You want to become a real estate titan? Start here:

The chances of you becoming the next Steve Schwarzman are small.


Stop worrying about climbing the corporate ladder. Equity is the name of the game. Time for you to get into the game. Everyone can come up with a reason why not to buy, but that is what we call a risk.


Opportunities were called risks in the rearview mirror.


You need to buy your first investment property and snowball from there.


Here's what you do, it's called house-hacking. You buy a 2-4 unit property, live in one of the units and rent the other units out to cover your mortgage + cash-flow. If you want to get really aggressive, rent out the other bedroom in your unit.


After one year, move out of your unit and repeat this process. In ~5 years, you'll have 5 properties, all generating cash-flow, having your loan principal being paid down by tenants and hopefully appreciating.


Here is what you need for your first house-hack.


Income - 2 year steady job history. If you just graduated college, don't worry, schooling counts as job history. You only need to be on the job for 30 days if you are getting paid a salary. Many people think you need 2 years at the same job. That is not true. You need a 2-year history.


Assets - 3.5% down-payment. You buy a property for $500,000 and you only need $17,500 for a down-payment. It's called leverage and it is the sweetest thing in the world. Give me all of it!


Credit - minimum credit score is 580 for a 3.5% down-payment, however, I recommend getting to at least a 620. Everyone on this forum should have a 700+. If not, find out what is wrong with your credit and work towards improving it. A higher credit score will save you $$ in interest and closing costs.


Imagine after 10 years you own 10 properties, each cash-flowing (only $500). That's $5,000 per month. Chump change, but it's a good start. We are all in it for the long game.


Best part of this whole sha-bang is that you can house-hack every year, you just have to get creative. Fire away any questions.

 
Most Helpful

Appreciate what you're saying here, and I don't disagree that building equity in real estate investments through this method is a great idea, but there's a huge cognitive disconnect. You can't house-hack your way to becoming a "real estate titan".

Because of FHA guidelines, you can do this at most once a year (assuming you're able to perfectly close on each new investment exactly as one year comes up). You're also only allowed to buy 1-4 units, so in 20 years, you'll have at most 80 units assuming flawless execution. Oh, also you can't hold more than 10 mortgages at the same time, so really you're limited to 40 units. That's far from being a "real estate titan", especially given that in most major metros, it's difficult to house-hack given how high prices are.

And we're not even talking about the massive PMI payments with an FHA loan, how one market adjustment means you're underwater, how a single vacancy will push you into <1.0 DSCR, etc.

Again, not saying this is a bad idea (I actually own a small number of personal real estate investments). Just that you're not going to become the next Blackstone by house-hacking.

 

House-hacking is your foot in the door. Hence the comment regarding snowball. You won't always buy 1-4 unit properties.

As you build up income + cash-flow, it give you the opportunity to take on larger deals and risks. Eventually, you might look at a commercial deal or larger multi-family.

Lots of investors I know that own office/industrial/SS, started with house-hacking and buying 1-4 unit deals. It's the gateway to bigger deals. You don't start off with a $25MM mixed use ground up development.

 

Well, I am in the works of doing the qualifications to purchase a duplex right now (out of state). Nervous, tensed, and running a lot of scenarios in my head.

I know people who started out this way and was able to leverage bigger deals to get to where they are now. It is possible, but expect the unexpected and keep your eyes and ears open to learning new things.

 
Funniest

It's called leverage and it is the sweetest thing in the world. Give me all of it!

2007 flashbacks

 
Mortgage Bond

Imagine after 10 years you own 10 properties, each cash-flowing (only $500). That's $5,000 per month. Chump change, but it's a good start. We are all in it for the long game.

Best part of this whole sha-bang is that you can house-hack every year, you just have to get creative. Fire away any questions.

Where did the $175,000 dollar of down-payment money come from?  You skipped over that with the true artistry of a snake oil salesman.  You also forgot about the closing costs - which if we take a nice round 5% number, comes out to an additional $25,000/transaction.  What about funding reserves?  What happens when the taxes go up on your home/s and you've only got the $500/mo of additional income to pay for it, so you blow through your d/s coverages?

Sounds like if you want to be a mogul using the @Morgtage Bond method, you better have several hundred thousand dollars of liquid assets in the bank, not to mention a full time job.

If you assume everything goes right and nothing goes wrong and you'll always have access to liquidity when you need it, at a price you can pay, then sure!  This makes sense.  But if you're assuming all that, why even bother starting small - you may as well build the $25mm mixed income development at that point, since after all, you know everything is going to work out.

This is why the wealthiest and most successful real estate investors aren't home flippers or short track record Instagram personalities, they're people who have survived multiple down cycles and kept themselves in the game.  I don't care how much someone made from 2011-2021, those were easy years.  If some of the big success stories of the post-GFC world are still big names in 2031, then I'll be impressed.  But most of these people think the way you do; everything will always work out, and as long as times are good, they do!  But they don't take precautions and the first time they can't pass the buck on an onerous liability, the whole edifice comes crashing down.  That's your gameplan - a house of cards built on too much leverage, not enough capital, and too much naivety.

 

Great post. I came out of college around the GFC and I saw firsthand that people just assume that the entire modern American smorgasbord of lifestyle/income/cushy white collar jobs/endless leverage/instant success is all horse shit. Bad things happen. People lose. I probably err too much on the side of being conservative now.

 
quarantineduser

Firm is trying to do this with Bushwick multi-family in NYC and pushing it to market rates. How do you also factor the current tenants in place and the desirability of the area to maintain low vacancy? 

Wait, what?  You're finding below-market MF in Bushwick that isn't rent stabilized?

 

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