SS29: How To Invest Your Money In Real Estate In Your 20s

Charles started investing in real estate in his 20s and you can too!

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Talking Points:

One thing (among many others) you didn’t learn in school is how money works and more specifically how it can work for you by investing it in hard assets such as real estate (among other things).

If you’re young, haven’t come into a large inheritance or found any buried treasure lately, and have less than $10,000 available, but you still want to learn how you can put the money you do have to work on your behalf, then this week’s episode is for you.

Education
First things first, before you run out and try to apply anything, you have to first learn and understand that thing(s). Here are some things to get familiar with:

– Read books written by other real estate investors who have been there and done it. Here are a few to get you started:

Rich Dad Poor Dad By Robert Kiyosaki (general investing as well as real estate)
Am I Being Too Subtle By Sam Zell (the author’s Equity Group Investments was the genesis for three of the largest public real estate companies in US history)
Long-Distance Real Estate Investing By David Greene (because it goes against the conventional wisdom of only investing in local properties)

– Get familiar with property valuation methods, return on investment metrics, and available financing methods

– The best ways to own real estate from a legal standpoint (sole proprietorship, LLC, Corp.) landlord-tenant laws and what is legally required of you when you own an investment property

– Investment property taxes

Application

– Low Down Payment: The absolute lowest cost basis for directly purchasing an investment property is an FHA loan, which requires just a 3.5% down payment in comparison to the regular 20-30% needed to finance a purchase from a non-government lender. There are some requirements to qualify for this, such as your credit history, the home needs to be the borrower’s primary residence and other requirements.

If you do qualify for the 3.5% down payment option, however, you would only need $3,500 down to purchase a $100,000 property. If you only qualify for the 10% down payment option, that would mean $10,000 down for a $100,000 property.

– Form a partnership or get a guarantor: This would have the effect of lessening the amount you need to come up with for a down payment as you could split the cost with a friend/business partner and a guarantor (such as your parents or friend/partner) will also mean your own credit score will not be as much as a vocal point as when you are purchasing solo.

– Purchase a minority stake in properties via syndication: If you aren’t quite ready to take the plunge of being a hands-on property owner and going through the whole loan approval and closing process, think about passively investing in a syndication.

Transcript:

Charles:
Welcome to Strategy Saturday; I’m Charles Carillo and today we’re going to be discussing how do you invest your money in real estate while you’re in your twenties? And this is a normal question I get from people and they say, I’m in my twenties, or I don’t have that much money and I want to get started. And where do I start? And I always suggest starting with education. So read books by real estate investors and figure out what you feel is going to be the best path for you to build your wealth through real estate. Because there are so many different paths and there’s so many different asset classes in ways that you can get involved with them. So some books to start off with, like, you’ll hear on every different real estate show, rich dad, poor dad. It’s big another book that you might want to graduate to after that one is, am I being too subtle by Sam Zell and Sam Zell?

Charles:
He is owner of equity group investments, which was the Genesis of the three of the largest publicly real estate companies in us history. So it’s a definitely a great book to read. And it’s a little higher level. There are some other books. I hope we’ll have a whole list on our website, but one more long distance real estate investing by David Green. And this is another great book because it goes against conventional wisdom of only investing in local properties and maybe investing in local properties is a good way for you to start, but it’s also great to get the idea into your head of, I don’t have to always invest in my backyard. I can invest in areas that might have more opportunity than where I’m currently located and get familiar with property valuation methods, return on investment metrics and available financing methods and you know, the best ways to own real estate from a legal standpoint, this is something also that you should also learn about.

Charles:
What’s going to be best for what you’re taking what route you’re taking. And it could be a sole proprietorship, which probably not, but to start maybe a LLC, a corporation learn about landlord tenant laws, especially where you’re locating, where you’re thinking you’re gonna invest. And and also learn about investment property taxes, learn about what investments and what asset classes are going to offer you the best write-offs and deductions. Now, how do I apply this then to real estate investing? So one of my favorite ways of doing this and what I really suggest to people is a low down payment method and the absolute lowest cost basis for directly purchasing an investment property is an FHA loan, which requires just a three and a half percent down payment in comparison to regular conventional 20 to 30% down, which is usually needed to finance a purchase from a non-government lender.

Charles:
And there are some requirements to qualify for this such as your credit history and your primary address. And there’s some other requirements as well, which you can look into, but this might be a great way for you to start. I would really suggest, cause this is loud for one to four unit properties. I suggest you go and really focus on three and four unit properties. And it’s a great way of living in a property, paying a little bit of your, of what you make toward rent, which is really true yourself. And so you can lower your monthly payment for your housing costs, but also you are now a landlord automatically. So you can learn becoming a landlord and owning rental property hands-on, which I feel is the best way, which you can only listen to so many podcasts and watch so many YouTube videos and read so many books.

Charles:
So you’ve got to jump in and this is a great way of doing it. Don’t buy a property, not that you’re gonna be able to buy anything with this loan. That’s going to be really intensive, right? Renovation intensive, but buy something that’s really, really turnkey because there’s still going to be things. If you buy property, new things, turnkey, there’s going to be still things that are need to be fixed. So if you buy a property, it looks like it’s been fully updated. There’s going to be things that pop out in the first year or two that are going to cost you money. So make sure you have reserve fund when you’re buying it. But I would focus on the property. That’s a looks like it’s turnkey from the outside. And that’s something that you can start renting, maybe even has renters in it already.

Charles:
And pick the worst apartment live in that apartment and rent out the others. Next is forming a partnership or get a grant, a guarantor. So this is something that this lessens, the amount you need to come up with for down payment, as you can split the cost with a friend, a business partner such as your parents and it allows you to you know, you can utilize your credit score, but you have someone else there that’s really guaranteeing the loan and their balance sheet and their history. So this would work if you found another partner and you trust it and you got to know them and you went in on a property and maybe you were taking care of a lot of the busy work and they were putting up more of the credit and the cash and their history with investing.

Charles:
And that would be a great way of going as well. It’s going to be take time. It’s not like you’re going to find something, somebody at your local REIA or someone online and a local social media group and you know, get, get into a business with them right away. It’s going to take time to find them. And you got to make sure you’re on the same page. And being on the same page, I think is one of the biggest mistakes in new partnerships where, you know, you might have someone that’s in their twenties and someone that’s in their fifties and maybe the person in the fifties has a different goal in mind, right than what you have. You want to build wealth, you want to live on nothing you want to reinvest and reinvest and reinvest. And maybe they’re looking for something where, Hey, let’s do, three-year holds or five-year holds and build some value and then cash out, build some value than cash out.

Charles:
So they’re in a different stage of their investing career. So it’s important that you take that into consideration when you’re finding this partner, lastly, purchase a minority stake in properties via syndication. So we do syndications here. If you don’t have a lot of money, this might not be the best route, but maybe you will find a syndicator, a group that you can get to know, and they might let you in for less than what their typical minimum investment is, which is typically $50,000. But I know in our, our groups we’ve taken less than that. But the thing that was that if you’re not quite ready to take the plunge of being a hands-on property owner and going through a whole loan approval process and closing process, think about passively investing in a syndication. And I feel it’s a great way for you to get started as well.

Charles:
If you maybe have some money and you can find people that are syndicators just by, you can find them online. But the best way of doing is really going to events and finding people and reaching out to them and really getting to know them and learning about the deals that they’re doing and making sure that the deals they’re doing are what you’re looking to get involved with. So I hope you enjoyed, please remember to rate review, subscribe, submit comments, and sh potential show topics at global investors, podcast.com. Look forward to two more episodes next week. See you then

Announcer:
Nothing in this episode should be considered specific, personal or professional advice. Any investment opportunities mentioned on this podcast are limited to accredited investors. Any investments will only be made with proper disclosure, subscription documentation, and are subject to all applicable laws. Please consult an appropriate tax legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of Syndication Superstar LLC exclusively.

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