keep getting drawn from for repairs, and you will need to keep replenishing it. so most people put away a certain amount from rent every month, and that's it. I've found that $250 a month is a pretty good amount. I would say if you feel comfortable with the $15,000 mark, stick with that, and each time you have to draw from it, work to replenish it until you get back up there. $15,000 will be able to cover most any major repair that you could undergo, and then as long as you work to replenish it, you should be alright!