Buying a house seems to be one of the main reasons people have debt, but what if that debt wasn’t as bad as you thought and it brought you profit?
Real estate is such a huge topic that talking about it in general won’t really help you much, so I’ll be telling you about a specific strategy or subgenera of real estate; multi-family homes.
What is Real Estate Investing?
When I was learning about finance, I only knew about the stock market and even then I barely knew what a dividend was. Now I try to plan my financial future around real estate.
Real estate investing comes in many different shapes and colors (literally.) Some people have specific techniques and strategies they use to bring in profit, such as BRRRR. I could write a whole page on just that method.
Real estate investing is mostly this though, buying a property, managing it, rehab, and then either renting it or sell it for a higher price then you got it for. So it seems pretty simple at least in print.
How To Start Real Estate Investing?
The first thing that I believe every investor or just person in general should do is get a safety net of about 10k. If for any reason you were to lose a job or some unknown tragedy were to happen you would be able to live off of that until you get back on your feet.
Okay on to real estate. Since this site is intended for teens and such, the process to REI is going to seem so far away that you almost don’t care or it seems discouraging. I understand but bear with me.
When starting REI you have to learn everything about it, all the different types and real estate that you can invest in. Listen to podcasts and read forums. Connect with local real estate agents and groups and just listen. See how the real estate market works and why it may work that way.
Look at properties nearby in a certain condition that you think future you would be happy to live in which means others will want to live in, meaning tenant and monthly profit.
Now if you are of age to buy your first house, if you saved up money young, you can put a down-payment on a house. Then you are given choices for types of mortgages (fixed rate, variable rate, etc.) that is basically a loan with a certain interest. Once you buy that house if you went with an FHA loan which allow a lower down-payment then you have to live in that house for a certain period of time. You can still have a tenant though, this is called house hacking.
Is House Hacking For You?
House hacking is just when someone lives with you and you split the rent, the only reason people call it that instead of “roommate” is because instead of using that money to buy personal entertainment you use it to pay off your mortgage.
This strategy is what most people start with when they get into REI, or at least to me it seems like the best option for affordable living in your own home.
Here’s an example, let’s say you found a house for 150k it’s a two unit 2 bed 2 bath (a multi-family unit) and you decide you would like to rent it out the other side to your friend. You qualify for a FHA loan which means that (in this loan) you have a 10% down payment which is 15k. Now you have this loan to pay off with an interest rate of 3% for 10 years (this is just an average, real rates will vary) so every month you have to pay about $793 for 30 years. Split that with a roommate and you’re only paying $396. Boom.
There is far more to this such as cash flow and expenses that can vary how you are to go about buying properties this is just one very simplified version.
Multi-Family Home Investing
Now you have seen a simple example, let’s talk about multi-unit properties. There are all types of properties; rental, residential, commercial, raw land etc. Multi-unit would be considered residential. Buying these types of units allow multiple income streams per month from however many houses you theoretically would have.
The downside to it is management. You can always hire a property manager when you reach a large portfolio, but if you only have one or two you can and should learn to do it yourself.
Starting young means you can’t technically buy a house now, but you can teach yourself negotiating skills and people skills in general. If you’ve had a bad landlord you know what I mean.
Managing a multi-unit portfolio can be greatly rewarding but also required hard work and dedication.
Bottom Line
REI is simple and straightforward but making it a successful one is more difficult. If you believe you can network and create a team to help you better understand REI, you will be successful.
There is so much more to REI then what I’ve written above, but it’s a starting point to learn anything and everything. I suggest reading Biggerpockets forums and listening to their podcasts if you really want to get into the nitty gritty of it.
Financially Independent Adolescents 