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22 Years old with zero credit and $4,000 how can I start REI
Hey everyone I’m 22 years old turning 23 in December and i want to get started in Real Estate Investing flipping houses preferably and having that return buy me rental properties for cash flow. However, I have never opened a credit card and I always pay for my things straight up even my car. I have zero credit, $4,000, and an understanding for real estate investing but have no clue on specifics. Please direct me the right way to achieve financial freedom by the age of 28 through real estate investing
@Cirilo Villar i would work and save and read the above mentioned books while you save then go buy a 4 plex FHA and house hack it and fix it up.
The beauty of real estate is that there are so many opportunities, depending on the path you'd like to take. Definitely start building your credit, it's very useful to have.
You could start by driving for dollars. Figure out neighborhoods with houses that you could afford payments on. Look for properties that look like they need to be repainted, have long grass, clogged gutters, other deferred maintenance, and knock on the door. If the owner answers(or get the tenant to give you the owner's info) ask him/her if they'd be willing to sell you their house. Get used to hearing no over and over again; overcoming failure is the difference between successful and unsuccessful investors. Do some analysis which you should have learned from the podcasts, agree on price, wholesale those properties to investors at investor networking groups in your area.
I'm sure you've seen some of the no-money-down strategies. Get someone to do a no money down, no interest, seller financed loan as long as you can afford the payments, you don't need money right away. Get your friends to rent the other rooms in the house from you.
Find a partner with good credit and/or money then buy a property together with them.
Think outside the box, there is no end to the strategies you can use.
@Cirilo Villar bro I recommend you never really apply for store credit cards stick to major credit cards .
I am not sure anyone else mentioned this route... on my first investment I solicited funds from my sister and brother... forming a partnership. I then purchased a home and proceeded to "house hack". Of course, at the time I didn't know it was house hacking. Anyway, fast forward three years. I sold the property for a profit (California hey days) and split the funds paying back my sister and brother. I then paid for two years of MBA school with my share. You are on the right track! When I got started there was no internet or BiggerPockets!!! Someone said to get familar with the tools on BiggerPockets. I totally agree. When investors want to invest in the stock market they "paper trade" first not using real money... I suggest doing the same thing with the tools on BiggerPockets. Use the "Fix and Flip" on real estate listings you see listed for sale in Zillow, Redfin, Trulia, etc. Good luck!!!
Originally posted by @Cirilo Villar:
Hey everyone I’m 22 years old turning 23 in December and i want to get started in Real Estate Investing flipping houses preferably and having that return buy me rental properties for cash flow. However, I have never opened a credit card and I always pay for my things straight up even my car. I have zero credit, $4,000, and an understanding for real estate investing but have no clue on specifics. Please direct me the right way to achieve financial freedom by the age of 28 through real estate investing
It's quite impressive to be able to survive without credit at your age. Congrats.
However, going forward, you're going to need to learn about credit, especially how to use it properly.
Put this with your sayings to live by: "A Credit Score is *NOT* a trophy, it's a tool."
I see folks advising you to pay off your credit cards every month. That gives you a pay-OFF record in your credit profile. Not what creditors want to see.
Creditors make money charging you interest. So, they want to see a payMENT record in your credit profile. Those with the highest credit scores generally carry a 1% balance on each of their cards and credit lines and they make sure to pay them on a timely basis. 35% of your credit score comes from your payMENT record.
Remember also that credits scores get you DECLINED. Those minimum score requirements you see are just "gatekeepers". Lenders do NOT approve based on credit scores. The content of your credit profile is what gets you approved.
Understand also that while personal credit is a useful tool, business credit is more important in investing.
A key piece of knowledge you'll need as an investor will be raising capital. Learn about self-directed retirement accounts and how people can use them to invest in your real estate projects. Start with your family and their older friends and associates who know you - people who have retirement funds and are looking for better returns and less volatility than the stock and bond markets can offer. As an example, one of my local mentors has a "stable" of private lenders who are mostly high-income, high net-worth people - doctors, lawyers, executives and such.
Education is considered mandatory in many circles (BP-ers tend to frown on it, however). That said, many of the books out there were published before the crash of '07/'08. That info is dated and is of limited value anymore. There is education to be had on-line which is updated regularly to keep up with the changing legislative and investing landscapes.
Hope this helps ...
@Cirilo Villar don't invest until you have 50k to work with. Use your own money and build your own empire. I started at 25 with nothing but saved up and have grown to nine SFR that produce 50k per year.... I'm 38 now, think long term not get rich quick.
@Geordy Rostad I agree with this advice. Good stuff!
@Joel Sanders
I’m thinking long term. I just want a financially free life. I want to be able to give my future children and wife all my time and I also want to elevate my family from the position we have been in since the beginning of the decade. I’ve lived in the same one bedroom apartment with 4 people for almost 10 years now. I’m starving for something greater not just for my self but for my family. I tried going to college and I have been for the past 2 and a half years but i realized I was not going to achieve what i wanted by taking the same path everyone else is taking
@Erik Orozco
Hell yea brother sounds awesome!
@Cirilo Villar
I personally would do what most said and continue to find a way to earn and SAVE it. When you have enough buy a property with a FHA loan 3.5% down you could explore doing what I did and use a 203k loan to finance your remodel costs into your mortgage. This will give you experience with what things costs(Materials/Labor) and even your own design plans and if you pick a good investment property you may have some equity to leverage when it's all said and done. You could then get a HELOC or refinance to use that money towards your next property or you could sell it. I will say that even when you establish some credit you may have trouble getting a mortgage in your early days. I attempted to buy my first house when I was real young and I had a steady income for 3 years and I had a 650 credit score even though the requirement was 640. Everything was perfect I started picking out furniture and paint and 2 weeks before settlement the underwriter said" she felt I didn't deserve the credit score that I had" and would not sign off on the loan. That was the end of that journey for me but I learned a valuable lesson even though I was angry. At the end of the day a credit score is just a formula that spits out a number, also having a low debt to income ratio is easy to accomplish when you have no debt and when you have no debt you have nothing to pay back and therefore you haven't shown them what they really want to see and that's your ability/track record of paying back what you borrow. It takes a long time to get past that point and actually develop a credit history and in that time it is even easier to make mistakes by not managing your credit responsibly or having late payments that will scar your score for years. I know a lot of people are telling you to slow down with the cards because of inquiries but the truth is not having credit is worse that being denied you have nothing to loose at this point because by the time you actually use these cards and pay them off over the next year or so that shouldn't be affecting your score. There is a difference between having a inquiry on your credit history and it affecting your score. With that said when you apply for anything it triggers this ding against your score right BUT now that your score already took the hit you can apply for the same type of credit many times in a row without it affecting your score. When you shop for loans or cars or credit cards it all works the same way. I'm not saying you should keep pursuing them now if you know you'll be denied but when you are in a position to get approved do it all at once . You need to devote time to learning these things so you understand how to navigate through the obstacles ahead. When I bought my first house I couldn't do anything that would affect my credit before settlement like everyone else but what I did do was the day I closed on the property I went and applied for a truck that I needed for my renovations just to be sure i would get the rate I wanted before my mortgage hit my credit. Just my opinion, some may disagree and that's okay but these are my experiences.
You may also want to see if you can find a mentor via Bigger pockets. In addition see if you can partner with someone on your first deal. Possibly if you find a mentor they may be willing to partner on your first deal for either half or a % of the profit.
Do not purchase a home through NACA if you plan on renting the home in 2yrs. Use FHA and try to find a duplex.
Where there's a will there is a way! I'm a newbie too!
@Cirilo Villar
Try this one.
https://www.firstpremier.com/
@Cirilo Villa
Lease options and wholesaling are good ways to start without credit. While you start these strategies, simultaneously start building your credit. Good luck.
You can get a Discover card with decent rates and cashback as a student. They're very lenient. Also set up some small monthly bills like netflix or your gym membership to charge the card and set an automatic payment so you don't have to deal with interest. When you get raises report it to discover card and they'll increase your line of credit without a credit check and lower your total credit usage (if they need to do a credit check they'll send you a request for authorization and you can just decline and withdraw your app for an increase). Pay on time for several months and your credit score will spike. Negotiate with discover for a lower interest rate after 6 months and they may drop it for you. You can ask for a lower interest rate every 6 months. Ask a financially savvy family member to add you as an authorized user on their credit card that has low utilization and that will also boost your credit score. I boosted my wife's credit by 25 points without even activating the card they gave her.
@Cirilo Villar
Congratulations on having the discipline to be debt free and positive 4k.
There are several questions that need to be answered to better help you.
Do you work?
How long in that position?
Where do you live?
Do you have a family member that has great credit that would help you out by adding you to one their credit card accounts?
Employment brings benefits. Most lending institutions like to see a 2 year employment history. Shows stability. They also typically will deny loans below 640 credit score. If you are not employed, I suggest seeking something in the trades that will give you future benefits as a flipper. Find a good carpenter, plumber, or electrician. Those three trades are the most costly when flipping.
If you are living at home, great! Do that as long as you can, as long as your parents will allow you. Save every amount you can. At your first opportunity buy a duplex, triplex, or quadplex, and become a landlord. Let your tenants pay your mortgage.
Family can gift you a certain amount of money. Not sure the amount now but has been up to 16k. That may be an option for you. A relative cosigning with you might be an option. Your 4k is just about enough to cover closing costs.
Get involved with a local REI group and seek an experienced partner. With a positive outlook and hard work, you might just come across someone older that you, that might take you under his wing, do a partnership with you using that 4k as a down payment and workout details for any other amounts needed.
I wish you the best of luck.
@Stephan Cheek
Thank you very much for your advice I’ll look into those websites for listings ! Appreciate it (:
@David Dachtera
Helps a ton David thanks for your advice
@Angela Stevenson
Haha thanks for the advice fellow newbie but how can I find a mentor on BiggerPockets?
@Cirilo Villar
First of kuddos to you for already having self awareness of your current financial situation and then thinking ahead. Secondly, get a credit card with $1000 limit. Spend monthly but pay off the balance completely and religiously every month. Pay ALL bills early. Make this practice the focal point of your investment strategy forever but especially the next two years or so. Excellent credit is the cornerstone to your financial credibility and acumen. Next, continue doing what you're already doing - put yourself out there, network, gain contacts. Read and further your education in REI. Get well versed on taxes. As they say it's not what you earn but what you keep that determines your wealth. Disregard tax education and kiss everything you've earned goodbye. Save up cash. Lastly, be patient. At your age there's no patience but if you can adopt patience and minimize risk with each investment while removing emotion from your business decisions you may exceed your own expectations. Good luck. You're already ahead of most of your peers.
Originally posted by @Cirilo Villar:@Geordy Rostad
So I applied for a few credit cards such as Discover IT, Macy's, and Sears I was declined by Sears and I haven't heard anything back from the others later today I will go to my Wells Fargo bank and open a Secure Credit Card. Someone once told me that i can buy a house with an FHA loan it will only require me to put in 3.5% -5% of the total cost as down payment is this true?
Also thank you for the advice I appreciate it!
Yes, secured card will work. In 2015, my credit was 530. I bought a $200 secured card. I used 30% of the limit each month and paid it off immediately. My credit is now almost 800. (I've since gotten other cards and some installment loans and other stuff that I paid off responsibly).
Yes, FHA loans are 3.5% if your credit is 580 or higher. But you will also need closing costs in addition to the down payment. One "trick" you could try is to find a seller willing to pay closing costs in exchange for increasing the purchase price by that amount. So in exchange for $3000 in closing costs, it will increase your down payment by only $105. ($3000 x 3.5%).
@Geordy Rostad great advice! I wish I had the wisdom I have today and I would definitely tell my twenty-year-old self the exact same things!!
@Cirilo Villar you might wish to slow down do not apply for any additional credit cards. After so many hits as inquiries whether approve or not approve your credit score will be reduced.
All you need is one major card oh, you have already applied for Discover.
Good luck!
What people FAIL to mention when they say get a credit card is make sure to keep your utilization below 30%. I didn’t know this when I started and messed myself up.
Right @Chris Stitt!
@Cirilo Villar definitely don't spend over 30% of your credit limit on any card.
@Cirilo Villar I'm 23 and have found that just reading as much as possible and learning as much as I possibly can is where it's at. Because I don't have a ton of capital to work with, I'm getting into wholesaling. Seems like a very good way to get your foot in the door.