How do I invest in real estate at 18?
I’m 18 years old, still in high school, and want to invest in real estate. I have a job where I make roughly $240 every two weeks, and $1000 saved. I want to buy a house preferably before April to get the first time home buyer’s government bonus, but more realistically within 12–18 months once I’ve saved up capital. I plan on having roughly $10,000 in my 12–18 month window.
So far all I’ve been doing is reading and researching. I have spoken to a few financial advisors (all of whom suggested mutual funds), gone to local real estate meetings, read several books and am setting up a meeting with an agent to see what advice he has to offer.
I believe that my biggest obstacle is credit. If I want to be approved for a mortgage, I need an established line of credit (or a cosigner), but I’m not sure I can build my score quickly enough. I applied to for a couple of credit cards all of which were turned down, most likely due to the market. Going as basic as possible I applied for a secured credit card but I feel that this will take too long.
Please let me know of any marvelous ideas you have! Thanks!
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You already know way more than most.
As far as I can tell you are going about it the right way so far, although, if you are wanting to use your accrued savings by april next year then I can’t believe that financial advisers are recommending mutual funds to you, these kind of investment vehicles should only be considered with a minimum of a 5 year investment period. These guys just want their commission, I’m not saying you can’t make money in mutual funds by april but it’s a big risk as you have to be prepared to accept the fact that the value of your investment can go down as well as up. There’s a saying in our industry “It’s time in the market, not timing the market”
@RareDenver Thanks for the tip/s. As to what the financial advisors said, they were just looking for a commission. I did a bit of googling and found them, emailed, and said that I wanted to learn about investing. Period.
When I went in, we spoke about the three main aspects of business: Real estate, paper assets, and businesses. I did not mention a time frame, and that might be one of the reasons they both suggested more traditional and conservative investments, i.e. Roth IRAs and Mutual Funds, and were quite illiterate on the subject of real estate. I don’t blame them because they don’t invest in real estate so it could not be expected of them to know the business.
I’ve honed in on real estate because of these meetings. That plus my reading it seems to be the best investment to me. I’m not looking to make money short term, rather, I’m looking into establishing cashflow.
Thanks!
Do you plan on living in the house, rent, or let it sit?
@johnpowell rent.
I was thinking of working with a rent to won program, where I find an agent who screens tenants with bad credit, and then they would pick out a house which I would buy with a down payment etc, but they would move in immediately and I would have rent right away. Also, they would pay all repairs that would be needed after I did the initial repairs.
What happens when the hot water heater dies or you need to come up with 10K to replace the leaky roof?
@johnpowell in most rent-to-own programs the prospective buyer pays the rent, plus money towards a down payment and they also cover all repairs needed after the contract is entered. Therefore, if it needed a new roof I would know ahead of time before I bought the house and I would either put it in the contract that they would fix it themselves, or, I wouldn’t back their choice of a house.
It sounds like you have a plan, but I’ve never heard of someone with such a low income buying a house. If something goes wrong, you won’t have a lot of wiggle room.
@Haleth That’s a very good point. As I said I plan on making approx. $10,000 before I buy, and then after that I would only buy with a tenant that had been screened and was prepared to move into the house and start paying the rent, which would cover the mortgage plus $200 cashflow or so monthly, and this would be a lock in rate for 2–3 years until the option for them to buy the house.At the end of this time they also have the option of not buying the house, but if they do so then they will forfeit the money that has been set aside monthly (set up in the contract) which would have gone towards their down payment.
If this happens, which would be the worst case scenario, I would walk away with about 50%-100% of a down payment and the house. I obviously would need the cash to pay the mortgage if I didn’t have a tenant, but that would be a few years down the road and I think I would be able to make the payments for a year or so.
Thanks to everyone for the input! It’s been really helpful so far!
Are you in Sweden? My sisters mortgage is 1800 per month and it isn’t that good of a house.
@johnpowell I lived in Sweden for 6 months. Does your sister live in Sweden, or were you just stating that that is her mortgage? I live in the boondocks of Lancaster County, PA. Real estate is quite cheap here. A row house 5 years ago went for about $80,000–100,000, and I would presume there are better deals out there.
Find a lean new real estate agent. The older more established ones are not always that eager to work with you, but one who is just starting and needs the commission will bend over backwards.
Sometimes you need to get a second job long enough to get the loan. But that is the key, you must have the ability to service the loan, pay the taxes, fix the roof, etc. even if the house should become vacant for a couple of months. It used to be said, I don’t know if it still holds true, that economic viability is when you have 6 months living expenses in the bank and a modicum of security comes with 12 months in the bank.
You just want to be sure you don’t get in over your head and end up in a position where you might ruin your credit for years to come by defaulting on the loan or something like that.
Ok…let me just say this…if cricketonastick and I had met at the same age I would still be married to him. I love his thought process. I think he is cute. I think he could make me money. Everything I am not. Plus..I probably never would have gone lesbo….
I was just saying that for the amount of cash you have you will probably end up with a shithole that needs lots of maintenance. When the roof leaks onto your tenants computer you will have to pay for it.
And I just wanted to know where in the world you are since that makes a huge difference.
With such a small amount of money, I suggest you go with a real estate fund and let them manage the investment. It’s highly unlikely you could find the type of Rent to Own contract that the tenant agrees to the maintenance. Usually the RTO contracts simply set aside a part of the rent for a future downpayment, but all the other risks of owning a house stay with the owner.
You could always do what I did (I’m 23).
I saved up some money, then purchased a house that was foreclosed on. I got mine for $5,000. It needs a little bit of work (mostly new flooring), but with the economy being the way it was, the bank was just trying to recoup some of its loss from a person defaulting on a $45,000 loan.
If you don’t mind putting some work into a house, this might work for you.
@rooeytoo Thanks for the tips! This information will be really helpful once I embark on the final leg of my quest!
@Sueanne_Tremendous Lurve you too! ;)
@johnpowell My parents bought a house 5 years ago while the market was still doing well. They had an $8,000 (or was it 12?) down payment on an $81,000 home. Though not massive, the house (my home) is 4 stories (including livable attic and ½ finished basement), and we have not had any major problems since purchase.
@YARNLADY I actually just came across real estate funds today and mean to look into them in the future. Do you know what the major differences between these and Mutual Funds are? As to RTOs, I have found information to be contrary to your view. In multiple cases in my reading, though that does not mean it is correct. Here’s one source from HowStuffWorks , fourth bullet point down.
PS, you have an AMAZING name!
@gailcalled I’ve thought of fixing it up/living in it, but I feel that this would be much riskier because I would rely much more on my skills than those of others. With RTO, the majority of the work would be done by an agent, and I would provide the cash for the investment. I will probably get into this more profitable real estate market later in life.
@Lacroix My backup plan!
REITs
Mutual bond funds
REITS pay a nice dividend and are a hedge when the stock market tanks.
There are a number of different bond funds; municipal, gov’t, taxable, tax-free.
In neither case do you actually own something tangible. They are both places to invest cash in.
@gailcalled I second REITS. I think they are the safest way to invest in real estate, especially short term. In the long run (over 5 years), purchasing a home and living in it works well.
The REIT I own lets me DRIP (dividend reinvestment program) automatically with no fee.
I own my own home, and the real estate taxes (NYS) are killing all of us. This county is underpopulated due to farm land and huge tracts of property with homes (I own 20 acres and pay dearly for it) so the tax base is thin.
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