How I Bought My First Rental Property at 23

hi everybody a welcome back to my channel today's video is gonna be a little bit different I've gotten a lot of questions asking me about how I invested in real estate people were asking me about that and wanted to know more and so that's what this video is gonna be about so let's just jump right into it so when I was 23 and I have notes on my laptop so that's why I'll be looking up and down just to make sure I hit all the points that I want to hit today so when I was 23 I bought my first real estate investment property this sounds absolutely crazy but try to stick with me and I just turned 24 last month so this happened about six ish to eight months ago so let's start from the beginning so when I first started my engineering job I was making a lot of money and I was saving a lot and I made a budget for myself and made sure that I was spending below my means and saving at least 20% of my salary after taxes and after maxing out my 401k and I actually made a video about that like I said earlier about my salary breakdown so if you want to look into how I spend my money the video will be linked down below so anyway when I first started my job I was saving a lot and making sure that I was living below my means by not having as much expenses meaning I made sure that I was saving on rent by having roommates I made sure I wasn't eating out as much and making my own foods phone bills were low that my car insurance was low things like that just making sure overall my expenses were relatively low in my mind I had already adjusted to the fact that I live below my means anyway so I didn't want that just because I was making more money that then I would try to start spending more and growing up my family was low income / working-class so money was always pretty tight but my family did a really really good job and my parents did a really good job at making sure that my siblings and I understood the value of a dollar so we really understood what it meant to save and build up for something that you really want but my parents didn't we understand investing that's something that I had to learn on my own so once I was at a secure place with my full-time job I felt relatively stable and that I had enough savings I thought okay well I'm saving a bunch of money I'm investing a bunch of money into my 401k what are my other options for all of this money that I have just sitting around I looked through a bunch of different avenues for investing in real estate for some reason caught my eye I looked into trading stocks I actually thought about daily trading but honestly I'm Way too lazy and my engineering job is actually fun and I like what I do so I didn't want to sacrifice that in order to make a couple bucks day trading and so I got rid of that idea I then thought about investing in individual stocks because I have friends who do that and then I thought I don't want the stress of having to do all that research to pick stocks and try to look into companies and things like that I didn't really care for that then I actually looked into crypto and was like ooh crypto seems interesting and it's kind of techie so maybe I can get into that luckily with crypto I actually jumped into it and I started buying crypto currencies but I made sure to only ever invest quote-unquote invest what I was willing to lose and I did lose all that money that I had invested in and actually what's interesting is when I was growing up for like a couple years my dad was a real estate agent and so he worked as an agent and then he also owned his like two or three homes and two of them were for investing and then one of them was our primary through that I was kind of able to see real estate through his eyes and what he was doing and he really loved it but then the housing market crash happened in 2008 and we ended up losing everything he lost his job and then we lost all the properties but even after that I kind of realized that my interest in real estate was kind of always there I didn't understand much about investing in real estate but I knew that I had enough interest to want to learn more about it and so I did a crap ton of research so ready and bigger pockets were two of the sites that I peruse the most there's a subreddit for real estate investing there's a subreddit for financial independent so I would go through those and just look at people's firsthand experiences with dealing with real estate like what people were doing that was working for them bigger pockets is this site for people in real estate so whether they're investors or villagers or lenders whoever who are interested in real estate investing there on this site and it's kind of like a little community bigger pocket has podcasts and books and things like that and they also have forums on their site so people are asking questions about real estate and trying to understand what's going on in their markets and things like that and so for a first-time buyer for somebody who's interested in it and real estate investing BiggerPockets was like a goldmine of information but they're older podcasts are great for first-time investors like I was at that point and so I kind of just soaked in all of the knowledge from there from their site from their forums from reddit and also looking at different markets and seeing what trends I could see and looking at different properties and thinking about okay well if this rents for so-and-so how much could I make off of it things like that and just not fully jumping into it but doing as much research as humanly possible so that I know that my numbers would be right if I did decide to do this down the line and just that practice of like running numbers and looking at properties and looking at pictures and things like that kind of helped me a lot when I was like kind of finally feeling myself and like feeling like I could do the calculations I'd done my research I started to look into different market and the first market I looked into was the market that I live in which is the Bay Area and I quickly found out that that would be I know the Bay Area is incredibly expensive if you didn't already know right has skyrocketed housing prices have skyrocketed it is expensive to live here housing properties here could go for like 800 to 900 thousand dollars but then oftentimes because the market is so hot there are so many investors in people and first-time buyers who just want to buy a home the market is really really hot and so there are so many offerings being put on the table for just one home a house that was originally listed at $800,000 easily go up to the millions with people putting hundreds of thousands of dollars over asking price and still not even getting the property so I was like no okay that's too too much for me it's too stressful for a first-time buyer I don't want to be in that market so I started looking into other markets and other states in other cities so then I ended up looking into Georgia a Fulton area so like northern Georgia I really like that area of northern Georgia I have a couple family members who live out there and so I've been once or twice not enough to really like know the real estate market but like after doing a bunch of research and like running the numbers I was like oh this could this could end up working out I ended up actually finding my real estate agent on bigger pockets on their website so when you sign up for an account you can kind of look through the directory of people that they have and a bunch of Realtors are on there and they are willing to take in a new client I only reached out to her when I was definitely ready to start making offers I had done my research I decided this is what I want to do let's put in some offers and I already had the downpayment saved up for a home I had closing cost saved up but once I knew that I was like definitely going to do this that's what I reached out because I didn't want to waste her time so I started working with my real estate agent in February of 2019 then that's when I started getting pre-approvals from different banks they're able to help you kind of navigate and kind of tell you what your purchase price is and you also should kind of do this process with a bunch of different lenders because the rates can change depending on the lenders you go to and you can kind of negotiate with other lenders to figure out you know what's the lowest you can actually get and also rates change depending on a lot of things but if you're an investor and you don't plan on actually living in the home yourself after you buy it then the rates are a little bit higher because it's a little bit riskier for the bank to take you on and to take that loan on and then also for investors you're expected to put down twenty to twenty-five percent for the downpayment on the home since I was working full time and I obviously live in California I couldn't pick up and go visit all of the houses that I was interested in but luckily because I made that connection with my real estate agent she is so awesome and she was willing to go to any of the and tour them if I wanted her to she would also always put together this like packet of information which includes the house pictures of the house comparable homes in the surrounding areas her kind of opinion on what the asking were offer for I should be for the home and so that was really really helpful in helping me know the market and figure out whether or not a home was worth putting an offer on for so again since I couldn't physically be there I really took advantage of Google Maps and Zillow in order to get a better understanding of the neighborhood and the surrounding areas of the home is a and then my realtor she's from that area so she's able to tell me whether or not in areas up-and-coming whether or not it makes sense to buy a home in a certain area you know things like that she's kind of my boots on the ground person before I even thought about putting an offer down on a home I made sure to run my numbers every single time the numbers are just based off of whether or not it'll cash flow after all expenses how much am I gonna be making per month off of this property I always wanted to make sure that I'm making at least $200 in cash flow for every door so if that's a single-family home I want to make sure that after all expenses $200 is going into my bank account that is just for cash flow if I were to get like a three family property that's three doors so I would want my cash flow to be at least $600 and that's kind of something I just took from bigger pockets a lot of other real estate people on YouTube kind of say the same thing of like what their cash flow code or kind of looks like for them and so for me it was $200 per door but I'm not great at math so I can kind of just set up an excel sheet to spit out numbers depending on the home and I can show you exactly how that goes so I'm gonna take you through the excel sheet that I used and the numbers that I look at when I am interested in a home and possibly planning on making an offer these numbers are kind of the make-or-break factor and to whether or not an offer from me goes out to the sellers so let's take a look into looking at a property that is being offered for $100,000 so this is my excel sheet that I use for running numbers let's say we're looking at one two three ABC drive so we have one unit so it's a single family property after doing our research we can see that the average rent per unit is a thousand dollars so a thousand dollars for the single-family house and we also want to be able to bacon costs for vacancy so if we have like a month or two where we're not able to get a tenant we want to bake that into our formula so that we can still see some type of cash flow at the end of it and we can have money address for when things like that happen and so that's not an 8% and so we look at property management fees with off of the thousand dollars that we have for rental income we're looking at 8% for property fees 7% for repairs and maintenance and then another 7% for replacement reserves and utilities I usually guess that I can just pass those off to the tenants of the home especially if it's a single-family house property insurance depending on the house it kind of depends on the house but we can assume for this one it's a $50 a month real estate taxes also depends on the house and the area and I put it in at $80 a month which is pretty conservative for both so those are our monthly operating expenses which is three hundred and fifty dollars a month off of that thousand dollars in month the down payment so our of a hundred thousand dollar property our down payment is going to be it's going to be twenty thousand dollars our loan amount is 80k our monthly cash flow before taxes is a hundred and sixty four dollars and sixty five cents to me this is a little bit low it's not something that I would invest in because I think I said it earlier but when I'm investing in property I want my total monthly cash flow per door to be at least two hundred dollars a month so this would be way too low for me let's say we could get rent up to twelve fifty then we can look at what our cash flow would be now we have a cash flow at three hundred and thirty nine dollars with the cash on cash return of nineteen percent a lot of people will do the revised by the cost of the home and see whether or not that is one percent or greater if it's one percent or greater you know that you're gonna cash flow and that's like very quick masks that you can do I like to go into the details and see exactly how much cash flow I'd be getting with these numbers you really want to be conservative and make sure that you are being as conservative as you can be and also being realistic you don't want to give yourself too much you don't want to fudge the numbers and then end up with the property that isn't cash flowing to what you expect the most vital thing that you can do is have a number that you want to hit and set that before you even start looking at properties so if you what you want to hit is $200 a month per unit or $300 a month per unit or per door then you stick with that as you go in to look at your numbers and make sure that you're not kind of wavering you have numbers that you're trying to hit for this to be a signed investment so make sure that you hit them and then stay on target so after I'm able to verify that the house will cash flow after all expenses that it's in a good area I'll ask my agent to put in an offer I put in an offer for one home in March of 2019 and getting accepted we went through the inspection and everything like that and there were major repairs that needed to be done and also found out that the house had lead paint which was really bad and so I had asked the seller to kind of fix that and they were like you know we're not doing any repairs things like that and so I was like that's not it's not worth it then so I passed on that house and then on the second house I put in an offer to also didn't expect and found a bunch of repairs that needs to be done and also that was a townhome how homes kind of work a little differently they have HOAs or homeowners and associations there's a monthly bill that you pay to them on top of the mortgage and they can ask for like special requests to be done that owners have to pay for and so within the last three years of that home that I had made an offer on they had nine thousand dollars worth of debt because of the homeowners association and I was like I do not want to be any part of this it seems like it's just poorly run it's that offer I kind of rescinded after my due diligence period which I'll talk about later third a home and I think it put offers on other homes too but for the third home that ended up going pretty well put in an offer for a little bit lower than asking price they ended up accepting my offer and so my third offer was for a 3-bedroom 1-bath little ranch home in the northern georgia area and so that was my first property and so after that offer was accepted due diligence period where you're able to do your inspections and figure out if the house is what the seller says it is at that point I get to do all the research I want ask for whatever documents I need in order to make sure that this is a sound decision and I also have to pay for the inspection out-of-pocket I had to do that for all of the homes that I went into due diligence periods with every time I did an inspection it was about $400 all of that was out-of-pocket and I don't get that money back which kind of sucks but did my inspection for this property and then it ended up coming back that not that many of repairs needed to be made the repairs that didn't need to be made I was able to negotiate with the seller and get a couple of thousand dollars off of the original offer price after the due diligence is done on my part it then everything goes to the bank and they have to do their due diligence on me as a person that they plan on lending money to and so they asked me for a bunch of documents and then they go out and they do their due diligence on the home and making sure that they do their own internal inspections they do appraisals on the home I ended up buying the home for $15,000 less than what it appraised for which is awesome so I have a little bit of equity in the home starting out and then since there were repairs that needed to be done on the property after closing and after I have ownership of the home I decided to take some PTO days to be able to go down there and first of all check out that house and second of all get those repairs done and my agent had put me in contact with this awesome contractor and so we were able to talk about what needed to be done after closing and once I got there and he was awesome and he's just such a great guy so from putting in an offer to actually closing I think it took about 45 ish days there are a bunch of issues during that I ended up coming up I switch my lenders a couple times because I ended up getting a lower rate from a different lender which pushed my closing date back the lender that I ended up choosing ended up having horrible communication didn't really help me out with the process as much as I would have liked and it was just a complete mess towards the end they ended up pushing the date again and then I also found out that the home was actually in a flood zone area and when your home is in a flood zone area depending on the severity you have to buy flood insurance so I ended up having to buy flood insurance for the home it's almost as expensive as homeowners insurance and that wasn't calculated into my original research that I had done in the home so that was really stressful but luckily even after the adding the flood insurance it's still cash flow to the target that I wanted it to cash flow at and things end up going well and I had closed on my property in August of 2019 so then I went down to Georgia to check out the home for the first time in person and to let the contractor in so that he could do his repairs but I was able to show it and rent it out to prospective tenants and luckily the previous owner had done a bunch of repairs so I didn't really do need to do much and my contractor was so nice and he cut me a break down a couple things because at that point my bank account was depleted after the down payment and closing costs and repairs and everything my bank account was depleted so that was really nice of him to help me out in some areas and then they also painted the front door a really cute pop of color so that it would look really cute and I can put in pictures of what it looks like I don't know if I have pictures from before the repairs but I'll just throw in pictures around so that you can see what the house looks like and so after the repairs were finished and I put in my little touches then I could start inviting tenants to come or prospective tenants to come look at the home and see if this was right for them I did my research on how much rent could cost way before I even put on an offer on the home and so that is what I use in my advertising luckily I found an awesome tenant right before I was about to leave and the whole process honestly it was so stressful huh thinking about it now kind of like oh it was really stressful because I was balancing a bunch of different things but luckily it was only stressful for a week after I placed the awesome tenant she gave me her security deposit and rent for the first month and then she was able to move in the week after I left and then property management was then able to take over and deal with the day-to-day things because obviously I live in California so I'm not gonna be able to be there for the tenant when things go wrong or things break and so they have somebody that they can call in case things do go wrong so after all this is said and done the property cash flows me about two hundred and fifty dollars a month and sixteen percent cash on cash return for some of you that might not sound like a lot but for me it's perfect for a first property I really didn't want to start my real estate investment journey by going in over my head and buying way too much property or buying a multi-family and not being able to really support the two all the tenants that would live there I wanted a kind of a good testing ground to figure out whether or not just in general all of this would be for me and so I figured starting with a single-family home three bedrooms one bath that rents for a solid amount of money that I could get someone into and that has a good cash on cash return would be worth it more for me to have better learnings and understandings than it would be for me to jump right off the bat and like try to buy like a big apartment complex or like multiple multi multi-family homes when I like that that is not the stress that I need in my life I also really didn't want to rely on appreciation as a factor for investing and honestly that kind of sounds like gambling a little bit when you really think about it based off of appreciation you're kind of trying to bet on the fact that one day it'll be worth a certain amount of money and I didn't want to do that I felt like if I was going to do this I wanted to do it based on strictly numbers based on cash flow based on things I could see right now here and now and obviously there were some things that came up that I wasn't really expecting but luckily they were small enough things that I could then use in the next property as like learning C and know what to look out for and honestly real estate investing in general is risky but it doesn't have to be a gamble as long as you know your numbers and you know what strategy works best for you like you can go into it and decide I don't want to do renting or buying holds I want to fake some flipper property fine you can do that and obviously like I was saying earlier before appreciation isn't for me maybe that's for you maybe you decide that you want to buy a home in the Bay Area or in Boston or in New York City and decide I want to buy this home hold it for a while and bet on the fact that one day it will appreciate 20% more than it's worth now that is completely fine but for me I knew that for my first property for the first jump into this thing I it could not be based off of numbers that I couldn't see you know and that's just kind of how my brain works like I'm very logical and how I do things and so if the numbers worked and if the numbers are right that I could proceed and so the goal of this is to do this every year I would love to be able to buy a property every single year I've actually been looking into buying another place but with everything that's going on I don't know if that will necessarily be possible this year and I plan on doing this buy of course using my savings and by reinvesting the cash flow from the properties that I own and so that two hundred dollars or two fifty two hundred and fifty dollars that I'm making off of this first property it's not going into my pocket like I'm not using that to you buy Chipotle or whatever else like that goes into a separate savings account that I then plan on using for the next property that I plan to buy and I kind of just want to keep that cycle going until I get to a point where the cash flow that I'm getting is equal to or around that of like a full-time job because it kind of is a job when it's definitely a business that you have to run when you own properties and if you and so you kind of have to cheat it like that and so I would like this business to get to the point where it's actually making a full-time income because that would be dope and I don't plan on giving up my engineering career I love it too much I love what I do but I think that real estate is also something that I like really really love and it's something that I have the privilege and luxury to be able to even get into so as my as for my advice I say start early if you can but make sure to do your research please I beg of you do your research run your numbers real estate investing is risky in it of itself but it doesn't have to be a gamble if you do your numbers correctly we're going into a weird time so obviously right now might not be the best time to start investing in real estate but you can take this time to do your research and figure out whether or not it's right for you I really hope you like this video if you have any other questions or want to know more about it please leave comments down below or any video ideas I am an open book and I'll tell you what you need to know but yeah thanks for watching and I hope to see you back soon [Music]

Channel: Sosa

Views: 61,819

Keywords: software engineer, how i bought my first rental property at 23, buying my first rental property, how i bought my first rental property, Grant cordon investing, graham stephan, how to buy rental property, how to invest in real estate, how to buy an investment property, investment real estate, real estate investment, real estate cash flow, real estate passive income, how to buy a house, how to buy a rental income property, rental property, real estate investing 2020

Id: zV7ESWTdKQ0

Length: 24min 59sec (1499 seconds)

Published: Tue Apr 14 2020