All Forum Posts by: Jacob Pereira

looks like a lot of people are already posting what I came back to post. Most likely, college will be a good thing. A lot of BP podcast interviews talk about having multiple exit strategies, and a degree is a great exit strategy in case you get tired of real estate, the bottom drops out of the market, you just find you're not good at it, etc. No, not for everyone, but for most it has a good ROI and pays dividends for life.

If you're planning a flip, there's a possibility that it might make sense to pay cash because you have more flexibility on distressed properties and don't have to pay hard money fees, but depending on what "less affluent" means, you probably wouldn't want to do that. In a buy and hold situation, the only times financing are bad are if interest rates are astronomical (like in the early 80's) or if the market is about to drop (and that's very difficult to predict). So, with the limited information we have, I'll join the consensus and say "leverage".

I see your point, but almost all industries allow significant leeway in their business when asked. Ever accidentally overcharged a credit card, forgot to pay a bill, or misjudged an expense? Generally if you're a good customer, the business will forgive any late fees and often even set up a payment plan. I'm not saying landlords should let themselves be taken advantage of, but often accepting a payment a few days late costs nothing, while an eviction or vacancy is very expensive.

I'm a strong believer in using your position as a landlord to help people. If your deal is good, you can easily handle a few late payments, as long as they are eventually paid. That being said, everyone has priorities when it comes to their spending, and you need to make sure that you are near the top. Rent is probably not going to replace feeding her children (nor should it) on her priority chain, but it should be more important than the electricity bill or car payment, let alone discretionary spending like eating out or going on vacation.

You'll find a lot more satisfaction in the rental game if you treat it with a modicum of compassion, rather than being the Dickensian monster that many people think of when they hear the word "landlord". Plenty of people on this site disagree with me on that, but that's my $0.02.  

Interesting stuff. I wouldn't have expected for the payments to be that high. I don't know that I'd currently risk my credit score for $750 a month, but maybe when I'm done with acquisitions or I move purely into commercial it'd be a fun little supplement, enough to buy and maintain a little hobby boat or plane. @Jessica Parker, let us know how it goes for you if you end up doing it.

@William Carroll and @David Dachtera have the right idea, IMO. If you bring the deal and it's got some meat on it, you shouldn't get too much pushback from an investor to pay your company to do the work and to split some of the profits. After all, they'd need to hire contractors either way, right?

Now if you're not also bringing the deal or doing the work at cost, they might as well just hire their own contractors and keep 100% of the profits. Simple as that.

I've got to disagree with @Leland Barrow; the military is a great choice right out of high school. I did it that way myself when I joined the Marine Corps. You'll be able to buy a house immediately, and a $35k a year (that's an estimate, base is like 20k, but that doesn't reflect TONs of additional subsidies like housing allowance) job with excellent benefits is way better than anything else you'll find at that age. I know the goal is to be a real estate investor and use other people's money, yada yada yada, but trust me, it's very rare that someone can do that without experience or a small loan of a million dollars. Want to go to college too? Earn credits while you're in, and then when you get out the GI Bill will not only pay for tuition and books, but a stipend as well. Mine was about $1,800 a month back in 2008. If you're motivated, you can be out of the military AND done with college at the same age as the frat boys on the 5-year plan. Plus you get access to the VA loan, which means 0% down on a 1-4 unit. But all that's a couple of years away. For now to help you decide on the military thing, try JROTC; it'll let you know whether that's something you want to try out.

Other than that, the two things I'd say are try to save and build credit. I don't know if you can get a credit card at that age (maybe with parental cosigner?), but if you can, do that, but make sure to pay it off each month. Some people will tell you you have to carry a balance to build credit, but that's a myth. Even better, if your parents have excellent credit, see if you can get added to one of their cards; it's a really dumb FICO loophole that gives you instant credit history. You can shred the card immediately if you want, but as long as the account remains open you've built years of credit in a single swoop. 

With your savings, if you're far from job opportunities, definitely go buy that cheap car, then get a job and put your earnings into passive index funds. If you track the appreciation over time, that'll give you a good benchmark with which to compare your real estate returns, and it'll also increase your nest egg for when you're ready to buy real estate. 

Additionally, see if you can intern with a real estate agent, investor, lender, developer, or anyone else connected to the RE industry. It'll help start building connections and knowledge now, so you'll be prepared when you have the opportunity to act.

Good luck.  

 I'm also surprised that everyone is saying evict. There's nothing in the post to suggest that this renter will start squatting if rents are raised. Despite what you read in this site, most tenants are not trash that are just looking to pull a fast one, and will just follow the rules. 

In  my opinion, you should raise rents, but do it over a two-year period, and be honest from the start with the tenant about it, not so much for business reasons, but more for humanitarian reasons. You're potentially taking someone out of the home they've most likely lived in for the majority of their adult life, so give them a bit of a break. It'll give you some time to adjust to the new house and make the changes you need (assuming the tenant doesn't immediately leave), and it'll also make you feel better about what you're doing.

Being a landlord is a hard life, and many people sacrifice their compassion and humanity because it's the easy way out, but I think you'll find that landlording can be rewarding in more ways than just financially if you do it right.

If you're satisfied with only earning 7% on your cash, why not just leave it in your 401k? Just make sure you're in an ETF with a low management fee and that's approximately what you'll make (historically speaking; no one knows the future) , just without any of the work.

I suspect a lot of the advice on here comes from people who have never done the live-in duplex thing. Your tenant is going to be your neighbor, and a very close one at that, so while treating this like a very stiff, formal business transaction might be slightly easier, but it will certainly reduce your quality of life. 

Screen well, let them know that you're the owner, and be friendly. If your tenant isn't trash, you're not going to get calls at 3 am or loud parties on Tuesday nights. My first property was a live in duplex, and now four years later the lady who lived next door is still there. The only downside is that you occasionally have to raise rents on your friends.