Invest in Real Estate while in college. Dreaming big or crazy thoughts?

[Krum312]

I have been reading this blog as well as the forum for a little over a year. I am working on many changes to improve myself as well as my future. I have worked in the service industry for most of my life, and while I have enjoyed some aspects of retail, military and restaurants, they are not high income professions. I enjoyed the freedom of waiting in tables in restaurants. There are not many jobs where I could make my own schedule, take off whenever I wanted to, and make enough in one or two weekends to pay all my bills. I believe the army taught me to appreciate my freedom, and serving in the middle east has given me some freedom with a lifetime of free healthcare from the VA. Three years ago I started taking classes to get into a Radiologic Technology program at the local community college. This fall I am starting this program that will last 23 months. The school and the program has a great reputation. I am excited about a more mentally challenging career, more opportunities to serve the community as well as an active work environment. I will begin getting hands on experience in hospitals in a few weeks and every Tuesday and Thursday will be like a job interview. I hope to have an opportunity to work four tens or three twelves to have more days off. I believe the healthcare field will provide many opportunities for growth in addition to easy relocation opportunities.

I have been learning and researching real estate investing. I took a class for real estate agents through Keller Williams. I do not think I would like the lifestyle that comes with being a real estate agent, but I was interested in learning more about the field. The agency gives their agents the book written by Gary Keller, Millionaire Real Estate Agent. I found the one better suited for my interests in a used book store, The Millionaire Real Estate Investor. One of the main points I learned from this book was to only purchase properties at least 20% below market value. This is typically how I purchase my used vehicles. I am more interested in buying, holding and improving than fixing and flipping. I would like to improve rentals to make them more "green" or energy efficient which will appeal to renters looking for lower utility bills. I have listened to audio books including 50 Prosperity classics: Attract it, Create it, Manage it, Share it. This lead me to the Millionaire Next Door and The One Minute Millionaire. I am interested in suggestions of good reads for a beginner real estate investor. I am thinking of asking a facebook "friend" if they can refer me to any investors in the area who can teach me from their experience. My main educational focus at the moment is radiology. I would like to continue learning the best ways to invest my savings.

I do not actually have savings at the moment, and I am also nearly debt free with no car loans, student loans, or credit cards. My parents have helped with tuition for the first time since I was in high school over ten years ago. The entire cost of my radiology program is less than the cost of two years of the high school I attended. I am currently living with my grandma who is very healthy. I believe the companionship I bring into her home is as beneficial as the peaceful study environment she provides for me. My hometown of St. Louis appears to provide great investment opportunities with 2+ bedroom homes in great neighborhoods for under 100k. Here is one advertised at 75k and currently rented at $900. According to Zillow it is valued at $120k and was purchased seven years ago after foreclosure for 42k. I read about investors starting out with $1 in earnest money subject the terms of the current owner. I do not feel that I am currently ready, and I would like to know what I should do to feel ready or prepared to make this type of investment. Which books or blogs would you suggest? Did you or anyone you know start real estate investing with little to no savings?

I would really like to have rental income and take an extended vacation before starting a job in radiologic technology where extended vacations are not really possible.

Thanks

[ac]

My opinion is that rather than deal with real estate you should

1.  open a vanguard account
2.  put all investment funds into commission free vanguard etfs
3.  allow that to grow passively and not deal with real estate hassles

[shotgunwilly]

My opinion is that rather than deal with real estate you should

1.  open a vanguard account
2.  put all investment funds into commission free vanguard etfs
3.  allow that to grow passively and not deal with real estate hassles

Don't listen to this.  If you want to invest in real estate, then it is a very viable way to grow a nest egg or fortune.  If it's something you really want to do, then go for it.  But, don't get ahead of yourself.  Start saving as much as possible and in the meantime research research research.  Meet as many people in the business as you can and make contacts.  Try to minimize mistakes (i say minimize because you surely will make atleast a few.)  It is a good idea to diversify investments also. So, while real estate could be great, investing in index funds as well would be wise.  Sometimes you have to forgo one or the other for a while to get started though.   

[Cheddar Stacker]

Try biggerpockets.com for some good resources.

I would suggest your first investment should be one of these options to build some capital:

1) An undervalued single family that you can live in, rehab slowly, and sell after 2 years to avoid any capital gains.
2) An undervalued multifamily (2-4 units) that you can live in one while fixing and/or renting the other units out.

I'm in St. Louis. I know you can go lower than $100K for a SF in certain areas that are fairly solid markets. I don't do this myself yet because I have a full time gig and a family to support, but if I was just starting out again this is the path I would start with.

[Dicey]

What Cheddar Stacker said. Another angle is to buy and get a roommate (or two) to help pay for the mortgage and/or improvements. Works for either option one or two as described by CS.

There is no better time to dream big than when you're young. There's also no better time to start saving for retirement, so I'd be sure to do that too.

Instead of RE books, I'd look for a mentor. Find a real-estate old timer who's been there, done that. Buy them coffee/breakfast/lunch and pick their brain. After all, if you don't have a license, you're going to need a pro to handle things for you. Then go get your own license after you finish school. Doesn't mean you have to make a career of it.

Next, I'd focus my energy on learning how to do the most common household repairs. Learn how the systems work. Until you are far enough along to afford to hire help, you're going to want to know how to handle this stuff yourself. Being able to handle DIY repairs will save you a ton of money in the long run. It'll also save you money if/when you hire things out because you will know what a job is worth.

If I was your age and in that kind of market (purchase cost vs. rent potential) I'd do it just like washing my hair. Lather, rinse, repeat.

[Krum312]

Thank you for the responses. I am more interested in real estate investing because I can get more use out of or get more enjoyment out of real estate investments. I feel like I would have more control and more ability to improve my investments. I want my investments to provide people with a better place to live.

St. Louis has many opportunities in the city. After growing up in the suburbs, I learned there was a night and day difference between the city and the county. Thanks to the Great Divorce between the city and the county in 1876, St. Louis different than most cities in many ways. I have lived in many great neighborhoods in the city and they all have their unique character and culture, including Delmar, Dogtown, Soulard, and Tower Grove South. The property I mentioned in the original post was from a quick craigslist search in the dogtown neighborhood. This area is walking distance to the largest city park in the country with the best free Zoo. It is also close to great universities like SLU and WashU which makes it a great location for rental properties.

Some of the key points that have been brought up in this thread as well as in the books that I have read are the importance of networking and mentors. Through friends or family or websites I will find someone who has plenty of experience investing in real estate in the areas that I would like to get into. Two blocks away from Delmar, which was named one of the greatest streets in America, I shared a five bedroom home with a few people. The Soulard neighborhood has had a great farmers market since the 18th century and the homes to buy, rent and share are remarkable. I will certainly look into education and networking options at biggerpockets.com

[chesebert]

I wouldn't bother with landlording if you will be in a high-paying field. You can get to FI easier, faster and with less hassle and more diversification by just saving 70% of your income and invest early.

I have a couple of rentals. But those comprise a fraction of my entire portfolio and they are there primarily to provide diversification in my asset classes and a hedge against rise in interest rate. Based on my calculation, the value drivers for RE investing are really the amount of leverage and appreciation. Cash flow is great but in the grand scheme of things, it's effect on IRR is not all that impressive. You can build a simple model and run a data table with different rental and appreciation amounts to see the effect for yourself.

[iris lily]

Thank you for the responses. I am more interested in real estate investing because I can get more use out of or get more enjoyment out of real estate investments. I feel like I would have more control and more ability to improve my investments. I want my investments to provide people with a better place to live.

St. Louis has many opportunities in the city. After growing up in the suburbs, I learned there was a night and day difference between the city and the county. Thanks to the Great Divorce between the city and the county in 1876, St. Louis different than most cities in many ways. I have lived in many great neighborhoods in the city and they all have their unique character and culture, including Delmar, Dogtown, Soulard, and Tower Grove South. The property I mentioned in the original post was from a quick craigslist search in the dogtown neighborhood. This area is walking distance to the largest city park in the country with the best free Zoo. It is also close to great universities like SLU and WashU which makes it a great location for rental properties.

Some of the key points that have been brought up in this thread as well as in the books that I have read are the importance of networking and mentors. Through friends or family or websites I will find someone who has plenty of experience investing in real estate in the areas that I would like to get into. Two blocks away from Delmar, which was named one of the greatest streets in America, I shared a five bedroom home with a few people. The Soulard neighborhood has had a great farmers market since the 18th century and the homes to buy, rent and share are remarkable. I will certainly look into education and networking options at biggerpockets.com

Soulard  is likely way overvalued, it went sky high in the real estate run up a few years ago. While there are always deals to be made anywhere, I would not look there. But hey, it depends entirely on the property. I  live next door in Lafayette Square where the deals no longer exist, everything has been driven up.

Benton Park, "Soulard's little brother," has had continuing rehab activity even after the real estate bust. Look there if you like the historic districts, it seems to be a hub of activity. I love Benton Park! I own a tiny house near the Venice Cafe in the sweet spot of Benton Park. We aren't ever going to fix it up and yes it will be for sale, and no it's not a good project for a beginner like you.  :) It's too small at 550 sq feet and it is a horrific wreck but is potentially the Cutest House in the World. We bought it to have the extra garden space. (I may post a photo link later.)

http://i205.photobucket.com/albums/bb111/kprp/sept262010036_zpse44bea5e.jpg?1409286213267&1409286226838

Also Forest Park SE is really hopping, with all of that development along Manchester, and to my casual observation there appears to still be buildings to be fixed up.

[Krum312]

The field that I am going into would certainly not be considered a high income field. The average starting salary is less than 45k in my low cost of living state. I see real estate investing less as a quick means to FIRE and more as a benefit to my lifestyle choices. I haven't lived in the same home or neighborhood for more than two years since I graduated high school. Some might say that it would be better to rent with a lack of stability. I will certainly have have more stability when starting my new career field. It may be more practical and more profitable to invest in real estate in a small confined area. My passion for adventure and exploration drives my desire to invest in more far away areas. When I travel, I prefer to camp or stay in a hostel, couchsurfing, or airbnb in order to meet locals and other travelers. I would prefer to stay with friends or family to spend more time with them. When moving out of a home, instead of selling it, I would rather turn it into a rental property that can also function as a vacation home. I might need to look more into multi family units. This sounds very challenging, but the easy way is usually less fun and less mustachian.

Iris Lilly, my interest in Soulard is mostly because I have lived and worked in the neighborhood and would enjoy living there again. I am sure there will always be a rental market in this area. While it may be overvalued at the moment, I am sure it the long run it will only increase in value as more and more properties are being renovated and updated. At some point in the future I am sure there will be deals. I would be interested in Benton Park as well as Lafayette Square. I think Benton Park depends a lot on which side of Jefferson you are on. When you say SE Forest Park is that next to The Grove? East of Kingshighway? Or is SE Forest Park referring to the condos that have come up in place of the old arena?

[NICE!]

As a small aside here, I absolutely disagree that the military isn't a high-earning profession...if you're an officer. In a high COL area you will be making near $100k once you make O-3 (4 years in Navy/Marines/Air Force; 3 years in the Army/Coast Guard, I think). Making high 5s or low 6s in your late 20s/early 30s? I'll call that high-earning.

A mistake most people make is just looking at the base pay without realizing there are two incomes added to that which are free from federal income tax - housing allowance (adjusts to where you live) and subsistence allowance (not adjustable, around $200/month for officers). All things considered, an O-1 (Lieutenant) straight out of college makes over $50k when you consider the tax benefits. Then, depending on timing of promotions (service-dependent), you get raises at 24 months, 36 months, and 48 months. Significant raises.

Some career fields will outpace this, but few get you paid that well that early. We can debate the difference in wages versus responsibilities, particularly when you go past the O-4 point. For example, colonels/captains and generals/admirals are massively underpaid considering the fact that they are basically CEOs of medium-sized (or large-sized) corporations.

A Navy/Marine/Air Force officer's raises, for example:
2 years (promotion to O-2): ~$900/month before the housing allowance bump, so well over $1k/month
3 years (seniority bump): ~$575/month
4 years (promotion to O-3): ~$780/month before the housing allowance bump, so again well over $1k/month

[RFAAOATB]

As a small aside here, I absolutely disagree that the military isn't a high-earning profession...if you're an officer.

Considering the mention of going to a community college after the army, I'm going to go out on a limb and guess this potential investor was one of the wretched souls like I who survived and escaped the dehumanizing ghetto of enlisted serfdom.

[iris lily]

...Iris Lilly, my interest in Soulard is mostly because I have lived and worked in the neighborhood and would enjoy living there again. I am sure there will always be a rental market in this area. While it may be overvalued at the moment, I am sure it the long run it will only increase in value as more and more properties are being renovated and updated. At some point in the future I am sure there will be deals. I would be interested in Benton Park as well as Lafayette Square. I think Benton Park depends a lot on which side of Jefferson you are on. When you say SE Forest Park is that next to The Grove? East of Kingshighway? Or is SE Forest Park referring to the condos that have come up in place of the old arena?

Benton Park neighborhood is only on one side of Jefferson, the east side.  There is a neighborhood called "Benton Park West" that's west across Jefferson that I would not buy in.

And that's something to keep in mind: neighborhood boundaries, they matter. Don't let real estate agents blur them, and don't take a real estate agent's word that a property is in a particular neighborhood.  They are often clueless. Neighborhood boundaries matter because

1) city ordinances detail what construction is allowed on exteriors of properties, dependent upon the neighborhood

2)  neighborhood organizations are strong or weak, depending on the 'nabe. I can assure you that there is a huge different between Lafayette Square's organization and the one (or lack of one) in Lafayette Terrace, just across the street from us. A strong neighborhood organizes resources against crime, in support of business, in support of homeowners, etc. It's important in the city.

Yes, Forest Park SE is the neighborhood of The Grove. To me the North side (if I have my directions right) looks much better than the south side, and some serious money has gone into that area in recent years even in the real estate downturn.

 

There's nothing wrong with Dogtown, lots of good houses there.

 

[iris lily]

Some more thoughts about St. Louis investing:

If you are interested in an historic neighborhood in the city, understand that there are codes that govern what you do to the outside of your building. They dictate windows, doors, facing material, roofing materiel, etc. They dictate fences (where they go, what material you must use) and  retaining wall materials and sidewalk materials. And they dictate lots of other things.

I mention this because people move to these places and then are "surprised" by these regulations. If you don't like the idea of these, don't buy in a place that is regulated this way.

If you buy a building in need of renovation, are you going to do the work yourself? Keep in mind that Big Nanny ordinances now limit where you can live if it doesn't pass inspection before you move in. I find this tragic since it eliminates the time honored tradition of building real sweat equity.  DH and I moved into our house 25 years ago and there was electricity in only 3 rooms, there was no staircase bannisters, drywall was up in only a fraction of the house and etc. Now Nanny has removed that option and I think my city is poorer for it.

The city needs tough, independent types who lean Libertarian, this ordinance is for sissies. :)

Stepping off my soapbox now, I wish you luck!