I am a 20 year old student with $40k in cash on my hands, a solid monthly income, and a solid job as an engineer after I graduate. I think it’s good sense to start small in the Real Estate business in order to learn the ropes. I am looking to purchase a house in the ever-growing suburb I grew up in, rent it out, holding onto it as it appreciates. It was hit hard by the housing crash, and just like everywhere else prices are comparatively low. I don’t know a thing about any forms I’d have to fill out, taxes I’ll have to pay, and what my obligations are as a landlord; it’s fairly overwhelming, but I’d like to do as much as I can by myself to save the money it would take to have a licensed real estate agent do it for me.
The property is out of the state I currently live in; as of now, I’m a dependent under my parents.
Any advice/opinions/general knowledge would be appreciated!
You don’t save any money by not using a real estate agent. When you buy, the seller pays the real estate commission so it does not cost you anything to have someone with expertise in the real estate industry guide you through your first purchase. Your agent will know which forms to use, will guide you in making a fair offer, and even point you toward lenders that will finance your purchase.
Since the property is out of state, you will probably want to have a professional property management company working for you. Professional property managers know the landlord tenant law, have leases that conform to the state law, have the tools to market your property, and know how to screen your tenants. If your proprety needs repairs, the management company knows which contractors in the area do the best work. The property managment company also knows their way around the courthouse should you need to evict your tenant.
Make sure you know how to do a proper cash flow analysis and have good business criteria in place to dettermine your purchase decision. I suggest that you keep at least half of your cash in reserve for the unexpected repairs and the vacancy periods.
I guess I have to be the jerk and give you advice that you dont want to hear…
DONT DO IT. Youre too green.
Buying an investment without knowing and understanding the characteristics which make an investment worthy to purchase and having to rely on a commission hungry agent to guide you is extremely expensive… It probably will kill your career.
You would be better served to spend some time questioning investors on their strategies to determine which type of investor you are wanting to become. Then learn that strategy and learn it well.
BTW You do save money by not using an agent when you know how to buy without one…
My 20-year old college student (junior) son just bought a house this past summer in the city where he’s at university. He used the free $8,000 economic stimulus money for first time home buyers, and some help from his parents.
The house was in great condition, but it still took a lot of work: sprinkler repair, sod in back yard, cutting branches off roof, plumbing pipe redo under house, reflective window film, and a ton of curtain rods and cabinet hardware. Now it’s starting to look complete.
He has had to learn about checking accounts, utility hookups and deposits, paying bills and workmen, etc. Way more complicated than dorm life.
What about buying your first home or an owner-occupied duplex where you live, so that you can manage it yourself?
It is a great time to get into real estate. I recommend finding a mentor, creating a strategy, building a team and systems. Entreprenuers are the most successful in real estate, not do-it-yourselfers.
Regarding your strategy, create criteria such as 50-70% LTV and it must cash flow. For cash flow I would take 70% of the rent and subtract PITI to make sure it has enough positive cash flow. 70% is because I take out 10% for property management, vacancy and maintenance. With equity and strong cash flow, you will have multiple exit strategies and will not have to speculate for appreciation. Best of luck.
I agree, I think working with a mentor would be great. From reading the forums, I think I’ll look into a local REIC.
I was actually looking into houses around Blacksburg (Go Hokies!) and thought that might suit my needs better. It’d be nice to have a house I could live in, and then collect rent in afterwards. There are plenty of property managers that could manage my house for me around here.
LTV is Loan to Value - The ratio of the fair market value of an asset to the value of the loan that will finance the purchase. Loan-to-value tells the lender if potential losses due to nonpayment may be recouped by selling the asset.
PITI - Acronym for principal, interest, taxes, and insurance, the four components of a mortgage payment.
Vtbrock Where are you from? Local REIA’s are great and you can now also find a lot of great real estate investing networking groups on http://meetup.com