Advice For Young Real Estate Investors
What we liked? Your first buy should be your own home to live in. Makes complete sense; owner occupied financing will be the best terms you’ll ever get.
We understand his motivation in talking about learning to do fix up on the home as well; it teaches you some basic ideas about how to work on a home and the costs involved.
But while his motives are good, I think maybe they are too cookie cutter. I’m lousy at home fix up. My wife would never walk on a deck I built (like it would ever get that far). And my kids? Basically a chip off the old block in terms of home fix up projects; zero interest.
So should an aspiring investor get some home fix up work under their belt? Sure, if they have the knack for it.
But if not, don’t sweat it. There are other more important things.
Might suggest a future Donald Trump (the real estate kind, not the political kind) look at a multi-family home. Use FHA financing to buy a fourplex; live in one and rent out the other 3 units. Owner occupied financing guidelines allow this. You can qualify using the income from the other 3 units, so you can afford a more expensive home and get greater leverage. Its 3.5% down too.
This has the additional benefit of teaching you about being a landlord first hand. Your tenants are your next door neighbors. You can keep a close eye on things and learn first hand the lessons about broken toilets, late paying tenants, insurance and all the rest. In my view, maybe more valuable than being able to repair sheet rock is knowing what your cash flow is and how to depreciate your property.
Do that for a couple years. Soak it in. See if you really have an appetite for the whole real estate investor deal. You’re young and part of being young is figuring out what you don’t like as fast as possible so you can get on with what you DO like as quickly as you can.
Just because people tell you that real estate is a great investment (and it is) doesn’t mean that it has to be “your thing”. Starting your own business can make you as much or more than investing in real estate (ask Bill Gates).
But if you like real estate? Then by all means keep buying. Get another fourplex (any larger means you can’t get low down FHA financing). Move in, rinse and repeat.
And if you are the marrying kind I suggest you act on this plan BEFORE you get married. Spouses tend to lose patience with the constant moving and fix up that can be involved in the starting of a real estate empire. Ask me how I know.