I don’t want to get old.
I’m not looking forward to hip problems, my eyes getting worse, or needing to take pills just to use the bathroom correctly. I don’t want the “old person” smell, the heartburn, or the desire to drive fifteen miles under the speed limit. The thought of that life terrifies me.
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Perhaps, though, I’m looking least forward to no longer being the “whiz kid.” Because I started investing in real estate when I was so young, I’ve always been the one in my social circles who “is going somewhere.” It’s a good feeling—but I haven’t done anything remarkable, really. I simply did something remarkable for my age. A significant distinction, but an important one. When I get old, I’m not longer doing remarkable things. I’m just doing my job.
Why investing at a young age rocks…and is hard
The sooner you get into the real estate game, the sooner you can succeed. Rental properties build equity over time—and the more time they have to appreciate, the larger your portfolio will be. After all, passive income is key to life-long wealth. You can then use that equity to buy additional investment properties, accumulating cash flow and appreciation. If you want to build wealth through rentals or other long-term real estate investments, the more time you have, the better.
I still have a few good years left to be “remarkable”—but “old” is creeping up on me. Unfortunately, I have some bad news: You are getting old too. Sorry. That means it’s time to get started building your wealth. But being young comes with a few significant disadvantages.
- Very little money. Let’s face it—most young people are pretty broke. Maybe you’ve got a good job and have so much disposable income you don’t know what to do with it, but chances are you’re living pretty close to paycheck-to-paycheck.
- Very little life experience. When I was 21 I thought I knew a lot. I didn’t. I didn’t know anything.
- Video games are so appealing. Sometimes all we want to do is play some video games, hang out on Facebook, and watch TV.
- Chasing girls (or guys) or chasing kids. From the moment puberty hits, most boys and girls have a strong need to find that “special someone” and spend all their time together. After that, comes the kids, who need you every waking minute. That doesn’t leave a lot of time for investing.
- Poor credit. College and the first years in the working world can be rough for young people, especially during recessions. Schools do a terrible job teaching about financial intelligence… or perhaps we just didn’t listen. Either way, most of us have waded through the credit card years and spent many years recovering.
- No like-minded social group. I don’t have many friends who read my writing. It’s not that they don’t like me, or care about me—they simply don’t care about real estate. That’s fine. It makes it tough, however, to find motivation to invest in real estate when you don’t have a community that fosters financial education and growth.
So what’s a person to do? Here are the lessons I have learned.
Harness what you’ve got
Now that I’ve made you feel bad about all the things that are not going well in your life, let’s talk about the things that you do have.
- Motivation. You’ve already read 600 words of this blog post about real estate investing, so you are clearly motivated. Use that. As people get older, they seem to get more complacent in their situation and no longer shoot for the stars.
- Technology. You understand how the internet works, how to handle social media, and how to make a spreadsheet. Even if you can’t do everything, chances are you’ve got a friend (probably on Facebook) who can get it done for you.
- Resources. Our parent’s generation didn’t have BiggerPockets’s wealth of knowledge and community—but we do. Jump into the Forums and ask question. Ask contributors questions on the BiggerPockets Blog. Technology can be a force for terrible time-wasting and for terrific growth.
- Time. Finally, you’ve got the most powerful force in the universe: time. You aren’t looking at forced retirement in five years. You’ve got the next twenty or thirty years to crush it. If you create a solid plan now, you’ll have to work hard not to retire a millionaire.
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The best investing strategy for beginners
Obviously, your first investment depends on your situation. Besides investing in yourself through books, podcasts, blogs, and forums, I believe that most people should start with their primary residence. As I see it, you have two great options:
- Live-in flip: With this method, you live in a single-family home while you fix it up to sell. The beauty of this method is that you have to pay to live somewhere anyways—but there are effectively no holding costs. You could take three months or three years to sell it, but in the end, you’ll profit. Additionally, if you buy with a fixed rate mortgage via a traditional lender—which you should—your payment will stay fixed for as long as it takes. You can even try “house hacking,” where you rent out a room for additional income.
- Small multifamilies: I’m a huge fan of multifamily properties. The second property I bought was an ugly little duplex that my wife and I lived in for a year while renting the other half out. This enabled us to live rent-free and pay down the mortgage with the help of our tenant’s rent—plus, I could quit my job and get into investing full-time. After you leave, those apartments become the first in your investment collection. Additionally, you’ll gain landlording experience that will help for the rest of your career.
What about money?
Yes, real estate costs money. However, both options above allow you to start with a low down payment. In the United States, an FHA loan allows homeowners to buy a property with just 3.5% down payment. On a home with a $100,000 purchase price, this equates to just $3,500 plus closing costs. Can you come up with $5,000 to get started on your financial future? That’s one more benefit of being young: the ability to get out there and hustle.
How can you make $5,000 over the next five months?
Even better, the FHA has another program called the 203K loan, which allows you to incorporate needed repairs into the loan itself and still only pay 3.5% of the total loan amount. In addition, you can use the 203K loan on small multifamily properties as well, combining the benefits of the live-in flip and the small multifamily strategy into one feasible plan.
Start building relationships
I’m going to tell you a secret: Old people like ambitious young people.
It’s true. Just ask any of the old people on BiggerPockets… just don’t tell them I called them “old.” There is something truly rewarding about helping an ambitious young person achieve their goals. I think a lot of it has to do with “I see myself in their shoes” or “if only I had started back then!”
Whatever the reason, it is a fascinating and powerful phenomenon. Use this to your advantage! Build relationships with older investors who have graduated from the school of hard knocks. Let their failures teach you how to avoid or fix your own.
You’ll also want to build relationships with local real estate agents, property managers, and contractors, who will be invaluable as your business grows.
There are two great places that you can start building these relationships today: locally and online.
- Locally, there are probably dozens (if not hundreds) of old-time landlords and real estate investors in your area who may take you under their wing to help mentor and train you. These relationships are often simply a friendship, built over many cups of coffee and errands run for the investor.
- Online, these relationships are built everyday in the BiggerPockets Forums, where investors from across the country get together to help answer questions, build relationships, make deals, and improve the lives of everyone involved.
What about wholesaling?
Wholesaling gets a lot of publicity because gurus love to talk about how easy it is and how you can make hundreds of thousands of dollars in your spare time with no money.
Look. Wholesaling is a real thing. I’ve done it successfully, as have a lot of other BiggerPockets members. But here is my problem with wholesaling: It’s too easy to quit. Most people never make a dime. They jump in because it looks easy, but quit soon after beginning because it was too hard. Or they didn’t make any money—or there was a shiny new object.
Wholesaling is a business. Granted, it’s a business designed for self-employment, with flexible hours and low investment. It’s still a job, though, and requires time, dedication, motivation, and marketing money.
If you can get started investing in real estate by wholesaling, that’s great! Just realize that most wholesalers never get past their education. It’s much more difficult to walk away from a duplex that you just bought than to walk away from a wholesaling career.
Where do I go next?
Time is ticking.
You are getting old. Fast. You aren’t going to be the “whiz kid” for long, so it’s time to start. Evaluate where you are, where you want to be, and the path you need to get there. If you are unsure of any of that, it’s okay. Go post your questions, fears, and troubles in the BiggerPockets Forums. Start connecting with some of the brilliant real estate minds here on BiggerPockets.