You Don’t Have To Be A Professional Real Estate Investor

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There are many ways to invest in real estate and not every investor has to be a professional, full-time investor.

One way someone young can invest and build wealth in real estate is by purchasing a duplex as their starter home and building from there. In Savannah GA there are many opportunities to start this way. I would like to give an example of how it can be done. Granted, this is not for everyone, but it’s a good long term investment plan for those who are willing to sacrifice a little and work for future gain.

Let’s say a young couple is starting out, each around 25 years old, and they decide they want to build wealth in real estate. They get guidance from professionals regarding the market and projections on how the local economy and housing market may fare in the next 4 to 5 years, then they purchase a duplex on the periphery of an up and coming area. Before purchasing they check around with family and friends to find the best tenant possible for the other unit.

Their buyer agent has helped them identify a good buy at $185,000 that needs some improvements but is in livable condition, and the rent they collect from the second unit offsets the mortgage by 50%. They have paid 10% down, $18,500 with their parents’ help. They can afford the whole mortgage which, let’s say, is about $1100.00 a month. Since the rental pays half the mortgage, they put $550.00 in a savings account They hold the property for five years and by this time they have a child and need to move up. They have added value during the five years by keeping it painted, adding a new roof, replacing windows and keeping it well maintained, plus the renovation in the area has spread to where they are living.

After five years, let’s say the duplex is worth $250,000. They are now able to get rent for both units that will cover the mortgage on a refinance of $225,000. After paying off the first mortgage and creating the second they are left with approximately $65,000. They have $33,000 plus interest from their rent savings. They are now thirty years old and buy an older home with more space that also has a garage apartment which rents out for $500.00 a month.

The numbers are not exact and the couple should get financial advice from pros, but you can see where I am going with this. The couple is building wealth in real estate and there are several options they can choose from as they build. When they get in their late thirties, they might decide to quit hassling with the rentals and just buy their dream home, but by this time they can buy quite a home. It’s a relatively low risk strategy with a little head ache, and some expenses that have to be factored in — but if they are in a growing area that maintains steady appreciation over the long run, they should do well with their investments.

It takes discipline and long term vision, but I have seen young people do this and profit. It’s not that difficult and if the young couple shows responsibility and foresight and maturity, they can get help and advice along the way. By the time they are forty, which is young by modern standards, they will be glad they invested early. Some might say this is dangerous and that many young people have gotten into financial messes by reaching too high. I say — poppycock! If the couple does it smartly and listens to advice from people who understand investments, it will be a much better strategy than blowing their money and waiting on social security.

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11 Comments

  1. This is definitely good information for the new people who are starting out who wish to invest in real estate. The biggest thing in knowing how to invest in real estate is looking at the numbers.

    The best thing to do to make money is to do it for the long term and not try to always make a fast buck here and there. That is where I have seen a lot of people get into trouble.

  2. Yes, Jeff, and that is why it’s best to get good financial from a person such as yourself. That would proabaly work here because the rental market is strong right now and rent on the second unit should cover half the mortgage.

    Thanks for the input Brandon — I think a lot of prople are going to be thinking long-term now — it’s the best way for a young person to think anyway.

  3. Chris Lengquist on

    I work almost exclusively with investors and not one of them is a full time professional investor. Most are just average guys and gals working other jobs. People get the wrong idea with all the gurus.

  4. The use of private money is a great way to make this happen. Often the big hurdle for young people is that they dont have much money down to get started using institutional loans, and in these times saving money is VERY tough. There is a lot of money sitting around looking for a place to go, and if the deal makes sense, you can get a good rate and expedite the process of getting a deal like this done. Plus, most private lenders to do not report credit so if a young person ends up making a mistake and going sideways, it wont ruin them for life with their credit… another major concern for young people interested in buying real estate.

  5. Your article is perfect. My wife and I are in the exact position that your article describes. I am 25 and we are looking to buy our first place. I really want to get a duplex and do what you have described in the article, but my wife is hesitant. I have tried to explain it to her, but she is just very conservative and traditional. We are looking in the Provo, UT area. Thanks for the article. I emailed it to her and hopefully she will start to see the light.

  6. @ Big Game, I can understand that for peoples with conservative minded, it’s better to make saving in cash than do investment. But I think your wife will get your point once she read this article. It’s very clear.

  7. I have some twenty something clients that are doing just this. They do have a vision. They will keep the tenant in the lower level and live upstairs. I met a couple if their 70’s who have lived in a duplex they own for 45 years. It was paid for long ago and their tenant’s rent almost pays them to own the place. 🙂

  8. Dike Drummond on

    I have recently seen a real estate wealth plan that takes this from a duplex to a fourplex. Use a residential loan to buy a fourplex and live in one of the units. The tenants pay the mortgage – you can devote all of the income to the mortgage payment and pay down the principal more quickly.

    Rents go up yearly and you sell at a profit any time after 2 years on the increased income and pocket all of the profit tax free since it was your primary residence.

    Being a Passive Investor in syndicated investments is also a viable option for people who do not want to take on the active role of owning and managing their own properties.

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