Real Estate

[phenom831]

ok so i have this idea. since the market is slow right now and prices for houses are low it is obviously a good time to buy land/propery. i want to purcase homes and rent them out untill we (hopefully) come out of this recession and then sell the homes. Since i am only 18 i don't really know where to start. i plan to use the money from rent to pay the payment on the loan i get to buy the house and hopefully make a couple hunred extra. im not sure where i could get a lone being only 18 does anyone have any suggestions or does any1 see any flaws in my plan?
Thanks

[TheRule]

Yes. I see MANY flaws in your "plan". The main one being that I see no plan. I see an idea in it's infancy, yet a plan must start as an idea so your on the right track.

How much do you know about real estate already and are you willing to put yourself into long term obligations with not only your financial responsibilities but the lives of the tenants?

For someone starting in real estate I would highly recommend becoming a Property Locator. In other words, you identify potentially profitable real estate properties and then take that information to a real estate investor for a fee. The great part about this is you require no money of your own. Their is no risk because you are not directly involved in the deal. AND! you get to learn exactly what is necessary in locating a profitable real estate deal WHILE getting paid for it. Lets hear what you think.

[Earthbound01]

Not exactly new but it is a solid idea. Being a landlord seems like the easiest thing in the world where people just pay your mortgage but there is more to it.

At 18 and in this economy it is definitely near impossible to get conventional financing. You might want to try getting someone to co-sign the loan. You can look for houses that offer seller financing. If you have the capital there's always a way.

You should also be building your credit now. A steady work history and opening some credit cards and making regular payments is a good thing.

When you eventually can buy a house you can start off with just renting a room out then move to actually renting houses out. For a little less profit you can hire a property manager to oversee things. These really can be worth the small cost as they take care of most everything. Some will even help you find tenants.

Hope this helps and good luck! If you have anymore questions I'll try to answer them.

[jbeaton04]

go to college

[Chris Brooks]

You could try interning at a local reality business as a property locator. That might help the age factor. Best of luck!

[TheRule]

^Boo.

You will get paid less than just running your own property locating business. Not to mention the experience of running your own operation is worth it's weight in gold.

[Chris Brooks]

I totally agree TheRule, the only reason I mentioned interning is because the market is very tough out there so a great way of getting experience at the age of 18 is to intern.

Plus the reality business tends to run very deep with relationships. Meaning that if I were a home buyer and had a great agent with a great relationship, why would I switch especially to someone who is 18?

No offense phenom831, but if I were looking to buy some land, which even in a recission is still a large amount of money I would be weary of an 18 year old selling it to me. That is why interning is a good idea. You are still able to get the experience and build relationships but without staking everything you have on it. Hope this helps

[noob]

Not exactly new but it is a solid idea. Being a landlord seems like the easiest thing in the world where people just pay your mortgage but there is more to it.

I highly disagree with this. From experience as a person who's been in all facets of real estate from rentals to development to presales and condo conversions, I can tell you its not always as solid as it sounds and its not always as easy as it seems. If you're lucky and you land the right tenants, you may luck out in terms of collecting rent (which isn't so bad because if you're good at finding tenants, this is definitely one of the easier components). However there are all sorts of issues to look into, for example, what if repairs need to be done FOR any reason whether its because its time for repairs to kick in or the tenant "accidentally" damage something. You can't even fault the tenants at times because you can't prove it if this is the case and its your responsibility to fix things in a timely manner.

Property taxes and utilities bill adjusts each year (particularly with water) and so the mortgage price although on a fix rate (assuming you got this) still changes, sometimes for the worse and you can't always just increase rent. If you have a problematic tenant, there is a long process to get them out, you can't just legally kick them out. If you rent to college students and they throw parties, when they move out a year later, guess who needs to fork the bill to fix the issues. Sure you can try and go after them for the money if they're responsible but often time if they don't pay, its not even worth the legal fees and headache to chase after them (which ends up costing you more in the end).

Now lets assume that its not just that. You also got to pay people to take care of the property if its a house like lawn, etc... If its a condo, you got to deal with the HOA. There are a million other things to consider. At the end of the day, I still believe real estate is beneficial to get into and in no way am I deterring the OP to not consider it. However go through every scenario you can before you decide this is what you want to do. Your idea is not new at all, as a matter of fact, almost every real estate person who ever considered buying property to rent them out, has cross that idea.

Also think about if your tenants move out and you can't find a tenant to replace them, how will you cover the mortgage on top of your own rent. Due to the economy today, its not uncommon for a place to go unrented for several months. Also consider that if you lower your rent price, your plan may fail and you may end up forking a part of the mortgage each month on top of your current costs. Again, there are a million things to consider, and its not always as easy as it sounds. But its definitely worth exploring.

That said, at 18, I agree that you may not have the credit or the income (although I could be wrong) to qualify for a mortgage on a good rate or even to qualify at all requiring you to have a co-signer if even that would work. Just some things to think about. Start off slow if you do decide to do this.

[Earthbound01]

I highly disagree with this. From experience as a person who's been in all facets of real estate from rentals to development to presales and condo conversions, I can tell you its not always as solid as it sounds and its not always as easy as it seems. If you're lucky and you land the right tenants, you may luck out in terms of collecting rent (which isn't so bad because if you're good at finding tenants, this is definitely one of the easier components). However there are all sorts of issues to look into, for example, what if repairs need to be done FOR any reason whether its because its time for repairs to kick in or the tenant "accidentally" damage something. You can't even fault the tenants at times because you can't prove it if this is the case and its your responsibility to fix things in a timely manner.

Property taxes and utilities bill adjusts each year (particularly with water) and so the mortgage price although on a fix rate (assuming you got this) still changes, sometimes for the worse and you can't always just increase rent. If you have a problematic tenant, there is a long process to get them out, you can't just legally kick them out. If you rent to college students and they throw parties, when they move out a year later, guess who needs to fork the bill to fix the issues. Sure you can try and go after them for the money if they're responsible but often time if they don't pay, its not even worth the legal fees and headache to chase after them (which ends up costing you more in the end).

Now lets assume that its not just that. You also got to pay people to take care of the property if its a house like lawn, etc... If its a condo, you got to deal with the HOA. There are a million other things to consider. At the end of the day, I still believe real estate is beneficial to get into and in no way am I deterring the OP to not consider it. However go through every scenario you can before you decide this is what you want to do. Your idea is not new at all, as a matter of fact, almost every real estate person who ever considered buying property to rent them out, has cross that idea.

Also think about if your tenants move out and you can't find a tenant to replace them, how will you cover the mortgage on top of your own rent. Due to the economy today, its not uncommon for a place to go unrented for several months. Also consider that if you lower your rent price, your plan may fail and you may end up forking a part of the mortgage each month on top of your current costs. Again, there are a million things to consider, and its not always as easy as it sounds. But its definitely worth exploring.

That said, at 18, I agree that you may not have the credit or the income (although I could be wrong) to qualify for a mortgage on a good rate or even to qualify at all requiring you to have a co-signer if even that would work. Just some things to think about. Start off slow if you do decide to do this.

I still think it's a solid idea despite all the things that can and will go wrong. Like I told the OP, I think he should start off small maybe renting out a room in his personal residence and then move on. And I don't think anyone said it was a new idea. I just said it wasn't.

One thing you can do to prevent having to always be responsible for constant repairs is to put a clause in the lease stating that the tenant is responsible for repairs under x-dollar amount.

And there's plenty of services out there to find good tenants. Landlordsystems.com and your local property management office can all recommend good tenants. Friends and maybe even family may seem like a good idea but the emotional aspect can get into it if there short of the rent.

If you're renting to college students it's a good idea to keep the security deposit much higher than other tenants and to make them all responsible for the lease. In a situation where one of the kids need to drop out the students will find another person to come in.

I think noob's list is a good list of pitfalls and obstacles to worry about but like I said it's still a tried and true method of making a good living.

And I forget to address the OP's flipping part of the plan. If you're trying to flip you can buy your first house and get a fixer-upper. Flipping is a whole different side of real estate. Unforeseen problems such as termites, cracked foundation, or a roof that needs to be replaced can quickly eat into your budget. A decision needs to be made as to who is going to fix the place up. You and your loved ones? A contractor? Will the repair costs go over the budget? (This is usually a yes.)

There's a lot to deal with but real estate in general can be fun and rewarding!

[frdsmth9]

Real estate investment involves the commitment of funds to property with an aim to generate income through rental or lease and to achieve capital appreciation. Real estate refers to immovable property, such as land, and everything else that is permanently attached to it, such as buildings. When a person acquires real estate, s/he also acquires a set of rights, including possession, control and transfer rights.

Understanding real estate investment is crucial because it usually involves a substantial investment and a long-term one. Moreover , the real estate market can be unpredictable. This is particularly important when one goes beyond buying a home to actually “investing” in real estate. There are a number of ways in which an investor can participate in the real estate market.

[noob]

I still think it's a solid idea despite all the things that can and will go wrong. Like I told the OP, I think he should start off small maybe renting out a room in his personal residence and then move on. And I don't think anyone said it was a new idea. I just said it wasn't.

One thing you can do to prevent having to always be responsible for constant repairs is to put a clause in the lease stating that the tenant is responsible for repairs under x-dollar amount.

And there's plenty of services out there to find good tenants. Landlordsystems.com and your local property management office can all recommend good tenants. Friends and maybe even family may seem like a good idea but the emotional aspect can get into it if there short of the rent.

If you're renting to college students it's a good idea to keep the security deposit much higher than other tenants and to make them all responsible for the lease. In a situation where one of the kids need to drop out the students will find another person to come in.

I think noob's list is a good list of pitfalls and obstacles to worry about but like I said it's still a tried and true method of making a good living.

And I forget to address the OP's flipping part of the plan. If you're trying to flip you can buy your first house and get a fixer-upper. Flipping is a whole different side of real estate. Unforeseen problems such as termites, cracked foundation, or a roof that needs to be replaced can quickly eat into your budget. A decision needs to be made as to who is going to fix the place up. You and your loved ones? A contractor? Will the repair costs go over the budget? (This is usually a yes.)

There's a lot to deal with but real estate in general can be fun and rewarding!

As mentioned, finding tenants is but a small portion of it. I wouldn't always rely on property management firms because there are good ones and there are sloppy ones as well. It comes with the territory and you'll have to play your hand at hoping to find a good one for a decent rate (usually a fix percentage of the rental price). I would definitely agree with starting small if you plan on going this route. That said, even if this is a tried and true method, I firmly believe that there are better places to invest your money if you have that kind of money to invest at this point in time that will yield higher returns. The chance of getting a loan approval in this market is probably more probable if you have at least 20% or 30% down payment and a strong credit history (in this case, your co-signer).

Even if the home prices are down, you'll still need to fork out a sizable chunk of cash, not to mention escrow and in the case that the seller decides to back out, you'll lose all the escrow cash. By no means am I trying to deter you from doing this. I am simply trying to help you realize the full picture before making the decision. There are positives and negatives to both sides of the argument and it can go either way. But at 18, I would probably build up your cash reserves first and credit, then figure out the next step.

[phenom831]

thanks for the responses and yea i think you guys are right that this might be to much for me to take on right now at 18 but i deffinitly want to look into being a property locator to gain some experience and hopefully a little cash too

[1youngphenom]

Your first problem is going to be getting a mortgage. With the current credit crunch, it is real hard to get a loan for just about anything unless you have A credit which is 660 or higher with verifiable source of income. Since your so young, your going to have to probally have someone co-sign for you. That's just to get your first property. Buying multiple properies are going to have to be harder because the banks sees these as investments and are going to need you to put roughly 20-25% down on these property along with being able to qualify and be able to prove the you can pay for them. It's not as easy as it seems.

[Ctash]

My dad owns two duplexes that generate additional income for our family. That is one of the toughest aspects when investing into a property. Sure the price may good, however by the time you add in maintenance, insurance, utilities etc. you will be loosing money. One thing that I was considering doing is launching a rendering service available to realtors. You do not need any certification or degree.