I am a beginner who is looking for advice.

28 Replies

Hello, I'm 19 and am currently in the military. I'm looking to buy rental property once I finish my contract and I could use some advice if anyone is willing to share. I have a good amount of money saved up and I am currently working on my credit score. How should I approach buying a house should I save up my money or should I borrow a loan from the bank? Also what would I really have to take into consideration before buying property and selling it to others?

Hey @Devin Samuels ! That's so awesome that you're looking to get started in real estate, wish I would've gotten in when I was your age.

You're probably going to want to have both cash saved up as well as leveraging banks to finance properties, and actually there are some pretty good financing options available to members of the military. However, I would say that the most important things you could do at this point are:

1. Listen to the BP podcast regularly. It's a great way to get your head around all the different ways to invest in real estate, get to know the terminology used by RE investors, and start getting ideas on what you can do.

2. Learn as much as you can about real estate by reading books and hanging out here on the forums.

3. Get out and meet other investors in your area that are having success. Find meet ups and connect with people here on BP.

Best of luck as you're getting started and exploring the world of real estate investing, it's not something you can jump into overnight, but you're starting in the right spot and building a solid foundation.

Thank you Brandon Pelfrey. I appreciate your advice sir. I was researching the basics of what to do when purchasing property and I wrote a list of things that would need to be taken in consideration. Can you give it a look over if you have the time? This is just a scenario that I brought up.

Home cost is $200000. Here is what must take into consideration.


1.Income:

Rental income=$2000

Laundry=0

Storage=0

Misc=0

Total monthly income:$2000


2.Expenses:

Tax:$150.00

Insurance:$100.00

Utilities: Electric, sewer, water, trash and gas:$0.00

HOA fees or Home Owner Association:$0.00( it will only cost nothing if the home is not located in a HOA area.)

Lawn care:$0.00

Vacancy:$100.00

Repairs:$100.00

Capital expenditures: $100.00

Property management:$200.00

Mortgage(only if you don't pay cash):$860.00


(Assumptions about mortgage:

Put down money for a down payment.

Get a $160000 mortgage with 5 percent interest in a 30 year span.)


Total monthly expenses:$1610.00



3.Cash flow:

Income:$2000.00

Minus expenses:$1610.00

Total monthly cash flow:$390.00



4.Cash on cash ROI or return on investment:

Down payment:$40000

Clothing cost:$3000

Repair money or rehab budget:$7000

Misc other:$0.00


Total investment:$50000

$390.00*12=$4680.00


Annual cash flow=4680

Total investment =50000


4860÷50000= 9.36 percent


Cash on cash ROI is equal to 9.36 percent.

@Devin Samuels I would buy your primary residence before investing in a rental property. You might consider purchasing a duplex or fourplex and live in one of the units. Once you make the investment then I would pay off the mortgage as fast as possible and then invest in the next property.

@Devin Samuels , We need more information to give you and guidance.   Are you married, kids, do you rent or own now?

You need RICE before you invest in property.

R  Reserves--6 months of expenses as in Emergency Fund in Bank 

I  Income--as in solid job for which you can make monthly payments and qualify for loan

C Credit as in GOOD credit for which you can qualify and get best rates for a mortgage loan.  Will look at your debt to Income ratio.  Total ratio not to exceed 45% and house debt preferred not to exceed 35%

E Equity or downpayment for house. You could use VA loan (no downpayment required) but I don't recommend can discuss later as to why.

Let me know how these stack up and tell me your goals for investment real estate and your Why and then I can give you some direction. Also your in Houston now, do you plan on remaining in Houston or moving. Cheers.

Originally posted by @Michael Robbins :

@Devin Samuels I would buy your primary residence before investing in a rental property. You might consider purchasing a duplex or fourplex and live in one of the units. Once you make the investment then I would pay off the mortgage as fast as possible and then invest in the next property.

Seconding this. I also wanted to add that you'll have access to the VA loan, which means you can get into an owner-occupied property with "no" money down. If interest rates are still as low as they are now when you're ready to buy, I would definitely take out a loan and save your cash for future properties or as an emergency repair fund.

 

One thing I regret was not following my gut when I started buying real estate. My wife and I went after a 2 unit and didn't get it and instead of continuing looking to house hack or owner occupied investment property i did the traditional route and bought a house. Now if I just kept to my first plan I would have started my portfolio with the loan benefits of a primary residence loan. Nothing cooler then living in a house that is paid by others or better yet, you getting paid to live there. That is an avenue you might want to explore. If you want to talk more im open for conversation. I am currently on my 8th flip and I too am looking to start building a rental portfolio.

Hi, @Devin Samuels , First thing , Sharpen you axe , Read Read REad, Buy Some of the books we have here on BP platform , Listen to Pod cast, Absorb as much info as possible, so when you are ready you are filled with such confidence That when the opportunity comes you will feel so certain and clear as day thats your deal. 

Also In your position I will consider house hack, ( you are young, I will assume no kids)  so it will be the best way ( in my opinion) Also check out if you could get your RE Licence. Or network with some Realtors or Wholesalers in the meantime. I met this guy at BP Con 2019 @Quentin Mcnew   He has the same background as you and he is killing it !!  (Imagine you 5 years from now , Well,  thats him. The guy Holds Rental, Wholesale and Realtor ( he doesn't remember me lol) . 

Other than that.. Thank you for your service and keep it rolling , networking and learning!!

Devin,

You're here seeking knowledge, young and in the military so you're off to a good start. I'm in the military as well and, although I'm only starting out with real estate investing, I'd be more than willing to provide you with some of my insights from the perspective of being in the military and some of the advantages and disadvantages that it affords. I'd start out by reading the at least The Ultimate Beginner's Guide To Real Estate Investing and The First-Time Home Buyer's Guide on biggerpockets.com/guides . Also, google "house hacking" as that can be a good introduction for military guys to get into real estate investing and home buying. Feel free to message me with specific questions. Good luck,

Dave 

How much money do you have saved up? That will strongly affect what you can realistically do when getting started.

Whatever the amount, the best way to get started with a minimal out-of-pocket expense would be to house hack like others have mentioned. Start small by getting a duplex to get your feet wet, screen and rent to your first tenant, and hone your landlording skills. 

HI there, 

When I was 21, my husband and I bought our first property, a duplex. We lived in half and rented out the other half.  I had read Rich Dad, Poor Dad, and it seemed like a great way for us to be able to afford our own home instead of renting. It is a great way to get started. Sometimes it's called "house hacking".  We had a small down payment, and our tenants basically paid the mortgage and we paid for the cost of taxes, insurance and maintenance.  

If you choose to go that route... as it's your first purchase, and you're in the military, and you would be living in the property, you could probably qualify for some first time homebuyer programs. And I think there are also special financing options for military/veterans. If the property needs some work, you can use the BRRRR strategy and fix it up with some of the money you have saved, refinance it (to pull the money you have put into it back out), and repeat the process. Back then when I bought my house, we could only buy a 2 unit with a traditional mortgage; a 3 unit or greater required a larger downpayment and more cash on hand. Not sure what the protocols are now, but when finding a lender you may want to ask if there are different financing options for a 2 unit vs. a 3+ unit property.

My one piece of advice is to really work on being a good landlord and get yourself prepared to interview tenants. I really struggled with this when I was "young" and owned a rental. I bought the property with one great tenant and one vacant apartment (perfect) but it was challenge when my tenant moved out. I was nervous and lacked confidence; I didn't know how to be a confident property owner and business person and still be a friendly neighbor. So I took referrals from friends/family for potential tenants and didn't do an interview process. And it sucked. Some of my tenants (college students) didn't take me seriously. They paid their rent mostly on time, but they were loud and messy and annoying and disrespectful of the house that we shared with them. I ended up taking a decade-long break from being a landlord and am now just getting back into it. I'm reading books on managing rental property, but also doing a lot of thinking about the type of landlord I want to be and how I want my interactions with my tenants to look, and what type of relationship that I want to have with them. The podcast with Joe Asamoah is great (don't remember which episode number, sorry!). Joe sets a great example in managing relationships with his tenants. He's on instagram @drjoeasamoah

Brandon, First, Thank you for your service. Below is some general Insurance info that I posted in the past that may be helpful. I've been having issues with bigger pockets changing the formatting so I appoligize if it is hard to read: I can give you some general info on insuring the property: Here are some things to lookout for from an Insurance prospective: 1.Any in-ground tanks (active or inactive) 2.Any Knob & Tube or Aluminum Wiring 3.If built before 1978, does the building have Lead Safe certifications 4.Any wood stoves or secondary heating units. If so, were permits pulled & were they installed by a professional 5.Are any of the homes rented to students 6.Is there a flat roof 7.are there asbestos shingles The Year that the following were updated (either partially or fully) would be good to know: - Heating systems - Roof - Plumbing - electrical Some companies will not write properties with systems that have not been updated. As long as you are living there, the proper policy for a 1-4 family is a "Homeowners" policyc. If the property is solely tenant occupied you will be looking for a Dwelling/Fire Policy (may be called a Landorrd policy or similar name) or a commercial policy such as a Businessowners or Package polciy. Most homeowers or dwelliing/fire policies include: 1. Dwelling (Building coverage) The limit should be based on the Replacement Cost of the building (cost to rebuild with the same kind and quality excluding the foundation) 2. Contents (Personal Property): most homeowners policies give a set % of the Building limit for Contents. Dwelling/Fire policies requrie that you request a limit for conents. 3. Detached Structures: for other buildings on the property (ie. sheds & detached garages) Again, there is normally an included limit of 10% of the building limit. That can be increased if needed. 4. Loss of Use / Loss of Rents: Normally, there is a 20% included limit. Loss of use is for your additional expenses if you can not live there due to a covered claim (ie. Fire). The Loss of Rents is for the loss of Rental income if the tenants can not occupy the house after a covered loss. 5. Personal Liability: For claims due to Bodily Injury or Property Damage that you become Liable for and which is covered under the policy. Companies normally offer limits up to $500,000 but some offer $1,000,000. Buy the max. 6. Medical Payments: Provides coverage for an injury suffered on the premises. Does not require proof that you were at fault. Used to keep small loses into becoming lawsuits. Normally offered up to $5,000 but check to see if higher limits are available. 7. Deductible: This is not a coverage but rather your portion of a claim. Most better policies will not have a deductible for either the Liability or Medical payments coverage. It will apply to the other 4 coverages. You can select the amount of the deductible, usually ranges from $500 to $5,000. The higher the deductible the lower your overall premium but get quotes on all the deductibles you are interested in. Sometimes the incremental savings from $1,000 to $2,500 or from $2,500 to $5,000 are too small to make the higher deductible worthwhile. ***depending on how far the house is from the coast, you may also be required to have a separate Wind or Hurricane deductible. Most times, the deductible will be 2% to 5% of the building value. That is a significant amount (on a $500,000 building that comes to $10,000 for 2% or $25,000 for 5%). A policy with a higher premium may be a better deal if it does not have a wind deductible.

Hey Brandon, I have been investing seriously for 2 months and searching for my first fix and flip. The advise I have is network,network and network find a niche and master it. Also, I would recommend on learning on how to use OPM other peoples money and leverage partnerships. Hope some of this information helps. Good luck and thanks for your service

Brandon, yes buy a property. But first get a good Real Estate agent to help you find your first property. Save money meanwhile and he will help guide you and should mentor you also.

Ask as many questions as you need and people here will help you.

If you can wait to get married and live with parent(s). Great keep saving money and life will be great.

@Devin Samuels It's awesome you're starting out at that age, you're already ahead of the game. I'm in the Navy, and got into REI about a year and a half ago.

The VA loan is an incredible tool we have. If you're getting BAH, I'd highly recommend looking into using your VA loan to buy a small multifamily property (duplex, triplex, or fourplex) for a house hack. Live in one unit and rent the others out. I wish I had done this before I got stationed in Pearl Harbor where the housing prices are insane.

Also, a lot of military guys don't know that you can take a general purpose loan against your TSP to be used for whatever you want at an interest rate of whatever the G fund return rate is (currently 0.75% apr).

Other than that I'd recommend saving and learning as much as possible. Good luck!

V/R,

House hack.  

Nothing will catapult your financial success much like eliminating your housing expense for years.  That is unless you discharge and fall into a high income job.

Speaking about jobs make sure you have one lined up when you discharge so you will qualify for a loan.

Consider all loan options not just the VA loan. Yes the VA loan is great if you want to go 0 down but it also carries a hefty funding fee.


Contrary to what everyone else is telling you, I would advise caution.  I made my first real-estate investment when I was 26 so I admire your gumption.  That was in 1976. This eviction moratorium is very concerning and if the government can simply seize your property without due process I wouldn't advise entering the market right now until the legality of that CDC directive is determined.  I speak as someone who had multiple properties in Maryland and South Carolina.   I sold all the properties in Maryland because tenants can stretch out evictions forever and even if they don't the local sheriff's have 6 month waiting lists to show up to evict  someone.  You have to have 8 people standing there even if nothing is left in the unit or they won't even stop.  I only ever had to file for one eviction and then I offered them $2400 to get out the next day.  They took it. I have 7 rental units in SC and I'm selling all but two over this CDC directive.  This is a risk you can't plan for but is now a reality.  I strongly suggest you save and save and save.  One day the perfect opportunity will appear.  Be patient and your patience will be rewarded.  Now is the time to be cautious and read the tea leaves. 

I would save up as much as I possibly could before making the leap. The less you owe the bank the better. There are times when leverage is advantageous. This is not one of those times. Six months ago maybe. Now no. With the eviction moratoriums possibly getting strung together like paper dolls, you have to ask yourself one very important question. Seeing as the very heart of rental properties depends upon the consistent payment of rent, can I afford to have renters tell me to get stuffed and have the entire United States government and court system standing behind them saying, “Yeah, get stuffed!” That means no recourse for you. 
 
Are there ways around it? Sure. I own my properties outright and I screen tenants to the point of being ridiculous. But in the end I also have tenants with credit scores similar to mine. Mine typically stay only a year or two and 80 percent of them leave due to buying their own house. I end up with very little damage- none of it intentional, and I also happen to live in an area that cannot build ‘em fast enough. Needless to say, I’m extremely conservative  in my investment strategy. In good times I no doubt do not make out as well as some others who have more stomach for risk- but during times like this I rest a little bit easier. 

Good luck!

Hey @Devin Samuels . Congrats to you for your ambition! I work with a bunch of young aspiring real estate investors just like you, 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/..

Hey man I'll throw in some advice for a fellow active duty guy working side investments.

A few folks have mentioned you should look into buying a duplex or fourplex, I love the idea, I think for a young guy starting out doing a "house hack" is the way to go for sure.  Do things like that now before you have a wife, kids, more demanding job, etc.

Live out of that house for a year or a few and basically live for free.  Take advantage of that time learning and understanding how the game works.  I'm trying to set something up like this for my brother in law now.  

Save up as much as you can and just get used to living below your means and keep growing from there.  I would caution on starting with a 4-plex UNLESS you have plenty plenty plenty of money saved up for those un-expected months of costs.


Starting with a 4-plex does provide room for plenty of reward but also alot more risk as there is that much more house to fix, and that many more potential problem renters to deal with at once.  Could be alot of bite off for your first go.


Look into using your VA loan for your first property, you get more than one opportunity to use it as long as you stay under their cap ($450K I believe). Look into FHA loans as well, read and understand the pros and cons of each loan. I wish I hadn't "wasted" my first VA loan on my first house as it was so cheap I could have just done an FHA and saved the VA loan for future use.

Final tid bit is look out for your other buddies going out and buying flashy toys they can hardly afford.  I know I've had troops working for me that made half as much as me yet bought cars and trucks that were tens of thousands more than I spent.  Toys are brief blips of happiness, you're here so you're already looking to make better decisions.  You're living way below your means and building your wealth so that you can better afford your toys in the future when you've reached your income goals.


Hope this helps goodluck man!   

Devin it all depends on what you are looking for. My advice is to do the live in hack. And it does not have to a multi-family building. I live in a three bedroom/two bathroom house. I used to rent out both rooms, but am only currently renting out one. Also, in my opinion, it is less maintenance than a multi-family. It is always best to start off small and learn the basics. If you want to push it a little further, you can look for a house that is undervalued. That way when you move in, you can fix it up, build quick equity, and get cash flow while renting out the other rooms. As far as whether to use your own money or get a loan, I am a advocate on using the minimum amount of money when buying a property. Less of your money in the deal. With an FHA Loan, you only need 3.5% down.

@Rebecca LeFevre I'm so glad i came across your comment! I live in N.C, and around next november , i will be purchasing a duplex to househack. I will have help from the NC program for first time home buyers , i say next 

november because i am using the next 12 months to save. I  want to have a good $14k saved up  at least, i hope thats enough. Im nervous , but we all have to start somewhere. ANY advice you have please ....inform me i listen to youtube vids on R.E.I I aso have brandon turner's book on real estate investing for beginners