Listen! This post is aimed squarely at the under 30 crowd who think real estate investing is for the
old seasoned rich folks out there. Don’t worry (or get mad at me) if you are 30+, the “young at heart” will likely benefit from some of the information in this piece too. I probably should have written this post before I wrote “Reluctant Landlords” but if you own a property currently you should finish this post and then go and read “Reluctant Landlords”.
The biggest complaint I hear is that it’s too tough to get into owning real estate, especially with prices in the Washington DC Metro Area, that there are just too many challenges. Trust me I know about challenges. I turned 33 years old this past weekend. I’m balding, 2o pounds heavier than I was in college, my joints crack and pop, and I even wake up sore after a good night sleep. (But don’t judge me. I can still drain a solid mid-range jumper, run a 5k, and my wife says I look distinguished with my shaved melon.)
Probably the best way to get past the disadvantages is to identify them and then discard them. So here we go!
Buying Real Estate is Hard for the Young because…
They have no money – Let’s be honest. In America, we don’t adequately teach personal finance. Young people have more debt than ever (student loan, consumer, car, etc.), they don’t save enough (emergency fund, general savings, etc.), and they don’t invest enough (401k, IRAs, real estate, etc.). And let’s face it, the young have to start somewhere and don’t make nearly as much money in salary as someone with 15-20 years of job experience.
They haven’t done it before and neither have their friends - I don’t have many friends that read my blog. It’s ok, I know they still care about me. They just don’t care or think much about real estate and real estate investing. I imagine the same is true for most young people out there. Until someone in their social group buys a house, many don’t even contemplate it.
They have smelly credit - All those credit card applications for free college t-shirts often take their toll over time. We are a plastic driven nation who continually carry balances on our credit cards. And unfortunately the average young person couldn’t guess within 100 points their FICO Score or even have the fondest idea on how to increase it. Legally you can get a FREE credit report, but there are a lot of impostors. AnnualCreditReport.com is the only legit, no hassle site.
Going out is important, You Only Live Once - Being social as a young person is vital. Don’t believe me? Might want to Google the acronym “YOLO”. It’s pretty much this generations mantra. With all that “living” who has time to focus on boring things like real estate.
Young People Should Leverage Resources….
Technology - The amount of free data and resources out there is astonishing. The internet is a fantastic place, and the young are typically proficient at using it. Leveraging the web and mobile applications can greatly counter balance the lack of experience.
Drive - Those of us with one or more children realize that we had a ton of free time when we were young and childless. Focus some of that free time on an end goal. “Drive” can be used to counter the lack of funds (get a 2nd part time job, work harder for bonuses, etc) and “drive” can be used to establish mentoring relationships in real estate.
Their Age - Here is a secret the young don’t always realize. Show some interest and ask good questions and you’ll be amazed at how the
old experienced will assist you in reaching your goals. People inherently want to help those who ask for it. Finding a mentor is surprisingly easy. So find someone with an investment property and ask questions. You’ll learn a ton over just a 20 minute conversation.
The Professionals - If you have reached this point in the post then you must have some interest. I mean you have read nearly 670 words on the subject. It might be time to engage a professional or two. Obviously as a licensed real estate agent/broker and True North Realty’s owner, I can help answer any questions you might have about the process of buying real estate (and would be ecstatic to do so). But to help decide whether it’s feasible or not based on your financial situation, you need to talk to a lender. That can be intimidating. Need a lender who isn’t going to shame you for your lack of knowledge or use industry terms that will only confuse you? Feel free to call my dear friend Ros Cohen at Presidential Mortgage and tell her I sent you. Even if you live outside of the DC Area you can utilize Ros.
Lending is definitely tougher to get then it was 5-7 years ago. But 3.5% down payment options still exist, and if you qualify, options offered by organizations such as VHDA exist and offer 100% financing (no down payment). Trust me young people. You CAN do this!!!
The Purchasing Options…
As I see it, there are probably only two realistic methods for a young person to cut their teeth in real estate investing. And they both have one thing in common, you will HAVE to live at the property.
1. Small Multi-family/Multi-person property - Purchase a multi-bedroom property and have roommates pay a chunk of your mortgage (I have no clue why more young people do NOT do this). It’s a no-brainer. Many young people (especially in large cities) have to have roommates anyway. Why not leverage that? The other option is to purchase a duplex (or a higher number of units) property and rent out the other units. This is a little tougher, but still plausible.
2. The Live-In Flip - Here’s a tip. If you live in your investment there are no excessive holding costs. You have to live somewhere right? So find a Realtor (preferably me) and get an entry level property that needs some work and that is in a decent resale area. Move in and get to work. Paint, lay new flooring, hang cabinets, etc. If construction ain’t your “thang” then get a part-time job and/or utilize savings to have someone do the work for you. You could take 7 months or 7 years to sell it but regardless, you’ll make a profit. As long as you utilized a fixed mortgage, you will have a predictable payment and you may even be able to move out and rent the property as a cash flow positive rental investment.
What is NEXT?!?!..
So I’ve given you an outline. But it is NOT enough. Just as if I gave you blueprints to build a house, you couldn’t do it on your own. So you have made it this far. Maybe I peaked your interest…contact me, lets talk more about it and see if this is something that really makes sense for you and your personal situation.
Lastly, if you want to purchase a cash flow positive rental property…I can assist in planning that as well. I have some fantastic informational resources to start that knowledge gathering.
Paul Sjoberg is the Owner and Managing Broker of True North Realty, LLC. You can contact him utilizing any of the various methods in the right hand column of this webpage.