My Name is Kenny Colato. I have set a goal for myself to begin house hacking at the age of 25 or younger. I am currently 19 years old, what can I do to help me get the loans I need to finance the properties I want to house hack. I am in a hot market, Los Angeles and I plan on house hacking here in LA.
I'm steering towards the direction of FHA 203k Loan and get an off market deal and fix that property up and get instant equity once I cash-out refi.
What strategies do you recommend? Go through a hard money lender? Get a conventional loan? Or what shall I do to obtain my first rental property by the age of 25.
Thank you in advance.
- @Kenny Colato (P.S - I don't know why the formatting here is so out of whack)
congrats on starting so young! You're already ahead of most people. If you want the most simple answer:
Build your credit - open a credit card, use a car loan if your financial situation lets you.
Save up for a down payment
Work on getting consistent job history.
These 3 alone will help you qualify for a loan whenever you should need one.
I have been recommended to get a car loan but in essence, I don’t want a liability at a young age. I want to generate assets rather than accumulate liabilities. Yes people are stressing enough for me to build credit and since I was 18 I owned a credit card and still do, but what are some other things I can do to build credit rather than buying a liability?
For FHA loans, you don't need a lot of diversity in credit, but having more diverse credit can help increase your credit score.
Credit cards and auto loans are the 2 main types if you are just starting out. Get an auto loan, make payments for 6 months and then pay it off. Sure, you'll have to pay a bit of interest for 6 months, but consider that the cost to play.
Make at least 1 purchase every month with your credit card and pay it off every month.
Get your score in the high 600's - low 700's and never miss any credit payments.
Save 10% of your expected purchase price for down payment + closing costs and if you want to be extra safe, save an extra 10% as a reserve/safety net account.
Have stable employment in the same industry for 2+ years.
Then get pre-qualified and lenders will love you!
Then buy a property.
if your adamant on not getting a car loan, calling it a liability, I'm assuming you don't really need a vehicle to get around. So may I suggest some form of small loan. My local banks are starting to offer summer time loans that they say you can do anything with. Suggestion being get a small loan 1 or 2 thousand. Then either do something fun with it or just put it away to repay the loan plus the little extra for the interest. You'll get the benefit of having a real loan on your credit plus it will easily be paid off. giving you that credit diversity.
take everything i say here as newbie as that is what I am, 23 and just getting started my self. Please someone correct me if im off base on this.
I say good for you for not wanting a car loan, especially if you don't need one. If I had it to do over I would have waited and got a modest car with low payments and paid it off. I did eventually but I had to learn the hard way through experience. Cars not only are a liability but they depreciate immediately at leaving the dealership lot. They are however a great way to build credit. Honda's maintain there value exceptionally well. Honda civics are a modest car, reliable, hold there value and good for someone your age. Then just sell it after 6 months if you feel you no longer need it. That is what I did after a few years and got all of my money back. They are in high demand as well. If you sell privately and buy privately (not from a dealership) you don't have to pay the dealership premium. These are just a few things I've learned in my old age. Someone else mentioned getting a small loan if you did not want to go the car route. I think if you can do that and pay it off fairly fast to avoid paying a ton of interest that could be a good option as well. You have to start somewhere small though in order to build up your credit unfortunately. A few credit cards are also good but make sure you pay them off quickly. You don't want a bunch of debit lying around. That will drop your credit score. I also learned no credit is just as bad as bad credit. I hope this helps a little. Good luck to you. This is the same advice I would give my younger self.
Hello Amy. Yes I highly understand that I need credit to buy a my first property with a FHA loan.
It’s unfortunate that I have to buy a car that way, because I already have a car of my own.
Thank you for the advice, in the long run I’m going to need to build some credit one way or another so thank you :).
Hello Paul, thank you for the advice! I appreciate the suggestion of pay it for 6 months and then pay it off.
Here’s the thing: I have credit already, it’s in the high 700s but I don’t have a high credit line. I’m always making my payments on time. I will also have to save all that money, because properties here in Los Angeles are hot and crazy.
Don't need high credit lines.
Nice work on the credit score in the high 700's!
Keep saving and learning.
I think the personal loan or getting a couple more credit cards would be the best way for you to show more credit history and usage. At the end of the day though it will mostly be employment history and money you can bring to the table unless you can partner with someone else to take care of that side of things for you.
Most definitely man! Thanks for the suggestion
House hack, you’ll live for free and own an investment. I did it at 23.
@Kenny Colato . Unfortunately the only way to build a credit score is to borrow money and pay it back. It’s the game they want you to play.￼