Flipper/Rehabber · Philadelphia, PA · Member since 2010 · 151 posts · 71 votes
Hi,
I'm a recent college graduate looking to invest in rental properties. I'm currently able to save about $400-600/month with a few thousand in the bank right now. I'd like to get started as soon as possible in purchasing rental properties. What would be my best approach to finding and financing a rental property?
That lease is sucking up a lot of money. Could you get a roommate to pay $300-400? I know that isn't ideal, but it will help save money. The best advice I can give to someone just starting out is to live like a college student as long as possible. Keep the old car, opt for the cheaper cell phone plan (and don't go over your minutes/data), don't eat out for every meal (good for both your wallet and your health), don't buy expensive clothes, etc. Remember, every dollar you spend on 'stuff' now could have been $20+ in future retirement years if you invested it wisely.
Some people take this to an extreme. Warren Buffet still drove an old VW Beetle even after he was a multimillionaire. He knew that spending $20,000 in current dollars meant giving up millions of future dollars. While I think there needs to be some balance between enjoying your life along the way and planning for the future, just remember what you're giving up each time you opt to splurge on something now.
As for rentals, I agree with Matt, Ben, and the other posts. If you can get out of your lease (or once the lease is up), look into buying a duplex with an FHA loan and live in one side while renting the other. That way you have one guaranteed great tenant (you!), and hopefully one more good one to help you build some equity.
The best approach is to be patient and save some more money. Rentals can suck through cash quickly if things go wrong for a while. You don't want to be stuck with an extended vacancy or capital expenditure and no funding for it.
Bryan makes an excellent point; patience may be your best option. Do you currently have a job that will qualify you for a loan? If you will be staying in the area you can look for a duplex or triplex. Live in one unit and rent the others to offset expenses. Only having a "few thousand" in reserve would make things pretty tight.
I have a full time job, but I'm currently paying rent which only allows me to save $400-600/month. My current rent is $895/month, so if I was able to get out of my lease, I would have some more money for investing.
Right now I save about 1200 / month from my primary source of income, and I can tell you, it still doesn't feel like enough when it comes to starting out in real estate investing.
That type of area do you live in? Are there duplexes? What's the average price for housing?
But like Matt Tracy said, you could look for a duplex / triplex, live in 1 unit and rent the rest.
I wish I had started out as young as you! At any rate, my recommendation would be to get one or two more jobs. Work your butt off and save as much money as you can so that you can pay cash for your first property or two. That would be a great way to get started, as I'm not a big fan of leveraging when you first start out.
What about buying a duplex, if you have credit and income, you can use FHA or other govt programs such as HUD? Stay in one and rent the other one, you'll be there and learn what it takes to manage properties and take care of maintenance and other issues. If you're successful, you can save some money and start expanding bit by bit, what are you doing with your college degree?
I have a full time job, but I'm currently paying rent which only allows me to save $400-600/month. My current rent is $895/month, so if I was able to get out of my lease, I would have some more money for investing.
How much longer on your lease?
$895/month - how many beds/baths is that getting you? Are you willing to move to some other place where the rent is less?
Right now I save about 1200 / month from my primary source of income, and I can tell you, it still doesn't feel like enough when it comes to starting out in real estate investing.
That type of area do you live in? Are there duplexes? What's the average price for housing?
But like Matt Tracy said, you could look for a duplex / triplex, live in 1 unit and rent the rest.
I live in a Philadelphia suburb, many houses here can be found between $100-200k, but there are some places around here that are not so nice and go for much less. A duplex would likely be a good option for me.
What about buying a duplex, if you have credit and income, you can use FHA or other govt programs such as HUD? Stay in one and rent the other one, you'll be there and learn what it takes to manage properties and take care of maintenance and other issues. If you're successful, you can save some money and start expanding bit by bit, what are you doing with your college degree?
My job involves sustainable/green building. Eventually, I'd like to start rehabbing properties using sustainable building techniques and products.
The duplex idea sounds great to me. I just wish I wasn't stuck in this lease. What would be the easiest method of finding a duplex? Should I start talking to realtors?
I have a full time job, but I'm currently paying rent which only allows me to save $400-600/month. My current rent is $895/month, so if I was able to get out of my lease, I would have some more money for investing.
How much longer on your lease?
$895/month - how many beds/baths is that getting you? Are you willing to move to some other place where the rent is less?
Like an idiot, I signed into a 2-year lease about a month and a half ago. I have a two bedroom, one bath apartment. I would love to be able to get out of my lease early if that is possible, because I don't want to stay here for two years.
That lease is sucking up a lot of money. Could you get a roommate to pay $300-400? I know that isn't ideal, but it will help save money. The best advice I can give to someone just starting out is to live like a college student as long as possible. Keep the old car, opt for the cheaper cell phone plan (and don't go over your minutes/data), don't eat out for every meal (good for both your wallet and your health), don't buy expensive clothes, etc. Remember, every dollar you spend on 'stuff' now could have been $20+ in future retirement years if you invested it wisely.
Some people take this to an extreme. Warren Buffet still drove an old VW Beetle even after he was a multimillionaire. He knew that spending $20,000 in current dollars meant giving up millions of future dollars. While I think there needs to be some balance between enjoying your life along the way and planning for the future, just remember what you're giving up each time you opt to splurge on something now.
As for rentals, I agree with Matt, Ben, and the other posts. If you can get out of your lease (or once the lease is up), look into buying a duplex with an FHA loan and live in one side while renting the other. That way you have one guaranteed great tenant (you!), and hopefully one more good one to help you build some equity.
You could probably sublease your apartment to someone too. Even if you have to cover a little bit of a shortfall you can probably make up for it by buying a duplex and renting from yourself.
I'm in a very similar situation as you Mike. All we have is time to build cash reserves. Right now I'm researching potential areas to invest when my reserves are large enough. It's really interesting to see how two communities less than 2 miles apart can be so vastly different. I've seen property taxes vary from 500 to 3000 in under a two mile range. I feel that this is a very daunting task being that I've never lived in the city and it's not possible nor smart to pick a spot on the map and roll with it.
So my advice is to narrow down your neighborhoods and start analyzing deals as if you are actually going to buy them. ie. calling realtors and negotiating price with them, inspecting for damages, estimating repairs, quoting insurance, calculating NOI and potential cash flows.
I get them from the estimates on MLS listings such as Howard Hanna or Coldwell Banker. It is your own due diligence to find what the true tax would be. I have not actually gotten concrete numbers for property tax yet. Maybe someone else here on the forum can help. How do you verify property tax?
Learn to wholesale. Make big chunks of cash fast. When your reserves in the 6 figures then go buy rentals.
Is it acceptable to work with a realtor when wholesaling properties? What is the best way of finding properties for wholesaling?
Of course. You want to leverage them. Have them double-end the deals if it's an REO. MLS is easy but competative so you need to do something different then the rest of investor... don't do a spray and pray offer method... go build relationships... RE is relationship biz.
Step one is to decide if you REALLY want to be a landlord. Assuming you have considered all the negatives and the answer is still yes, here are my recommendations:
As a recent college graduate, I assume you do not a lot of family obligations (like a wife and kids).
If that is the case, I recommend that you buy an investment property where you can live in one of the units for a year. The reason is that you will get MUCH more favorable financing (lower down payment and better interest rates) on an owner-occupied property.
You could rinse and repeat once per year, assuming you can come up with all the down payments. After a few year you will have a nice portfolio of properties with really great financing.
Also, I recommend buying properties that you think you would want to hang on to for a long, long time. The reason is that interest rates are the lowest you are likely to encounter for the rest of your life, so locking into the low rates for a long time is beneficial. Ten years from now, if mortgages are 10% and you are paying 4.5%, you will be laughing all the way to the bank.
Thanks for the advice, Roger. I really like the idea of purchasing a multi-family unit. But it does seem like I'll have to save up quite a bit more before I can take that step.
I may try wholesaling as a method of saving up some cash. It seems like the first step is to put together a buyer's list, then start finding properties. What is the best way of finding discounted properties? Should I start talking to real estate agents?
I would start by getting pre-approveded with a mortgage lender. This way you know what you can afford, and if you submit a preapproval letter with any offers you make, it will make it more appealing to the seller.
You should look into FHA loans. They only require a 3.5% down payment, and you can buy up to a 4-unit building. You can also structure the deal so the seller pays closing costs. Also, if you close on the 1st of the month, you will receive a rent proration that will further reduce your out-of-pocket costs.
While you are researching your financing options, you can start to learn the market. You don't need to work with a broker yet -- just use their websites to search for properties and see what is out there. You can ride by them and develop a feel for what you can get.
Once you are comfortable with the market, see if you can find a broker who has experience with foreclosures and short sales. However, remember that these are commissioned sales people who want to sell you a property -- take their advice with a grain of salt. You should be knowledgeable enough to make an informed decision on your own.