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21-Year-Old Buys 5 Units and Lives Rent Free

by Jay (OR)   

I am no longer a teenager, but I did begin investing in my teens. Here is my story:

At age 12, I started my first business. I ran it out of the inner pocket of my jacket at my middle school. I would purchase candy for 25 cents and sell for 50 cents. I made about $25 per week. You see, candy was not allowed at school. However, I bought a jacket that had an inner pocket, so if I was ever searched, it probably would not be found.

I know this was not the best thing in the world to do, but in my opinion, that rule was pointless. This is my story, and I am just laying it out there. I realized that the money you make in any venture is made or lost at the time of purchase. For example, had I paid 50 cents for my candy, and sold it for 50 cents, I would have made nothing. I had to horde my supply when it was on sale.

Five years later, I began my next venture. I purchased a 1988 Chevy Sprint (because gas prices were rising at a rate I didn't like) for $1,200. Two weeks later, I got the notion that perhaps other people were feeling the same way about gas prices. I put my Sprint up for sale, and a week later sold it for $1,500.

Over the next two years, I repeated this process five times, all the while setting my sights on larger ticket items. (The legal limit in my state is five per year without being a dealer, so I made sure I stayed under the limit.)

That's when I stumbled upon real estate--the most stable investment vehicle anyone can put his trust in. So, I began to search for a real estate investment that was affordable for me.

I must interject that I pride myself on the fact that I do not have a job. I hate to waste my 9 to 5 time, which by the way, is the only real time to get anything done. Ever try going to the courthouse at 5:15 to get info on a property? I do go to school, but only to appease the family. In the end, I know that I will not hold a job that requires a degree, anyway.

The problem is that in the area where I live, home prices have nearly doubled in the last year and a half. Luckily, I was able to find a decent investment before the market exploded. I purchased a four-plex for $152,000.

I am able to live in one of my units, collect the rents, and pay my mortgage. Rent free you might say? Hardly. Never forget taxes, insurance, utility bills, my friend. It comes out to be about half of what I'd pay in rent if I lived in someone else's rental.

That four-plex for which I paid $152,000 appraised for $235,000 last month when I refinanced. Previously, I had responded to an ad in the paper from a guy looking for a property for a 1031 exchange. He came over and looked at the place and made an offer of $200,000.

That was seven months after I bought. There would have been a $48,000 profit. Of course, once I considered that

  1. That's not enough

  2. There were no other properties on the market to put that money towards that would have yielded a better return,

I told him that the property was no longer for sale. Instead, I refinanced and dropped my payment by $200, so now I am living there for free.

During the refinancing, I pursued a single-family house, tracked down the owner who lived in the next state, and purchased $20,000 below fair market value. So I bought a house for $55,000 that I could readily sell for at least $75,000-$80,000 within a month.

The best part was that it only took $1,400 out of pocket for the purchase. I am putting another $2,000 of work into the place. I can rent the house for upwards of $650. PITI is only $450, so I'll be clearing $200 cash flow per month on this one. Not only will we be living in the four-plex for free, but our utilities will be paid for by that extra $200!

Recently I've read a lot of posts by young investors, and I thought it would be appropriate to say that yes, we can do this at our age! There are downfalls to being a young real estate investor. But, I envision the downfalls to be the single point of a triangle and the benefits to be the opposite side which is innumerably larger. Here are the consequences:

  • Try to get a loan of that size at a rate that is halfway decent.

  • Try to call on "for sale by owners" and be taken seriously. I am not kidding you. You would not believe how many times people scoffed at me when I told them what I was about to do. Nobody believed it was possible. These are the people who are praying that the Social Security system does not fail before they retire. If there's one thing I'm not, it's patient with ignorance.

I'd like to share a little analogy that my brother used at my wedding when I was 20. In his best man speech, he summarized not only my wife's and my relationship, but also gave me the perfect mind set for a young real estate investor.

He said, "When people tell you that you married too young, look at them and say, 'It just gives us longer to love each other.'" How does that relate to investing in real estate? It should be obvious. "When people tell you that you're too young to invest in real estate, look at them and think, 'It just gives me longer to build my fortune.'"

The time value of money is a huge factor in real estate investing. If you talked to a real estate investor who began at age 40, and asked him if there was anything he would change, nine times out of 10, he would say that he wished he would have started earlier.

Well, there's the rundown of my first two deals. I hope this helps any other young investors who are wondering if it's possible. I am now 22 years old.

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