How to get started in real estate investing by purchasing a duplex for only $6600?
The answer: Live in it.
That’s it. Blog post finished. Shortest one ever.
Ok not really but that’s exactly what I did. And here’s how you can too.
Real estate investing is one of those avenues that people think is elusive. It often intimidates many people because they believe it requires a ton of money and a license! That’s just a few of the myths. You’d be amazed at how many people have asked me do they need a real estate license to invest in real estate. The answer is no. If you can convince a bank to loan you money to buy a property you can invest in real estate. Done deal. It also doesn’t require a ton of money. It’s actually plenty people doing it successfully with NO money.
I’m not here to debunk all the myths of real estate investing. Just here to shed some light on the not lit. I’m also not claiming to be an expert, just a student sharing info with other classmates.
Let’s get into it!
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How To Get Started In Real Estate Investing
First of all, it’s plenty ways to get started in real estate investing but in this post I’ll focus on only one. That one is long term multifamily property investing. Depending on who you ask, you’ll get various answers as to what is the best way to invest in real estate. I guess it just depends on your end goal. If you want to make quicker money in lump sums there are avenues like flipping houses and wholesaling. If wealth is your focus then buying properties long term and keeping them (to sell in the future) is the route you’d take. Donald Bren or Stephen Ross (the 2 most wealthiest real estate investors in America according to Forbes) didn’t get wealthy by flipping houses. They did it with long term investments.
Again, I’m not saying that one route is better than the other. I’m simply saying it depends on your goal. You can also explore all avenues if you want. With wealth and something to leave behind for my family in mind I chose multifamily property investing.
Buy a Duplex and Live In It
It’s really that simple. To get started in real estate investing you can buy a duplex and live in it. If you’ve bought a house before, you could have bought a duplex. Or if you’re thinking about buying a home, just buy a duplex instead. The bank treats both the exact same way. You could even buy a fourplex instead of buying a single family home and the bank would let you.
The biggest reason I’d say to go this route is because as soon as you buy the duplex it starts to make you money (if you have a renter). As soon as you buy the house, it starts to cost you money. Aside from utilities, your tenants will be paying for you to live in a home that you bought.
For this article’s sake lets ignore all of the personal reasons why you may not want to live in a duplex with your tenants right next door to you. You know, all the things that place you outside of your comfort zone and you just couldn’t imagine yourself doing. For example, living immediately next door to the family that is renting from you. They’ll know your schedule, know your lifestyle, know your family, and that can be challenging. But no one ever said acquiring wealth wasn’t a challenge. And no one definitely said the road to wealth would never require you to step outside your comfort zone. My wife and I have done it for the past year and it’s proved to be a pretty, good situation.
So as I was saying, ignoring the personal reasons you may have against living in a duplex. Let’s highlight the financial benefits of living in one. Because face it, finances are the only thing important when it comes to building wealth right?
Here’s a screenshot of what it cost me to live in our duplex last year.
The bold number on the left is the total cost for the year. Each number after that from left to right is Jan-Dec. These numbers exclude utilities which are here to stay no matter where you live. And this is mostly items like repairs, lawn service, and general maintenance. This also includes my portion of the mortgage each month.
The tenants are paying all but $65 of the mortgage. So each month, I take my $65 along with their rent money they have given me and go pay the mortgage. Let me know if you have any other places you can pay $65 each month to live. How much are you currently paying to rent or own your home each month? And how much did it cost you in total last year?
They’re also helping me gain equity on the property by paying the mortgage down while the property value rises.
Now you may say, “Isn’t real estate investing supposed to make you money, and not lose it? The answer is definitely yes! When we move out of our side of the duplex and move someone else in, we’ll have both sides rented out. That’s when the money comes in. Until then I’m fine with $65/month.
Here’s a screenshot of a cash flow analysis I performed for a projection of what I’ll make off of the duplex once we move out and rent the other side. (Screenshot)
This is only an estimate where I used percentages to account for unforeseen miscellaneous expenses.
Things turned around quickly. I went from losing around $3000/year to profiting over $1000/month. The ROI portion is what I really want you to pay attention to, though. Here’s why:
Remember the $6600 down payment I mentioned earlier? That was my initial investment. Now look at the $12,148 I’ll make in a year. I’ve already doubled my investment raising the ROI equal to nearly twice that amount in a percentage. The calculation of ROI is a fairly simple one:
You can’t beat that with a stick. It’s one of the ways the wealthy gets wealthy, and stay wealthy. It’s also a proven and great way to escape the rat race and establish a form of passive income! You know I’m all about passive income. Read about the rat race and how to escape it in one of my favorite books Rich Dad, Poor Dad by Robert Kiyosaki.
Financing a Duplex
Financing a duplex is pretty similar to financing a single family home. It requires decent to good credit. Look at some tips I give on improving your credit score here. Also, the same way you would acquire a home loan is the same as how you’d acquire a loan for a duplex.
The only difference with the method I used is you wouldn’t apply for a conventional loan, you’d apply for an FHA loan. An FHA loan only requires a 3.5% down payment while a conventional loan would require you to make a 15% or 20% down payment. Also, FHA loans require you to live in the property for at least a year to be eligible to receive them.
This is why it’s important to LIVE in the duplex and is the exact method that allowed me to pay $6600 for mine.
Live Your Legacy
These aren’t all the tools you’ll need to buy a duplex and live in it but everything great starts with a single idea. And that’s exactly what this article is. A great idea. (at least I think it is) If I’d give you everything you need to invest in duplexes this article would need to be a book. Hmm that isn’t such a bad idea either. I did, however, read some great books about investing in duplexes. This was a really good one. Investing in Duplexes, Triplexes, and Quads by Larry B. Loftis
A book I recommend that highlights that everything great starts with an idea or a single thought is Think and Grow Rich by Napoleon Hill.
I also recommend BiggerPockets.com for everything on how to get started in Real Estate Investing. It’s like the facebook of Real Estate and a huge community of investors that share tips, tricks, success stories and failure stories from all over the U.S. simply create an account and get to learning.
Let me know if this is something that sounds like you can achieve. All in all, it really isn’t difficult and is definitely a dope way to escape the rat race. Comment below with your experiences in real estate investing and let me hear your stories.
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Regards, Ramon Smothers