Advice for a college sophomore on how to approach REI

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Advice for a college sophomore on how to approach REI

Gabriel G.
Member since 2020 · 1 post · 0 votes

Hello! I'm currently a student at the University of Texas at Austin majoring in Finance. I spend most of my time in between Houston (hometown) and Austin, TX. Due to a mix of scholarships and having parents that are good with saving money and willing to help out with my education, I'll graduate college without debt. Post undergrad, I'll also stay in Texas. I have also built up my credit score to be around 760-780. I realize I'm in a pretty good financial position and want to capitalize on it. Scouring some of the posts here, a suggestion is to have a goal first then work backwards. My goal is to achieve financial independence and have enough passive income to pursue whatever is of my interest by age 30 (realize it's pretty vague right now, working on that).

I talked with a recent college grad who is pursuing this path also and recommended that I talk with hard money lenders to talk about financing. As of right now, I only have around 3-4k to my name. What I plan to do is:

  1. 1. Get a high paying W2 Job post undergrad with my Finance degree from UT
  2. 2. Continue to read up as much about REI as possible
  3. 3. Invest in RE on the side then eventually quit W2 Job when I have enough capital

My question is that is my plan solid? What I'm doing right now is reading up a lot about REI so that I'll eventually close a deal when the time is right. My main worry is that I don't have enough money right now and closing a deal will be a few years away for me but I do not wanna rush anything until I feel prepared. My other question is what strategy is more aligned with my current goals? 

I guess the crux of this post is that if you were in my position as a 20 year old college sophomore, how would you go about REI?

Thanks for the support!

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    Brian Nel
    Rental Property Investor · Houston TX · Member since 2018 · 53 posts · 30 votes
    5y

    I say your plan looks solid because it's identical to what I was aiming for years ago. And I'm realizing the benefits of it now. Don't drive yourself crazy with angst of not yet being able to get into a deal. Sometimes people are too hyperfocused on getting a 'deal' when they should be spending more time learning and getting their life in order. They then end up getting burnt acting prematurely. Don't be the guy that walks away from a 6 figure paycheck to chase dreams of making it big in REI only to look back after three years of earning near-nothing to realize sitting tight for a while more would have been more wise.

    1. Learn, learn, learn. Obviously you're here and getting a finance degree so great start. Be a sponge and absorb as much as you can. Even though you can't afford to make moves, set up searches for the type properties you might buy down the road and just get familiar with seeing what's moving. 

    2. A penny saved is a penny earned. Seriously. The key to FIRE isn't some crazy deal you need to hop on ASAP. The key to FIRE is fiscal discipline and understanding how you're making money and where it's going. You're young so you're perfectly set to start now and that 'measly' $3-4k can be significantly more valuable by the time you graduate. I put summer money into my IRA every year thinking it wasn't too much of a big deal then a few years into the workforce realized my retirement accounts were 2-3x my peers and continue to scale accordingly.

    3. What can you do now to save money and get your feet wet in RE? How are you living currently? Dorm, apartment, room in a house? What could you either improve or leverage to your advantage? 

    • Living in a house as a renter? Talk with the landlord and see if you can assume certain responsibilities and the permission to sublet. Your long term lease vs a more pricy but flexible leases you offer your friends could will net profit. It wouldn't be unheard of to live in a 5 bed house for free if you keep the other rooms occupied. 
    • Living somewhere you could downsize? I lived way, way, below my means for several years. Adjustment to way of life was not difficult and the money I saved is substantial.
    • Finally, what else is out there that has a lower barrier of entry? Austin is super quirky and with that comes opportunity. Depending on location (laws), people will pay hundreds of dollars a night to sleep in an Airstream in someone's back yard. Can you scrape together $5k to buy and renovate an Airstream and strike a deal to park it somewhere and run short term rentals? When in college, your time is plentiful and your opportunity cost is low. Do the cleaning between guests yourself and pocket the cleaning fee.

    Shoot me a PM if you want to chat more on the phone. I could talk for days about getting setup for financial success as a young person. 

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      • Jordan MoorheadBusiness Member
        Real Estate Agent · Austin, TX · Member since 2015 · 5k+ posts · 3k+ votes
        5y

        @Gabriel G. great plan! A W2 is so helpful to get loans. Get started househacking ASAP and you'll be in great shape! Save every penny you can and invest 50% of what you earn and you'll be a millionaire by 30!

        [email protected]512-888-9122
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        0Reply
      • Michael Valenzuela
        New to Real Estate · Texas, United States · Member since 2020 · 17 posts · 2 votes
        5y

        My biggest advice to someone just getting into real estate and what I would do if I was younger is to buy a duplex or a piece of property that you can live in and rent out. That would get you better rates and a lower down payment. Good luck!

        0Reply
      • Brian Nel
        Rental Property Investor · Houston TX · Member since 2018 · 53 posts · 30 votes
        5y

        I say your plan looks solid because it's identical to what I was aiming for years ago. And I'm realizing the benefits of it now. Don't drive yourself crazy with angst of not yet being able to get into a deal. Sometimes people are too hyperfocused on getting a 'deal' when they should be spending more time learning and getting their life in order. They then end up getting burnt acting prematurely. Don't be the guy that walks away from a 6 figure paycheck to chase dreams of making it big in REI only to look back after three years of earning near-nothing to realize sitting tight for a while more would have been more wise.

        1. Learn, learn, learn. Obviously you're here and getting a finance degree so great start. Be a sponge and absorb as much as you can. Even though you can't afford to make moves, set up searches for the type properties you might buy down the road and just get familiar with seeing what's moving. 

        2. A penny saved is a penny earned. Seriously. The key to FIRE isn't some crazy deal you need to hop on ASAP. The key to FIRE is fiscal discipline and understanding how you're making money and where it's going. You're young so you're perfectly set to start now and that 'measly' $3-4k can be significantly more valuable by the time you graduate. I put summer money into my IRA every year thinking it wasn't too much of a big deal then a few years into the workforce realized my retirement accounts were 2-3x my peers and continue to scale accordingly.

        3. What can you do now to save money and get your feet wet in RE? How are you living currently? Dorm, apartment, room in a house? What could you either improve or leverage to your advantage? 

        • Living in a house as a renter? Talk with the landlord and see if you can assume certain responsibilities and the permission to sublet. Your long term lease vs a more pricy but flexible leases you offer your friends could will net profit. It wouldn't be unheard of to live in a 5 bed house for free if you keep the other rooms occupied. 
        • Living somewhere you could downsize? I lived way, way, below my means for several years. Adjustment to way of life was not difficult and the money I saved is substantial.
        • Finally, what else is out there that has a lower barrier of entry? Austin is super quirky and with that comes opportunity. Depending on location (laws), people will pay hundreds of dollars a night to sleep in an Airstream in someone's back yard. Can you scrape together $5k to buy and renovate an Airstream and strike a deal to park it somewhere and run short term rentals? When in college, your time is plentiful and your opportunity cost is low. Do the cleaning between guests yourself and pocket the cleaning fee.

        Shoot me a PM if you want to chat more on the phone. I could talk for days about getting setup for financial success as a young person. 

          4Reply
        • Tony Castronovo
          Rental Property Investor · Park City, UT · Member since 2016 · 678 posts · 531 votes
          5y

          @Gabriel G. congrats on taking these early steps at such a young age! I think most of us REI's would have wanted to start earlier. I only started at the age of 45 (now 51). Time is a beautiful thing! Even if you bought just one house per year for 10 years you would have some really nice cash flow, a great chunk of equity, and some awesome tax benefits.

          I started that way (albeit much later in life). I was buying a home every 3-4 months...mostly following the BRRRR method. Once I learned the business and had repeatable & predictable processes and systems in place I wanted to accelerate. So I leveraged into my first multifamily. I went solo on that deal then built up enough equity to go after my second, which I syndicated (brought in partners).

          I bring up all this to say that if you are working on setting your goals you might think about what draws you to real estate. Is it purely for financial reasons (passive investment) or do you see making it a career? Personally, I love being an ‘active’ real estate entrepreneur!! I’ve thought about why I work do hard on my properties when I can make a solid return by investing my capital passively. Maybe that’s a possible exit strategy but not for me anytime soon.

          I encourage you to develop a roadmap and plot out how you want to be involved in real estate over time. 
          — Tony


          0Reply
        • Dan SheeksPro Member
          Rental Property Investor · Denver, CO · Member since 2016 · 621 posts · 362 votes
          5y

          Hey @Gabriel G.

          Congrats to you for your ambition! I work with a bunch of young aspiring real estate investors just like you (in a free online group), and I am willing to help you out with some advice or even chat on the phone if you wish. But I first recommend you read this article I wrote for Bigger Pockets titled How to Invest in Real Estate Before Turning 21. Once you've read it, let me know your thoughts and if you have any questions. I am a high school teacher in Colorado and I am always looking to help young people get started in real estate investing or help in any way I can. Let me know if you want to chat sometime. https://www.biggerpockets.com/

          [email protected]Podcast Guest on Show #179
          0Reply
        • Courtney King
          Real Estate Broker · Houston, TX · Member since 2016 · 159 posts · 86 votes
          5y
          Hi Gabe! I wrote a book on how I bought my first investment property just out of college and this is how I paid off my student loan debt (through real estate investing).  You don't have any debt but you can still use the principles to help you get started in investing. I've got a podcast that does with it too! DM me if you'd like and I can send you the links! Keep up the good work!

          Originally posted by @Gabriel G.:

          Hello! I'm currently a student at the University of Texas at Austin majoring in Finance. I spend most of my time in between Houston (hometown) and Austin, TX. Due to a mix of scholarships and having parents that are good with saving money and willing to help out with my education, I'll graduate college without debt. Post undergrad, I'll also stay in Texas. I have also built up my credit score to be around 760-780. I realize I'm in a pretty good financial position and want to capitalize on it. Scouring some of the posts here, a suggestion is to have a goal first then work backwards. My goal is to achieve financial independence and have enough passive income to pursue whatever is of my interest by age 30 (realize it's pretty vague right now, working on that).

          I talked with a recent college grad who is pursuing this path also and recommended that I talk with hard money lenders to talk about financing. As of right now, I only have around 3-4k to my name. What I plan to do is:

          1. 1. Get a high paying W2 Job post undergrad with my Finance degree from UT
          2. 2. Continue to read up as much about REI as possible
          3. 3. Invest in RE on the side then eventually quit W2 Job when I have enough capital

          My question is that is my plan solid? What I'm doing right now is reading up a lot about REI so that I'll eventually close a deal when the time is right. My main worry is that I don't have enough money right now and closing a deal will be a few years away for me but I do not wanna rush anything until I feel prepared. My other question is what strategy is more aligned with my current goals? 

          I guess the crux of this post is that if you were in my position as a 20 year old college sophomore, how would you go about REI?

          Thanks for the support!

            3Reply
          • Sandy Sawyer
            Realtor · Houston, TX · Member since 2017 · 178 posts · 68 votes
            5y

            Whenever you have a W-2 job that offers a 401(k) plan that matches contributions, max that out. Also, go open yourself a ROTH IRA somewhere, anywhere. You can open as many as you like, but just get one going. You are young and you contribute after-tax money into it. It will grow tax free for life until you retire! That is huge! We were eventually able to take our ROTH IRAs with TD Ameritrade, and roll some of the money into a different ROTH IRA and set up an LLC that let us have checkbook control. And we bought a rental property with the money. Do your own homework on this, but at the very least, I recommend go start contributing to a ROTH.

            0Reply
          • Sandy Sawyer
            Realtor · Houston, TX · Member since 2017 · 178 posts · 68 votes
            5y

            BTW, you can also buy crypto currencies within your self-directed ROTH IRA as well, let it grow and use the money to buy real estate! All tax free!

            0Reply
          • Tushar P.
            Member since 2019 · 332 posts · 171 votes
            5y

            @Gabriel G. great job asking for feedback. I think you may struggle with 1 and 3. What you mean by high paying W2 job can be a relative thing, but if you get a high paying W2 job then you will find that you will need several hundred doors for the cash flow to replace your W2. Once you have several hundred doors, it’s not going to be passive (I don’t think it will be passive with just one door either). Which means you may be putting as much effort (if not more) than your W2 job. That is fine as long as you are passionate about managing and growing your real estate business.

            It comes down to being passionate about what you do. Passionate enough to persevere, never give up, and become progressively better at what you do. If you spend your 20s dreaming about retiring at 30, then you may not become good at or passionate about anything. You will get a high paying job if you are good at something and have a passion about your work. No one will offer you a high paying W2 job for hanging out so that you can retire at 30.

            I don’t think people become financially independent early in life by doing something half-heartedly. They become financially independent “while” doing what they really like. By the way, being a millionaire may have been a big deal in 1920s, but we are in 2020 now. Though I know some folks from FIRE community are content to live as students for the rest of their lives and $1-2k/month income makes them financially independent.

            I personally invest in real estate only for diversification, and I see real estate investing as a capital preservation strategy rather than capital growth strategy. I think it should be clear by now that I am not really into real estate with all guns blazing. But I am disciplined enough to passively invest in real estate for the sake of diversifying my risks. Anyways, this is just my opinion - you need to find out what your passion is. Good job if you know already that it is real estate.

            4Reply
          • Wale LawalBusiness Member
            Real Estate Broker · Houston | Dallas | Austin, TX · Member since 2018 · 5k+ posts · 2k+ votes
            5y

            Learn, Save money and House-Hack.

            [email protected]832-776-9582Podcast Guest on Show #469
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          • Shahriar Khan
            Investor · Houston, TX · Member since 2010 · 234 posts · 145 votes
            5y

            @Gabriel G. Like your #1 which will immediately put you in a positive growth mode but keep on focusing there for first 5-10 years and you will have the largest growth there (in general) and start early on #2 and it will add a layer to your growth . Be extremely cheap on your expenses  and be extremely generous with investments. and #3 -- SCRAP -- why would you quite your professional job to pick up another job or property management ? Risk adjusted return is very low at the beginning .. Instead replace that with new #3 = Retired early around by the time you have around $2mln of your equity passively invested where others are doing the work for you. 

            On a diff note: Start chasing M&A/Deal Advisory roles as a consultant/intern if possible and that will show you how to put a deal together and then you can leverage those learnings into Real Estate (especially commercial) .

            Best wishes .. 

            0Reply
          • Nikunj Merchant
            Member since 2020 · 18 posts · 12 votes
            5y

            @Gabriel G. it's great to see that you are being proactive about your financial future at a young age. Keep asking the right types of questions and you will certainly be successful! I have two pieces of advice for you - one that is REI related and the other which is a bit broader.

            From an REI perspective, I second what others are saying around being frugal, saving money, and house hacking. House hacking, specifically, will be a great start, especially if you can find a place that you are ready to spend a few years at. Buy a duplex, do some of the fixing up yourself and learn the ropes while having your tenant pay down a majority (if not all) of your mortgage.

            Apart from that, I strongly believe that if there's any piece of advice that you take away from this forum, I hope that it's what @Tushar P. mentioned in his comment. What he's saying is the reality you will have to face - it'll be many many doors before your "passive" income replaces your W2. Along the way, be prepared for hundreds of leaky faucets, stained carpets, broken tiles, and bad tenants/agents/contractors. If you're particularly unlucky (I sincerely hope this never happens), you may have to contend with the odd lawsuit. For as many people that fall in love with real estate investing, there are several who have moved away from it and/or have been severely burned by it. The closest you will come to a passive, hands-off investment is an S&P500 index fund.

            My advice to you is to think of your life's goals holistically and keep reevaluating them regularly. Recognize that there are multiple paths to getting there (REI may be one). Don't be enamored by the thought of retiring at 30 - I don't think this is a "life goal" because it's still missing a why. The way you've phrased it seems to indicate that you've already decided, prior to entering the workforce, that you "want out" by 30. You won't realize it now, but you are putting immense psychological pressure on yourself to achieve something in 10 years that only a small statistical minority will ever achieve. This will become worse over time if you feel your goal is slipping from your grasp (I've some firsthand experience with this) and your desperation will steer you towards poor decisions. Don't do this to yourself. Keep thinking big but always stop to ask yourself why you're doing what you are and course-correct if necessary.

            I can say with absolute certainty that your preferences will change as you grow and you may find that things that you thought important no longer are. If you're passionate about what you do, you'll be energized enough to deal with anything that comes your way.

            Finally, be aware of the fact that you've come to a real estate forum for advice - there's going to be an inherent bias in the information you get here because everyone at BP is really passionate about real estate. There'd be a similar bias if you went to a stock investing forum and asked similar questions about stocks. You may or may not share that passion - take some time to explore whether you do.

            Best of luck and I hope you are successful no matter the path you take!

            - Nikunj

            3Reply
          • Cameron TopePro Member
            Property Manager · Katy, TX · Member since 2015 · 1k+ posts · 1k+ votes
            5y

            Gabriel,

            Your plan is definitely solid! It's very similar to how I was able to leave my job this year to do real estate full-time, and I started out ~40k in debt!

            The best wealth building tool you can have is a high income, which if you use wisely, can be invested into stocks and residential rental properties. The more you invest the faster you'll be able to live off the income.

            You're in a great place! Now all you have to do is implement daily focused efforts for 5-10 years. 

            Best of luck!

            [email protected]832-770-7090
            0Reply
          • Daniel O'Neil
            Rental Property Investor · Los Angeles, CA · Member since 2020 · 10 posts · 7 votes
            5y

            Hey Gabriel, 

            In your position, the most important thing you can do is to learn as much as you can and read as many REI books you can get your hands on. You don't necessarily need to have much money to begin your RE investing journey if you become a pro at a certain niche strategy. For example, there are many ways you can invest by using other people's money. A specific example (which of course you do not have to use) would be becoming a pro at analyzing fix and flip deals, and ultimately using other people's money (in your case, maybe even your parent's money) to flip a house yourself and split profits. Knowledge is usually more valuable than cash. You could then use the profit you made from this deal and branch off into other strategies depending on what your goals are. If you aim to have a large portfolio, for example, flipping homes exclusively would not be ideal. Being a sophomore in college is no excuse to not start buying properties - the real ballers start young!

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