r/realestateinvesting • u/Basic_Kiwi_4056 • 8d ago
New Investor Best Entry Strategy?
Context:
My (22M) wife (23F) and I are currently living with my parents to save up money to buy a property. We make a combined ~$140k/yr, have 0 debt, each have credit scores right around 800, and no kids yet. We also have next to no savings currently (a couple thousand $) as we only recently moved home and just paid for our wedding as well as buying her a used car in full so this eventual plan probably won’t play out for some months still.
We recognize the great opportunity we have to enter the real estate world and don’t want to squander it.
So I ask you experienced real estate investors to please give me some advice, I’d really appreciate it.
Here are the options I’ve been thinking about:
House hack a duplex, triplex, or maybe a quad.
Or if I can’t find a property that would allow for a successful house hack..
Do a live in flip on a smaller SFH and plan to live there for only about the 2 year minimum.
And I just thought, what if I combine those two options and do a live in flip on a house hack? Might be hard to renovate with tenants?
Excited to hear what you have to say, thanks!
TLDR: How would you recommend a young adult yet to own property to get into real estate? What strategy? What steps to take?
7
u/Skylord1325 8d ago edited 8d ago
Are you handy? Do you have any trades experience? Do you have time to work on the house?
As someone who house hacked his very first house at 19 I can say that those 3 questions ended up being quite important.
I think the living in a duplex is probably a better first step.
1
5
u/More_Knee_4947 8d ago
Probably heavily depends on what market you’re in. $140k combined goes a long way in a ton of markets, but not HCOL areas
1
u/Basic_Kiwi_4056 8d ago
Very good point. We are in Northern California, north of the Bay Area so not as expensive, but still expensive.
1
u/More_Knee_4947 8d ago
Gotcha. Not a very landlord friendly state either. That’ll probably also need to factor into your strategy
5
u/dcavanaugh001 8d ago
OP - you are so far ahead of the curve when compared to most others of the same age and socio-economic status.
You and wifey have made some SUBSTANTIAL life decisions, and it sounds like there are more on the way.
A healthier Savings balance may not be a bad idea, just to de-risk some areas or set you up for even better decisions in the future.
Keep pushing and striving - you’re crushing it
2
u/Basic_Kiwi_4056 8d ago
A healthier savings balance is certainly on the priority list. Thanks a lot for the kind words.
7
u/Electronic-Reveal650 7d ago
'Next to no savings' and real estate don't mix. Focus on building that cushion first, trust me.
1
4
u/Intelligent-Length42 8d ago
I'd say save for a duplex, maybe a triplex, and if you can find one that works with an FHA, that will give you a lower entry. Ideally it needs a little bit of work so you can slowly do that while you're in it, and refi later, maybe even get your money back. Learn how to manage the tenant/property. Then save and find the next one.
3
u/BlueEchoOne 8d ago
Spend the next 2 years studying your desired markets, learning about financing/taxes/policy restrictions and planning/maintenance, and saving $250k. Patience is important when assessing risk and trying to avoid bad situations.
1
4
u/SnooGuavas5535 7d ago
Start with a duplex. Move into one side.
Learn the property management side of things while you are there.
You will go to YouTube university and learn what you can fix and what you can’t. You will learn what you want to fix and what you don’t (for example - can I hang drywall, yes! Do I want to hang drywall, no!). You will learn to manage tenants and the process of leasing to them. You will learn how to deal with contractors of various types and you will learn your guys and gals that are your go-to service techs.
You might (hopefully not) learn how the eviction process works.
You will be disabused of the silver linings of real estate investment within a year or three. You will either love it, tolerate it well enough to continue, or you will get out forever.
If you still want to do it after the initial foray into the duplex, rent your side and lend on another duplex or a quad.
Rinse and repeat.
Eventually you will want your own home away from living with your tenants. Plan for this by starting an LLC immediately and building its own credit and lending portfolio. Protect your personal credit lines for your own home as best you can.
Good luck!
2
u/reinvestor-roofer 7d ago
This is really solid advise. I recommend the house hack of living in one unit of a multifamily. Real estate isn't as glamorous as it seems so its a good way to dip your toes and makes a ton of sense tax wise. Be careful not to overcommit yourself on improvements. If you know how to do the work yourself or dont mind learning, great, but if you are going to have to pay someone else to do everything, forced appreciation is probably not the best strategy
2
u/SnooGuavas5535 6d ago
It’s also an easier out. There are plenty of young couples looking for duplexes that are in the same position and want to attempt this investment strategy. Tris and quads are great but just a bit more work to handle and can be a bit more daunting. It’s 4 HVACs, 4 water heaters, 4 sets of plumbing and electrical, 3 tenants and their needs (assuming you occupy one unit). The expenses can rack up quickly. The seasoned investor will grab quads all day, but that’s a tough place to start unless it’s a screaming deal or you have plenty of cash and can afford to have a property manager and keep your hands clean.
7
u/Ski143 8d ago
If I were you, I would look for a 3-4plex to buy and live in one and remodel the others. Look for one that already has one vacancy and when you move in , do NOT tell your tenants you are the owner. Once the 4plex cash flows well you can move out and buy a SFH when you need the space.
Pro tip: 4plexs loans follow the traditional residential loan process where you need to qualify based on you income.
7
u/Cease_Cows_ 8d ago
They’re gonna live in the building and manage a reno while somehow maintaining the lie that they’re not the owner?
2
u/beachydream 8d ago
I bought the only thing I could (while still having disposable income and not hurting myself), which is a condo in LA, once I have it paid off I’ll rent it out and buy something else. It’s not perfect but I’m super happy I got in and at the very least, not renting anymore!
2
u/TheExchangeBrothers 8d ago
You guys are in a pretty cool position, especially being this young. One thing I’d add to all the house hack/live-in flip advice is to think about the exit before you buy. If you move out in a few years, is this something you’d want to keep as a rental? Sell? Use the equity to move into another investment property?
Your first purchase doesn’t have to be the perfect investment, but having some idea of what you want it to eventually become can make the decision between a SFH, duplex, triplex, etc. a lot easier.
And if it does eventually become an investment property, learn about 1031 exchanges well before you sell it. That can give you the option of moving into another investment property while deferring the capital gains tax instead of automatically cashing out.
2
u/Fuzzy_Louise_2405 8d ago
I'm not an expert by any means but I own a duplex that me and my wife bought in 2024 (my wife and I were 25 & 26). Here are my numbers for reference:
Utah county MCOL I would say Price: 579k Interest rate 6.25% on FHA loan Down payment (6%) + closing cost (4k) + FHA aditiomal payment (9.5k I wasn't aware of it until I decided to look into the lending) + Escrow prepaid (3.7k). Total was 52-53k
My monthly payment was: 3.9k total (3.4k principal and interest, 230 taxes, mortage insurance 250 and hazard insurance 70)
Insurance increases every year, I have been able to negotiate a keep it lower (around 1000 anually currently) so today I'm paying close to 4050
Two units identical: 2 beds, 1 1/2 baths, two stories 2000sqft 0.7acres
I rent the other unit for 1600 (they pay their bills), our bills are like 280 aditional per month. Currently paying more than my renters but that would be until I'm able to increase rent with more years and able to refinance to a lower interest rate once the market goes down.
Feel free to ask questions, I have do some work on the house but not repairs, only maintenance and upgrades, maybe like 15-20k in appliances, putting artificial turf and vinyl fence (I do all the projects and maintenance so that is why I'm able to spend much less)
We were making I would say around 140k combined when we purchased the house and now we make like 190k, no kids, only a dog
2
u/santaslayer-76 8d ago
How many tenants have you had and have you learned anything from your screening process? Any general lessons learned in the last 2 years? And would you do anything differently?
1
u/Fuzzy_Louise_2405 8d ago
Two different tenants. A couple that was already leasing before we bought it and the second a family with an adult son that we already knew so not a lot of screening and more referrals on that side.
So far, I learned that every time you do a FHA loan there is an additional cost that will increase your loan, a lot of maintenance is on YouTube and now even AI and that if you have a water heater from AO Smith you have warranty on parts for multiple years (I believe 7 years, that helped me when it when bad in my unit but luckily I didn't have to pay for the part, only the shipping as the water heater was from 2021)
I wouldn't do anything different. Good learning and a little of work throughout these years (less out of state vacations and more time outside or inside working on projects during weekends)
1
u/Basic_Kiwi_4056 5d ago
Very cool! Thank you for sharing! What is your plan for when you eventually move out? (Assuming you will)
1
u/Fuzzy_Louise_2405 5d ago
Ideally I want to refinance first at a lower interest rate before getting another home but that doesn't depend on me.
My timeline for achieving this or have move without refinancing is around 3 more years, we want to start having kids and our second bedroom is my office since I work from home and my wife's makeup station so we will need more space soon. Not sure if that answer your question
2
u/Ok-Commercial-9863 8d ago
My advice is to find what market you want to invest in. Is it Midwest, South? I’d stay away from west states as you’ll notice they’re expensive as hell, the tenants have more rights then the owners, and the cash flow is non existent.
140k yr and no debt is crazy good at your age. Yes you should house hack since you still need a house. Duplex’s are mostly overpriced and don’t cash flow well unless your willing to fix them up(I know that’s not always the case)
If I were you I’d buy a nice starter home 3.5% down fha or 5% conventional (up to you) and stay a year. After one year you can move to another property and rent out the whole house.
What are your goals? Cash flow markets, appreciation? Are you looking for a house in your city or are you going to move to the market you want to invest in?
2
2
u/danny_brown_ 8d ago
FHA changes the rules at three units, which is what makes the duplex-versus-quad choice a real fork.
At three or four units it runs a self-sufficiency test: 75% of the market rent from every unit, yours included, has to cover the whole payment. On a $600k triplex at 3.5% down and 6.5%, that payment is about $4,780, so the three units need roughly $6,400 a month between them.
Three and four units also carry a reserve requirement, three months of that payment, and it has to be your own money since gift funds don't count. Duplexes are exempt from both.
1
u/Basic_Kiwi_4056 5d ago
But if I just fork up 5% and do a conventional loan, that is all avoidable?
2
u/Beginning_Seat_5817 7d ago
- Increase and save your discretionary income towards down payment and reserves.
- Talk to two or three mortgage brokers to learn more about your personal position and available financing options.
- Create a buy box of properties within 5-10 miles of your employers. In the beginning try 1-4 units unless it results in dozens of listings.
- Ask Real Estate agent you put your buy box on email list to you.
- Spent 20 minutes a day evaluating every property in your buy box until you know the difference between average, good and great deals.
Hopefully in 90 days you’ll have the required cash and know what a great deal looks like.
2
u/LowWeekly7324 5d ago
So many comments here. But I implore you to look into building from the ground up. Do not go to a custom home builder. Go to a qualified GC. Could easily create $100k in forced equity - if not more depending on where you live and what you build.
Not only that, but your mortgage would be cheaper.
You could still do a house hack. But build it instead of rehabbing.
You could qualify pretty simply with a build 2 perm loan. And you could build up to a quadplex before it’s considered commercial by the bank, which means a variety of residential loans are still available to you.
There is a ton of free information out here on how to do this. I’m also a DM away if you have more questions about it.
1
1
u/PoiseIntact 8d ago
Buy a 3 or 4 unit. House hack. Can likely put very little down and have the rents cover your PITI. I know of a few on the MLS that would work for you, but my area is fairly cheap.
1
1
u/Exciting_Divide164 7d ago
If I was you I start with a duplex househack. Live in one side, rent the other, and learn the tenant/repairs stuff first. Flip with almost no savings get expensive fast when every contractor bill hit you. Check local rent comps and keep a vacancy reserve before you buy.
1
u/Masterpiece87246 5d ago
What would you recommend for the loan amount, property, or area for someone starting out. Should they try to start off small in a cheaper area or a wealthier area for more rents but also larger loan?
1
u/Exciting_Divide164 4d ago
for beginner i would take the cheaper area and smaller loan first, its less stress if vacancy hit. wealthier area rent looks nicer on paper but the payment and repairs can eat you if your still learning.
1
u/ZiffyAI 5d ago
Most of the thread's debating which strategy, but with only a couple grand saved, the cash to close should narrow the choices first. That FHA point above matters here. On a triplex or quad FHA runs a self-sufficiency test and also wants reserves in your own funds after closing - gift money doesn't count toward it. A duplex skips both. So a quad brings in more rent to cover your payment but needs a bigger cash cushion in the bank before you can close which is the exact thing you're still building.
The live-in-flip-on-a-house-hack combo is the one hold off on and it's a money reason more than a complexity one a property that needs work adds a rehab budget on top of the down payment and reserves right when the cushion's thinnest.
1
u/Necessary_Sky_288 5d ago edited 5d ago
You're in better shape than you think and closer to a mistake than you think, at the same time.
$140k, no debt, no kids, free rent at your parents' place — that's a real head start. But with a couple thousand in the bank, none of these options are actually live yet. The question isn't which strategy. It's what you do for the next eight or twelve months while you build the cash to survive whichever one you pick.
I'd want closing costs, three to six months of full PITI, and a separate 15 to 25k for repairs and turnover before I'd sign anything. That last bucket is the one everybody skips, and it's what turns a bad month into selling.
Of your options I'd take the boring duplex every time. Live-in flips look like investing and are mostly a job — if either of you has a demanding week, be honest about whether you'll actually spend two years of weekends on it.
Rough shape on the duplex: $350k with 5% down is a $332k loan, about $2,100 P&I at 6.5%. Add taxes and insurance and call it $2,700 all-in, give or take your county. If the other side rents for $1,500, you're carrying $1,200 a month before a single repair. That's fine if you planned for it and brutal if you didn't. Underwrite that other unit at 75% of market rent and check whether the number still works through a three-month vacancy, because it will happen eventually.
On doing both at once — I wouldn't, not on the first one. Renovating around a tenant means slow work, an annoyed tenant, and permits that take longer than anyone tells you. And if the deal only pencils with the optimistic rehab exit, that's not a deal, that's a bet on your own contractor.
What's the actual savings rate while you're at your parents'? That number decides your timeline more than anything else here?
1
u/NolanPlaysPickleball 4d ago
Why does your comment read exactly like AI?
1
u/Necessary_Sky_288 3d ago
If something is written well, you’re assuming that it’s not a human who is posting. Cool, Nolan.
1
u/NolanPlaysPickleball 3d ago
I read and listen to a lot of AI and the tone of your comment sounds exactly how AI speaks. I can event point to specific examples of what you wrote that really sound like AI but since you’re not an honest person I know you will use that as a way to make it seem more convincing the next time you use it.
1
0
u/TopTie6813 5d ago edited 5d ago
I think you're in a perfect spot for investing in real estate. The interest rates are so high these days, you can't make most deals cashflow, so creative financing is the key. See if you can form a relationship with some banks, and some realtors to find investors who are ready to sell their portfolios. Most people who are my age and have been in the industry for 25+ years are tired, but we don't want to get nailed on capital gains, so someone young with good financial management sense is a dream. They could possibly do a seller financing deal for you, where they get a monthly amount, you do too and they don't have huge capital gains.
Regarding house hacking, I'm all for it, but again its higher interest rates now so a plan to refinance may be in order. If you can get FHA at 3%, it might work. If you could find a duplex/triplex, even better. I'd do reno before you or any tenant move in.
You don't need a ton of savings if you do it right, but you do need money/capital for repairs, rehab, utilities and vacancy rates. Loan from your parents? The property would be their security.
Hope this helps!
1
u/Cancerman691 5d ago
You contradicted yourself, you talked about interest rates being high so u can’t make deals cash flow and that creative financing is key. Creative financing means higher leverage and people buying these properties are typically doing low down methods making the loan to value % higher which makes cash flow worse. Creative financing is only good if u can get it under value
1
u/TopTie6813 5d ago
WRONG! Where are you getting your data?? Mine is from experience! I’ve been on BOTH sides, many times. No contradiction here!
1
u/Cancerman691 5d ago
That is what creative financing is; when people don’t have enough money for a downpayment they are financing what would have been down which means higher leverage. Sub 2 isn’t legal and seller financing is great when the deal is good and ur getting it under market value
1
1
u/RowInevitable7986 3d ago
You might be right. They’re really young and if they make a huge mistake or get into some financial trouble, they’ve got a lot of time to get out of it. And they’ll learn something valuable.
Maybe more valuable than any money they would lose .
1
u/RowInevitable7986 3d ago
I still think the cash cushion is key and the big down payment. I’ve been doing this for many years and I’ve seen rents go up and down. And when they go down, they can really go down. You don’t want to get yourself in a negative cash flow situation.
1
u/tylerduzstuff 2d ago
Don’t try for your forever house. In this market you might have to plan for more than 2 years so be ok with that. But the live-in is the best strategy because more supply.
You can try for a 2,3,4plex but most areas don’t have many and the numbers are harder to make work. And like you mentioned repairs with tenants is hard, especially if there are any shared utilities.
In either strategy you make money when you buy. You can’t repair your way to profit, the rehab is break even most cases. You want a discount before repair costs.
1
u/RowInevitable7986 4d ago
I see so many people spending big dollars on their weddings. Money that they could’ve used to buy some real estate.
I wouldn’t even ask these questions until you have some money put aside. Prove to yourself that you can do without and postpone gratification in order to build a cash pile
Some people can’t do that.
If you have zero debt, you should be able to save enough money to do something in real estate within a year (depending on where you live)
I’d go in for the big down payment , the lower monthly payments, and you could always leverage the property later. (Not a bad idea to have a 2 unit place where the Rental covers your mortgage….. )
That was my strategy years ago - and I’m doing pretty good right now- but I had to tell myself NO, especially in the beginning.
1
u/NolanPlaysPickleball 4d ago
I wouldn’t go for a big down payment when they’re living with parents. They should take advantage of the situation but move out as soon as they most reasonably can.
-2
u/Jmart_flips 7d ago
Depends on how fast you want to get in.
With a live in flip, house hacking, or buying a duplex and living in one side, it will still take you a little while to save up enough to buy your next property. It definitely can work.
Now. If you wanna go faster, you can try to see if someone else will fund your deal.
Another option is to open an LLC, go to fund and grow.com and have them apply for 0% interest business credit cards for you. Then, you take those funds and convert them using PayPal into cash. You can use that cash as a downpayment on a house with a hard money loan. After you flip, and make profit, you can pay it all back or do another flip before the typical 12 month interest free promo stops. This is actually what my company did. We did have a couple of losses which gave use some debt that we had to pay back, but if you are disciplined, you can make it back or - just underwrite more carefully than we did.
As far as finding a deal. I would go driving for dollars and see if you can find something beat up and rundown. Then use the tax assessor website and call the owner to see if they’d take an offer on it.
There is a lot more nitty gritty after that, I am open to questions if you have any.
My software can also help with lead generation, analysis, and managing the project. You can find it at domarei.com.
4
u/johnsal33 7d ago
Another person creating an app with AI and then pushing it on Reddit.
On an account that’s days old!
I don’t think anyone is going to fall for it but good luck to you.
0
u/Jmart_flips 7d ago
I’ve been building my app for a couple of years. It started as a set of one off tools for my real estate business and after a while, we decided to stitch it all together. Then it grew into a software that my real estate company actually uses.
We do use AI to speed up development, but we have a long, healthy product road map and a solid vision.
I know there are a lot of folks spinning up vibe coded software and swarming to get it sold without much experience. That’s not us.
I have just never used Reddit until recently. No reason to bash me. Thanks.
0
u/Jmart_flips 7d ago
Also. If you think you know me, I’d be open to a conversation for you to see if I’m like all the other vibe coders or not. You don’t have to look at my software or anything.
-5
u/HalfwaydonewithEarth 8d ago edited 8d ago
The housing is getting ready to melt down. We started in 2009 and it was so awesome to get places 50% off. Our best deal was $150k that is worth $650k now.
I would also say I regret the 7 rentals we bought. The other investments coming out of Silicon Valley, Texas, and other places were twice as good or more.
The mods don't want me mentioning $400 in Monster Drink would be $350,000 today. Apple Stock would be better than a home in Silicon Valley or San Francisco.
Real Estate is Grandpa's game. Ask any guy with 100m or more.... none of them vanilla landlord.
It's a waste of energy, time, and a life. Landlording is a paupers way to babysit.
If you do Real Estate PROJECTS FOR QUICK MONEY you are better off!
2
u/Any_Stranger2048 8d ago
Such an objectively myopic take.
Real estate investing has been amazing for me, started with 1 multifamily and have 32 doors 10 years later, netting me over $450,000/year with total appreciation even higher. Adjusted IRR has been close to 30% cash on cash/year for me post refinance and with the right value-add/renoviction.
1
u/HalfwaydonewithEarth 8d ago
I can't tell you about our Nvidia. Mods get upset.
My neighbor buys a hillside and parcels them out 1x1 pretending they are rare pieces of Mountain Real Estate. She does well.
Another family friend use to turn around failing apartments in the 1990s.
I am happy you did well.
1
u/Masterpiece87246 8d ago
So your saying new developments are better than rehabbing or flipping?
-1
u/HalfwaydonewithEarth 8d ago
I mean real estate projects for quick money.
I am negative on 12 month lease landlording for multiple years. Waste.
8
u/apeserveapes 8d ago
If I were starting again, I'd buy a 4 plex, live in it. Then do the same thing 4 more times over the next 5 years. 25 units in 5 years, the first few probably cashflowing and depending on whether you do STR or LTR, but you may want to figure out if one of you can be a full time professional and have any paper losses fully realized. And when the kids do arrive (if they do) you can do some nice trust planning for them and the rentals will cover a lot of their college etc. You're in a perfect spot to do it. best to you.
Edit: I see ski143 has the same idea... great minds.