Hello Everyone. Quick introduction, my name is Fong Lee as of now I am 24 years old. I am new to Real Estate Investing. I live in Saint Paul, Mn area. I have not done any deals yet but I do see potential in ownership of properties. I would like guidance from everyone on how I should start off. Like any other young adults, I did waste the past couple years on having fun and blowing my money away. But suddenly something in my head sparked and I been thinking about real estate for the past 3 months and went to defensive mode on money management and stayed conservative as much as possible. Couple years ago I racked up some credit card debt and have been late on it all the time and some even went to collection. I recently just settle all my debt and now I am debt free. My credit score hasnt went up yet and its still been around the 550 range. As of now I have 5K on me and just started being conservative on my money. I have one daily driver car with 9K left to pay. Another car under my name and will be done in 2021, this second car is my dads car, I cosigned but dont actually pay for it. No late payments ever on these car payments. I would say after paying bills I would be able to save any where from 10-15K per year. I did already learn alot about Real estate terms too. Im debating if I should take a FHA Loan on my first purchase or a conventional. Any ideas if I should wait for my credit to recover or save more money first. I know im not the best out there but I decide that I want to be financially free. I want feedback even if its good or bad. Thanks everyone, hopefully my goals will be met one by one and get all your support.
Hey @Fong Lee ,
1. Personal Financials
It sounds like you have an income problem, not a debt problem. A sufficient income will cover debts, expenses, and costs you occur. Raise your income. The quickest method is getting into sales and transitioning into a role where your compensation is in relation to your results. If 100% of your income is base (hourly or salary), it will be incredibly difficult to double your income.
2. First Property Purchase
Loan Officers like @Tim Swierczek can help you assess the pros and cons of FHA vs Conventional loans. As a stnadard starting point, target to buy and live in a 2-4plex. Having renters will help cover the cost of owning the building and you start accumulating equity.
Thanks for the reply Nathan. Should I consider to take a real estate license and make that my side job to increase my income.
@Nathan Platter Thank you for the mention.
@Fong Lee Another key component of your plan will be to increase your credit score. It may sound odd and even incorrect but paying off your collections will only lower your scores, not raise them.
Once you pay the collections the best and really only way to increase your score rapidly is to responsibly use credit, and my credit I mean credit cards. There is a way to do this and a simple strategy is to pay bills you currently pay such as your auto insurance, cell phone bill, Netflix or Spotify account via credit card and then set your credit card to auto pay. You will want to do this with more than one card because one-time payments are expected to have good credit you do not get a lot of points for paying on time so you need to increase the number of on-time payments by paying more than one card each month. It is not important how much you spend on the card so only put one bill per card because that will minimize your usage rate and maximize your score (for more on that watch the mycreditguy video's at the web link above).
If you rent you can have your rental payment history added to your credit report via RentalKarma.com. This is great because it is the only way to build history on your credit from the past because they go back up to 24 months. Normally it would take 2 years to get that same score increase with a typical account but the renal history happens in 1-2 weeks for past payments and then you can continue to build from there.
For credit building, you should open a credit builder CD. BMO Harris offers this product and a small portion of your 10K/year savings can go into this account and it reports the monthly savings to credit just like your making a loan payment, however, you are making a savings payment. You make a small amount of interest on the payment and when the payment agreement is done after 2 years you get all of your principles back.
A few other quick tips-
1- Under no circumstances should you pay off your car right now.
2- You need to find out if your father is paying the auto loan on time every month. If he is you may want to keep it on your credit because it's helping you and a good loan officer would not have to count that payment against you once your dad has paid 12 consecutive payments on time.
3- Meet with a loan officer now and set up a plan. Most people do not know the correct way to get loan ready, they hurt their chances in the process. For example, your first step of paying off collections was likely counterproductive to your goal. It may have cost you both time and money on your home purchase. A good loan officer can set you up with a plan that will get you into a home quickest and with the least lifetime costs.
@Fong Lee I'd work on your financial position first and then look into househacking, living in a small multi family and renting out the rest of the units.
Cars are a huge hit to the finances and I always recommend wiping out that liability as fast as possible!
There are some great conventional loans out there that will allow you to get into a duplex for 5% down and then use that 3.5% down FHA loan later to buy another property.
@Fong Lee Congrats and good for you taking control of your situation! Love seeing people taking control and bettering themselves. It sounds to me like you should keep working on your financial situation and then buy a multi unit home to house hack. Love the tips from @Tim Swierczek , you should absolutely get with a good loan officer and work with them to get loan ready. Best of luck to you!
Thanks for all the feedback. All of it is good knowledge!
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