Investing In Real Estate Young
If I could go back in time, to my senior year of high school, with the financial knowledge I have now….I would have retired years ago. It hurts my head to think how uninformed, and uneducated the school system leaves our youth after earning your diploma. All those years chasing grades, learning formulas, and a plethora of other things, yet no talk of rental properties, building passive income, or even the financial basics. Unfortunately, this scenario is all too common. I was in my mid-20s by the time I accidentally started building passive income.
The average person graduates high school and college. After college they have incurred student loan debt so they get an entry level job, they rent while dating, get married then search for the dream house. The couple applies for mortgages, they purchase the dream house at the top of their budget. And the cycle begins. This is the point when you stroll up to the starting line of the rat race.
Your living arrangements are your biggest expense, for this reason, I recommend beginning savings for your first house right out of high school. Once you establish stable employment or hone your hustling skills, rather than renting, the best way to start investing in real estate, is to find a local duplex or a cheap single family home. In order to find a good deal, you may have to sacrifice, and consider living in a low-income area. Low income doesn’t necessarily mean dangerous, but do your research. There are benefits to each strategy.
The benefit to buying a cheap home is that you can pay it off fast. In my area, I can find a 2 bedroom home in a low income, but safe area around 50k. If you concentrate your income on paying this off, you can own this house in under 3 years. By paying off your primary residence, you have eliminated what is generally everyone else’s biggest expense. You now only have to cover your property taxes and insurance. This means now it’s easy for you to save, what would be rent/payments for your next investment. Imagine how fast you could save up for rental if you didn’t have to pay rent.
The benefits of buying a duplex as first investment slightly differ in this strategy. The idea here is to find a well-priced duplex. My criteria is that the duplex cost less than if I was buying 2 separate houses. Using the example above, if the average 2 bedroom was 60k, I would be looking at duplexes with a comparable amount of bedrooms per unit for 110k or under. Once purchased, find a good tenant to rent out one side. Make sure the rent you charge is enough to cover the mortgage as well as your bills. At this point, you have your own place, and your living rent free. Continue to save money as if you did have rent and apply this to the mortgage. If you continue this in a few years, you’re going to have the duplex paid off free and clear. Now when you receive your rent payments, they are mostly profit. You can now save up for a down payment on your next place, then replace your old side of the duplex with a new tenant. The income from having 2 new renters will be profit and you will own real estate.
By investing in real estate young, by the time you’ve paid off the property In either strategy, you’ve already aggressively taken a large step towards passive income and getting a clear view of the finish line that is the rat race. Once you move out and have either completely paid off and rented, you are now able to buy more rentals, or at the very least you have an asset generating enough monthly passive income to cover your new mortgage payment. Without having to worry about rent\mortgage payments you can begin a fast paced savings plan, that will allow you to grow your portfolio and subsequently, your rental income . The younger you are when you star investing in real estate, the sooner you can start building up your rental portfolio.