How to Start Investing In Real Estate at a Young Age (or a “Young at Heart Age”)
by Brandon Turner on February 9, 2013
I don’t want to get old.
I’m not looking forward to hip problems, my eyes getting worse, or needing to take my pills just to use the bathroom correctly. I don’t want the “old person” smell, the frequent heartburn, or the desire to drive fifteen miles under the speed limit. The thought of that life terrifies me.
Perhaps, though, the thing I’m looking forward to least is no longer being the “whiz kid.” Because I started investing so young, I’ve always been the one in my social circles who “is going somewhere.” It’s a good feeling, but it’s not that I’ve done anything remarkable, really. It’s that I’ve done something remarkable for my age. There is a significant distinction there, but an important one. It means, when I get old, I’m not longer doing remarkable things. I’m just doing my job.
If you are bored, (well, hopefully not bored reading this…) and not sitting anywhere near your children (because the language is definitely not family friendly) check out this clip by stand-up comedian Louis CK about growing old. He’s come to the same conclusion as I have:
Why Investing at a Young Age Rocks … and is Hard
At 27, I still have a few good years left to be “remarkable” – but “old” is creeping up; but it’s not just me either, because here is a dark secret: you are getting old too. So, I’ve dedicated the last year of my life to teaching other young folks (and young at heart) how to get into real estate investing, despite some of the disadvantages we have. In fact, let’s talk about those disadvantages real quick:
- Very little money – Let’s face it – most young people are pretty broke. Maybe you’ve got a good job and have so much disposable income you don’t know what to do with it, but chances are – you’re living pretty close to paycheck-to-paycheck.
- Very little life experience – I know, when I was twenty-one I thought I knew quite a bit. I didn’t. I didn’t know anything. Now today, at 27, I think I know everything. I don’t.
- Video games are so appealing – Let’s face it – sometimes all we want to do is play some video games, hang out on facebook, and watch TV.
- Chasing girls (or guys) or chasing kids – From the moment puberty hits, boys and girls of the young persuasion have a strong need to find that “special someone” and spend all their time together. After that, comes the kids that require every waking minute. That doesn’t leave a lot of time for investing.
- Poor credit – College and the years that follow can be rough for a lot of young people, as the schools do a terrible time teaching about financial intelligence. Or perhaps we just didn’t listen. Either way, most of us have needed to wade through the credit card years and will spend many years recovering.
- No like-minded social group – I don’t have many friends who read my writing. It’s not that they don’t like me, or care about me, it’s that they simply don’t care about real estate – and that’s perfectly fine. I’m not bitter. You will probably find a similar situation. It makes it tough, however, to find motivation to get into real estate when you don’t have a community that fosters financial education and growth. (**Special note: if you are an old friend or a family member of mine, leave me a comment below… let’s see who’s reading my stuff! )
So what’s a person to do, faced with all these disadvantages? I’m hoping to help offer some insight on that, being one who has been through it. The following is a collection of the lessons I have learned.
To Start Investing In Real Estate, Harness What You’ve Got
Now that I’ve made you feel bad about all the things that are not going so well in your life, let’s talk about the things that you do have.
Motivation– You’ve already read 600 words of this blog post about real estate investing, so you are clearly motivated. Use that. The older you get, it seems, the less motivated you are. As people get older, they seem to get more complacent in their situation, and no longer shoot for the stars.
Today I had a conversation with a man about how to buy an airplane. Am I anywhere near ready to buy an airplane? Heck no. But I’ve got goals, and I’ve got ambition – and I’m going to buy an airplane, even if it takes me the next ten years of working that plan. This is the power of motivation when you are young. (Be sure to check up with me in ten years and I’ll take you for a ride on my plane…)
Technology– You’ve got a firm grasp on how the internet works, how to handle social media, how to use a smart phone, and how to make a spreadsheet. Even if you can’t do everything – chances are you’ve got a friend (probably on Facebook) who can get it done for you. Use this.
You’ve also got resources like BiggerPockets. Our parent’s generation didn’t have this wealth of knowledge and community – but we do. Use it. Jump into the Forums and ask question. Get into a conversation with a blogger on the BiggerPockets Blog. Technology can be a force for terrible time-wasting, or for terrific growth. Which will you use it for?
Time– Finally, you’ve got the most powerful force in the universe: time. You aren’t looking at forced retirement in five years. You’ve got the next twenty or thirty years to crush it. If you create a solid plan now, and simply follow that plan, you are going to have to work hard not to retire a millionaire. For more on my specific plan, check out my article, “How to Make A Million Dollars in Real Estate.”
Your First Investment
Obviously, your first investment is going to depend on your situation. However, I believe for most people your first investment (besides investing in yourself through reading a TON of books, blogs, and forums) should be your primary residence. As I see it, there are two great options you have. When starting out, I did both of these:
- Live-In Flip:My very first home was an ugly, single level house I bought before I knew what real estate investing was. All I knew was that it was the cheapest house around, and I could get into it with almost nothing down (just a few thousand, that I spent a few months scraping up.) I then spent the next several months painting, adding new flooring, and doing many more improvements on it – finally selling the property for a nice profit, which paid for my wedding and the down payment on my next property (which I’ll discuss next.)The beauty of the “live in flip” is that since you have to pay to live somewhere anyways, there are effectively no “holding costs” on the flip. You could take three months or three years to sell it – but in the end, you’ll profit. Additionally, if you buy with a fixed rate mortgage (which you should) your payment will stay fixed for as long as it takes.
- Buy a Small Multifamily: As most of the BiggerPockets community probably knows by now, I’m a HUGE fan of multifamily properties. The second property I bought was an ugly little duplex (well, two houses on one lot) that my wife and I lived in for a year, while renting the other half out. This enabled us to live rent-free, and enabled me to quit my job and get into investing full-time. You can read more about this property in my article, “How I Accidentally Bought Two of Kurt Cobain’s Former Homes and Why That’s Not Even The Best Part.”By living in a small multifamily property – you are able to decrease your expenses, while locking in the super-low rates that are available to owner-occupants today. When you move out – that low fixed payment stays the same and that property will become the first in your collection of real estate investments. Additionally, the experience in landlording you’ll gain living in a small multifamily property will help you for the rest of your real estate investing career. It truly is a great first step.
What About Money?
Yes, real estate costs money. However, the benefit of the two options above are the ability to use low-down payment methods to get started. In the US, there is a program insured by the FHA that allows homeowners to buy a property with just 3.5% down payment. On a $100,000 home – this equates to just $3500 plus closing costs. Can you come up with $5000 to get started on your financial future? That’s one more benefit of being young: the ability to get out there and hustle. How can you make $5000 over the next five months?
Even better, the FHA has another program called the 203K loan – which allows you to incorporate the needed repairs of a property into the loan itself, and still only pay 3.5% of the total loan amount. This takes care of the repairs needed to fix up the properties, and limits the amount you need to get started. To top all this – you can use the 203K loan on small multifamily properties as well – which means you can combine all the benefits of the live-in flip and the small multifamily strategy into one, feasible plan.
To read a great article on using FHA loans for small multifamily properties, check out “New Investor Strategy: How to Buy Your First Multi-Family Investment Property & Live Rent Free”
Start Building Relationships
I’m going to tell you a secret: Old people like ambitious young people.
It’s true – just ask any of the old people on BiggerPockets (just don’t tell them I called them “old”) There is something truly rewarding about helping an ambitious young person achieve their goals. I think a lot of it has to do with “I see myself in their shoes” or “if only I had started back then!”
Whatever the reason, it is a fascinating and powerful phenomenon. Use this to your advantage! Begin to build relationships with the older investors who have come before you and graduated from the school of hard knocks. Let their failures teach you to avoid (or fix) your own.
There are two great places that you can start building these relationships today: locally and online.
- Locally, there are probably dozens (if not hundreds) of old-time landlords and real estate investors in your area who may take you under their wing to help mentor and train you. These relationships are often simply a friendship, built over many cups of coffee and errands run for the investor.
- Online, these relationships are built everyday in the BiggerPockets Forums, where investors from across the country get together to help answer questions, build relationships, make deals, and improve the lives of everyone involved.
What About Wholesaling? Isn’t That The First Step?
Wholesaling gets a lot of publicity, because the gurus love to talk about how easy it is and how you can make hundreds of thousands of dollars in your spare time with no money.
Look – wholesaling is a real thing. I’ve done it, and a lot of other people on BiggerPockets have done it. However, here is my problem with wholesaling: it’s too easy to quit. Most people who try to get into wholesaling never make a dime (my opinion.) They jump in because it looks easy, but quit soon after beginning because
- It was too hard
- They didn’t make any money or
- There was a new shiny object
Wholesaling is a job, or more specifically, a business. Granted, it’s a self-employed business with flexible hours and the benefit of getting to learn the business of real estate without investing a lot of money. It’s still a job, though, that requires time, dedication, motivation, and money for marketing.
If you can get started investing in real estate by wholesaling – great! Just realize that most wholesalers never get past their education. It’s much more difficult to walk away from a duplex that you just bought than to walk away from a wholesaling career.
For more info on my thoughts getting started with wholesaling, check out my article How to Start Wholesaling: Getting Past The Education and Into the Field.
Where Do I Go Next?
Time is ticking.
You are getting old, fast. You aren’t going to be the “whiz kid” for long, so it’s time to start. Evaluate where you are, where you want to be, and the path you need to get there. If you are unsure of any of that – it’s okay. Go post your questions, fears, troubles, whatever in the BiggerPockets Forums. Start connecting with some of the brilliant real estate minds here on BiggerPockets (or with the not so brilliant ones, like me!)
What are you waiting for? Another round of Modern Warfare III? Another Facebook picture of a Cat?
What are your struggles when getting started? Or, if you are “old” already – what’s your advice for the younger ones? Leave your comments below and let’s chat!
OH- I almost forgot!!! If you are just starting out, we actually created an entire online FREE BOOK for you to learn the basics! It’s called The Ultimate Beginner’s Guide to Real Estate Investing and you can download it by signing up in the blue box below or just clicking here to read it online!
Reference Site Link: http://www.biggerpockets.com/renewsblog/2013/02/09/how-to-start-investing-real-estate-young/