A few questions from a young investor

16 Replies

I am a young adult and I have been pondering on real estate for quite some time. Recently, though, I have been more indulged in it than ever. I want to take my first steps towards being a landlord. Being a young, ignorant college student, I just want to know if the timing is reasonable. Obviously I don't have a lot of money, I didn't grow up wealthy and I pay for everything myself at school.

Is it reasonable for me to want to own an apartment building within the next 24-36 months? Saving money is a difficult task for me, not due to a lack of discipline, but rather being a student and not being able to properly save money due to necessities. 

What percent down payment should I be looking to put down on a loan? I have very limited knowledge on this area, as you can tell. I guess I'm not even sure if getting a decent sized loan is even in my option wheel because I am young. 

The truth is I could use just about any information anyone with experience has to offer. One this is for sure, I am dedicated to this, but I also want to be realistic. I apologize for the wide array of questions and sprawled out thoughts I spewed into this post. I look forward to being an avid member of this community; likewise I look forward to being an information sponge. Thank you.

@Lewis Jerico Congratulations! Being self aware is step #1. You are on the right path. What size of apartment building are you looking at? You don't have to invest all the money yourself. Through partners and private/hard money lenders you can work towards getting a share of a deal. In your position, it would be better for you to become a bird dog for a more experienced investor and bring them deals. They can either pay you $, teach you or give you part of the deal in exchange for bringing the property to them/helping to manage it. 

Have you looked into networking in your local real estate meetups? You can look for mentors and other professionals who will be willing to guide you. 

@Omar Khan Thank you for your response. I was thinking about something small, maybe a 6 unit. Something not too expensive, and something manageable. I currently have no network, unfortunately. This means I have no one to turn to, that's why I came here. If I were to find partners, they would most likely be peers, who are also college students, who are equally poor.

You should consider attending local real estate meetups. Be regular and start meeting local investors. For many people, it's an eye opener to see how helpful other people are when you have developed a relationship. Continue to educate yourself and I promise, you will be able to do this. It's just a matter of time and consistency.

I'll look into it. Thank you for your words of encouragement. The mountains you have to surpass can be discouraging at times. 

Anything is possible I think it just depends on how bad you want it and how much you’re willing to sacrifice to achieve your goals.

I would try grabbing a duplex and house hack. You could live for free which would allow you to save and then either refi on the loan or possibly 1031 on the property after a while. I’m not 100% clear on 1031 regulations but that’s just an idea. Nothing wrong with scaling especially at a young age and having a deal will give you credibility in multifamily.

You’re gonna have to network and come up with some creative financing if you have no funds. Good luck @Lewis Jerico

Just take it one day at a time. Even experienced people come across problems that rankle them. It's all about actively telling yourself to take a long-term perspective and chomp away - one bite at a time (easier said than done, but  a great exercise nonetheless). 

If you will check the local forums on BP you may be able to find a local REIA or go to meetup.com and check your local area for a REIA meeting and start networking.
You can also probably find signs in your area that say something like We Buy House for cash. Call those guys and ask what you can do to help them grow there business. By being a servant you can grow knowledge and relationships to help you get that building in 12-24 months. Save what you can, maybe earn your RE license during winter break and make some money that way.
Just know you can’t eat a whole elephant in one bite. But you can eat it one bite at a time.

My first non-deal has always been my greatest regret, so far.

I could have purchased a 2/1 duplex in South Philadelphia in what is now a very hot neighborhood. The price was a little high and right at my line for pre-approval, but I really liked the place. I got cold feet because the second floor tenant was a bit unkempt and didn't take good care of the property, and the first floor tenant was a heavy smoker. In reality, both of those problems could have been solved, but 24-year-old me couldn't get around it.

I ended up buying a SFH, 1 bedroom, in a decent neighborhood. I recently sold it for very little gain of the minuscule amount of equity I build over the last 7 years on a FHA loan, 3 of which were rented out. I kick myself often for that.

Moral of the story, @Forrest Holt mentioned a duplex/house hack, and I couldn't agree more. You're focused on apartment buildings, which is great, but what experience do you have working with even one unit/one tenant? If you can find a 2/1 duplex, make the numbers work, possibly house hack -- someone is paying down your mortgage and helping to build you equity month-over-month, and you get the experience of working with tenants, property upkeep, management, etc.

Being young, short on cash, etc, the opportunity is there to look at a property that might need some work, or might be in the next up and coming area, and start to build your portfolio. The only good thing that happened with my SFH was that the neighborhood was on the up and up and I was able to command about 10-15% higher rents per year.

@Lewis Jerico : some very good specific advice on this thread already. I'll give you some high-level, strategic advice.

You need to take inventory of the resources of you do have as well as the ones that you don't and find strategies that maximizes the utilization of your resources. 

You have already identified that you are low on a few critical resources: cash, experience, network and education.

Resources that most young people do have are: Time, energy, and cognitive capacity (you can adapt and learn.) In the most general terms, we refer to this as "hustle."

So: trade time/energy/capacity for education. That's easy. read books, listen to podcasts, read forums, etc. Likewise, those resources are easily converted into a network: attend REIAs, meet with other REI's, find partners, etc.

To get experience, leverage the resources you already have as well as your new resources (education and network), to find a way to add value to an existing endeavors: volunteer to bird-dog, underwrite, property-walk, drive-for-dollars, fix things, etc for others.

Then the harder part: cash. By this point, you should have enough education to know what strategies are available to you. House-hacking with an FHA loan is a good way to get "cash" in the sense that you're leveraging the gov't to fund your "deal." Likewise, seller financing is another possible strategy. Wholesaling is another strategy that requires very little cash (which I'm not at all familiar with myself, so ping others who are.) Flipping is yet another strategy in which you can leverage your resources.

In short, the field is a lot easier if you have cash, but if you don't have cash, you'll need to leverage your "hustle" a lot more. Don't discount the value of hustle. It counts for a lot in this business!

Hope that helps!

James

Updated 9 months ago

I’d like to amend my answer: study first, get your degree then decide which way you want to go. Most people don’t get more than one shot at their degree due to life circumstances. Make sure you don’t miss it. RE has been around a long time. It ain’t going nowhere.

Anything is possible but most is unattainable.

You need to begin by finding a good paying job after graduation and after 2 years start looking for financing. Assuming you have saved every possible penny during your two years of work you may possible be in a position to start.

In the interim you should concentrate on your studies.

Just my opinion as a investor that does not believe that investing  is the best thing in the world for everyone.

Lewis, give us some financial background. How much money do you make right now and how much money do you have saved?

Lewis why wouldn't you want to start with a single unit? Why did you jump right to a multi unit building?

Great to see your energy and ambition. Lots of sound feedback in prior posts.

Another point: if you’re receiving any financial aid for college, be sure you understand whether and how what you propose to do will impact your eligibility for or amount of aid. You wouldn’t want any aid to be cut back to an extent that wouldn’t be offset (and then some) by the cash flow from your real estate investment.

I was/am similar to you. The hardest parts I found were a) getting a bank to take me seriously and b) finding, assessing and making an offer before a larger shark came in and scooped up the property I was looking at.

Good small multi-family go quickly.

To fix these issues:

- start building a relationship with a local bank. Meet with a banker and involve them in your search process. That way when it comes time to pull the trigger they know you and your criteria. Also they will only finance in certain geography.

- To find a property before the bigger sharks scoop it up you have to be proactive. If you see a property you like, look up the owner online and call and see if they're interested in selling. You'd be amazed at how many owners would like to off-load a property but just "haven't gotten around to it". Those are usually the ones that offer the most reliable cash flow too. They're making money so the owner is kind of "meh" about selling it.

Good luck!!

Originally posted by @Paul Camuto :

Lewis why wouldn't you want to start with a single unit? Why did you jump right to a multi unit building?

I avoided starting with SFH because I wanted scalability. SFH's are such a grind and so many people do it. Multi-Fam is the way to go if you're hungry enough.

Single family homes will allow you to scale from one investment to the next. Any type of property with equity or rental income will get you in the right direction. Every investment is a grind. Multi-family homes are not accessible for everyone in every market and are not the perfect solution regardless of how "hungry" you are.

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