I'm pretty new to the bigger pockets community, but after listening to the bigger pockets podcasts I figured I'd make a forum post to see what the bigger pockets community thinks about my situation. I am currently a full time college student in Milwaukee, Wisconsin (I have about 2 years left). I have a credit score above 700, no loans, just started a part time job 15 hours a week at $10 an hour, and have saved up about 15k. In my area, there is mostly multifamily houses for sale around 350k. This seems like it is way out of my budget and risk tolerance, so I started to look in neighborhoods in Wisconsin within 2 hours of where I live that have single family/duplexes for sale under 100k. My family thinks I should wait until I'm out of school, but I am very passionate about this and excited to learn about real estate investing first hand. I guess I'm looking for what approach an experienced investor would do in my situation, or if I should wait and just continue to build my knowledge until I'm out of school.
Looking forward to responses!
@Sam Westfall in my opinion, get started as quick as you can. Make sure the numbers make sense on the deal and maybe see if a family member or friend will co-sign with you to start your real estate journey. It may be tough to qualify for a loan with a part time job, so I’d talk to an investor friendly lender about what options you have. Also, make sure you have enough in reserves after your down payment so I would increase your savings rate if you can. Great on you for wanting to get in early. Don’t wait to buy real estate, buy real estate and wait. Hope this helps!
I would also say to start as soon as you can, but financing will be near impossible with a part time job. You could start out Wholesaling, or buying with seller financing. You could also bring in a partner or look at hard money lending on flips. What strategy were you looking to do?
@Eric Janson I was looking to buy a move in ready home that I could rent out hopefully for solid passive income each month. I thought hopefully the part-time job would help improve my odds of getting a loan through a bank. I could possibly bring in a partner, but would I just looking for someone with a full time job to fill a void in the eyes of the bank?
Do you think I could improve odds of getting a loan if I went to a bank for a Business loan? That way I could incorporate possible monthly income generated into my income. I would have 20% down for the loan as well.
I have not reached out to an agent yet as I wanted to get my financing down first, and see what options I have. I know of the idea of the seller financing option, but am wondering if they are working with an agent, would I have my agent call and ask if the owner would be open to seller financing? Or does seller financing usually only occur when its for sale by owner?
Thanks for the responses!
Hands down the best approach is to start with a house hack. Take advantage of the FHA loan, find a duplex in an area you want to live in, and make it happen. $15K with an FHA loan should get you a pretty decent duplex.
@Brock Mogensen I have looked into this quite a bit, but feel the risk is too much. I live nearby UWM in Milwaukee (53211 ZIP) so the duplexes on average are about 300k-400k right now. For a 350k home a 30 year FHA loan at 4% with 3.5% ($12,250) down payment, the monthly payment would be around $2,000 a month which would be detrimental if I had a couple months of vacancy, or a tenant refused to pay rent.
Also few of the homes in my neighborhood pass the 1% rule (not that it is a make or break), but then a duplex in my neighborhood is already going to have a tough time cash flowing. Then I would try to squeeze a free room for myself in there too.
I feel it is safer to invest in my first home with a monthly payment that I can afford if all goes south. Even if it means it has to be in a different city and be managed by a property manager.
I am open to discussion and love the input especially by someone who lives close by!
@Sam Westfall - A common strategy to offset the cost of expensive college housing, is to purchase a place (home, townhome, condo) and then use it as well as rent it to friends. Upon graduating, either sell it or maintain it as an income property. It may be a strategy for you to dip your foot into investing while attending college. The plus side is the interest payments are tax deductable while school housing is not!
I agree with Brock---a house hack seems like it would be the best option. What neighborhoods or zip codes were you looking at for <100k? You could also try to negotiate a seller financed or land contract.
@Rebecca Knox It seems like most of the seasoned investors that have replied on this post agree with you. I am now more seriously looking into house hacking options in my area. I am open to a seller financed or land contract, but I am pretty green and not exactly sure how to set up a purchase using a financing option like that. I was working with a realtor, but then put it on hold until I better understood how to finance a home. To achieve a deal like that, should I have him talk to sellers/listing agents to see if the seller would be open to a seller financed deal? Or should I call sellers/listing agents and try to find a deal myself?
For the properties about 2 hours away zip codes I was looking into for the <100K home include 54935 - 54936 (Fond Du Lac, WI), and 54901 - 54906 (Oshkosh, WI). Although I have been gaining information on my personal finances, and my capability to achieve a conventional loan would require a cosigner...
Looking forward to your response Rebecca!
That's probably why a lot of people are saying house hack is your best bet because your income is low--that's why I was thinking seller financed deal or land contract. If it were me, once I had my financing strategies in order, I'd look for a realtor that is also a proven investor themselves and understands numbers and all financing options....people I recommend in our market are Marcus Auerbach, Homestead Realty, Premier Point Realty & Modern Milwaukey Realty all brokers who are also successful local investors.....as it pertains to real estate investing, having a realtor that is skilled in investing is the same as choosing an accountant because if you're going to be involved in real estate, you definitely should have an accountant who specializes in real estate investing and not just landlord investing--ALL aspects of investing from rentals, flipping, self directed/SoloK, structuring etc---they should love real estate as much as you:) I was just involved in a deal on a Cudahy duplex house hack where the investor used FHA financing from Lower.com and I was quite impressed with them. As far as seller financing and land contract options, you can post in the local real estate forums and some landlords and investors will actually sell rentals they have on terms but a realtor, or you, could also ask seller and a real estate lawyer can structure the contracts. I think that was a great idea for you to start by talking to lenders and seeing what is possible--make sure to reach out to credit unions too. If you didn't want to do the house hack and just buy a rental, you could possibly BRRRR and use hard money or private money but again, you'd want to talk to banks first to make sure that you'll be able to re-fi.
@Sam Westfall , you may also want to look into a DSCR loan. If you find a cash flowing MF in an area a bit further from your location that is already occupied, you may qualify for this type of loan. You will probably need more than 15k to bring to the table, as these typically require at least 20% down.
If you are able to qualify, I would get started now for sure. As for the home prices, why does 350k seem out of your budget? 15k would easily cover a 3-3.5% down payment plus some closing costs. I would buy in the area that makes the most sense for you to live and where you expect some good appreciation. You probably won't see much appreciation in the sub 100k houses
Hi @Sam Westfall , I agree to get started as soon as you can. One of the items you have at your disposal now (possibly) is being able to use some grant/student loan money to invest. There was a podcast that Brandon Turner did I want to say last year where he talked to a gal who started her portfolio using student loans. (Of course, obligatory disclosure...you're not supposed to do that with the money...). That's a resource that goes away once you leave school. It goes without saying but I will anyway, you still have to be smart with the deals you make of course. Shoot me a DM, I'm curious where you are located that you can only find properties $350k average.
@Sam Westfall I am doing school online , renovating a house I bought, and working full time, I can’t say I recommend it but you can do that too if I can
@Jacob Trogan like mentioned above I actually have been able to use school grants to pay for my “student housing” I need somewhere to live while off campus, use what you have been given at the moment and more will come if you use it wisely
Definitely get started ASAP in some way. Whether that is wholesaling or hopefully getting approved for a loan. Maybe a safer option while finishing school is to get a job that has to do with RE. That could be general labor with a contracting company, working for a RE company, heck maybe even getting a job at Lowes/Home Depot type of place just to be around the stuff to know the prices inside and out. You will also meet a lot of investors and contractors by working there. This would allow you to continue to save and put that money to better use with more knowledge once you graduate college and get your first big boy job.
Either way, the key is this....once you graduate and start getting big boy pay checks. Continue to live like you are now for two years while you stack money. You are already used to this lifestyle so it's not a big deal, and that alone is going to put you on another level when you decide to make the jump in to REI. At that point I would 100% house hack with a 3-5% down loan. Live there for a year and then go house hack again doing the same thing. I'd do this as many times as possible while you are young and don't have a family or spouse who wants to live in an actual house with a yard and such.
You will be fine and you will crush it as long as you don't graduate and go buy a brand new vehicle and take on other bad debt just cause you can.
Note: This is all the advice I would give myself if I could go back 15+ years and talk to myself in college.
@Sam Westfall I like the conservative approach. Setting aside some reserves at closing and making monthly reserve deposits will offset the risk of having a few down months. If you are willing to house hack in a tertiary market, you can pick up a duplex for cheaper.
You’re in a good place to set yourself up properly so that you’re not paying high interest fees on loans that will eat away at your profits. I mean, you have $15,000 saved up on a part-time job. That’s damn good for a college student.
@Sam Westfall Lots of good info here already, but I'm also on the house hack train :)
As you can probably tell from the comments, you are in an awesome position given your current situation (super young with a good amount of reserves).
The best way to take advantage of that situation in my opinion would be an FHA house hack. With 3.5% down and a 10k budget (say 7k down and 3k closing costs), you could still purchase a 200k property and have 5k in reserves. You can find some great properties towards the east half of Riverwest if you wanted to be close to school. There are also some awesome neighboring cities with good opportunities under 200k. My house hack is in West Allis which I'm a huge fan of, and the commute to UWM is 15-20 mins depending on which part of West Allis you're in.
I would personally lower your search to just Milwaukee. There's no need to go 2 hours out when there are tons of great options right in your "back yard"! Best of luck, and reach out if you have any questions!
Seller financing is available on the MLS too. You could always approach a FSBO and ask them if they will do seller financing. That's how I did my first 2 flips right out of college. I would suggest finishing college and then go into real estate. That way you will have a degree with no distractions until your done. That would be my advice. Worked out well for me. I would also suggest talking to someone who has some experience. Have them take you under their wing. Whether it's a family member or friend. They've done it and learned from their mistakes. That way you don't have to. Good luck to you.