How to Invest in Real Estate WHILE in College (It’s Possible!)

0:00Can you invest in real estate while in college? It is possible, and it can give you a head start on the compounding returns that make investing in rental properties so powerful in the long run. But you need to start your investing journey on the right foot and overcome some very common challenges. Because if you're anything like me during college, you don't have a lot of cash sitting around, and most people aren't really eager to lend you their money. So today we're talking about the right way to invest during your college years. So you graduate with a head start on achieving financial freedom instead of an anchor weighing you down.

0:40Hey everyone, I'm Dave Meyer, head of real estate investing at BiggerPockets. And on this show, we teach you how to achieve financial freedom through real estate. Today, we're talking about investing in real estate during college. And my guest on the show is investor Daniel Kaplan from Chicago. Daniel graduated from the University of Wisconsin just a couple of months ago, but he has already built a sizable and very profitable portfolio of properties while he was living in a frat house. Daniel is going to share with us his own journey from real estate education to buying his first deal to scaling up within just a couple of years.

1:17And he's going to explain how he overcame those common hurdles any college student who wants to invest is going to face. Those, of course, including accumulating starting capital, but also things like finding financing and building a team who's gonna take a college kid with big ambitions seriously. Daniel has a really cool, impressive story and is gonna share great advice for those of you in a similar situation during school or really for anyone early in their investing journey. Let's bring him on. Daniel, welcome to the BiggerPockets podcast. Thanks for being here. Oh, yeah. Very excited to be here.

1:54I appreciate it, Dave. So tell us a little bit about where were you and when in your life did you first get into real estate investing? Yeah. So kind of a little bit in high school, I always had that entrepreneur spirit. I started off like in the sneaker and streetwear flipping business just so I could kind of make a quick buck here and there. During high school, I made maybe 10, 20 grand, maybe a little bit upwards of 30, actually. I don't think I had seen that amount of money until I was like 24. So that sounds like a lot. As a high schooler, I mean, I was stoked. And for me, kind of as I was getting closer to college, I wanted to figure out what was that next jump I was going to make.

2:31And somehow one of my buddies, his name is Tanner. He said, Daniel, check out this video. He knew I had that entrepreneurial bug and so did he. And he sent me a video of this individual talking about Section 8 real estate on, hey, it's this amazing program. You can buy such cheap properties. It's backed by the government, guaranteed rent. And he was like, yeah, people are getting 30, 40 % year over year returns. And I was like, what's the catch? I got to dive into this. And that was what initially sparked that bug of, wow, I need to dive into this rabbit hole of real estate and try and figure this thing out.

3:03Wow. Very cool. And so were you a freshman in college then? Yeah. So at this point, I was a freshman in college. I think we were kind of towards second semester, got a little bit more comfortable, got into my groove there. And this is when we decided, hey, let's let's dive deep into this stuff. So we partnered up. We were like, hey, this is this is the exact route we want to go. But we were like, what's next? We don't know anything about real estate. None of our parents were in real estate. We didn't have the experience. We were a little bit lost. And that was kind of where we came across bigger pockets and trying to consume as much content as humanly possible, because we needed that baseline understanding before we went ahead.

3:41And somehow, miraculously, we ended up on Birmingham Alabama. Okay. I'm from Chicago. He's from Boston. We're at school in Madison. But yet we decided on Birmingham, Alabama as our choice to really dive in to find our property. Why? Because we only had 20 grand. We're like, hey, we can't go and buy a million dollar property here. So our first kind of sniff test was we need to find some cheap properties. I know you are a big numbers oriented individual and buy the data. For this, it was honestly just, you know what, let's go and decide on Birmingham. And it worked out. One of the cheapest property tax states in the US, we were seeing some decent growth over there, massive Section 8 demand.

4:21So, I mean, we got lucky there with choosing that market. But OK, what was next? We've never been there. I've never even been to the state of Alabama, nor has he. So we knew we had to build a team because I've never been in the market. I know nothing about Alabama. So we luckily kind of just started cold calling a bunch of real estate agents, we were like, that's probably the best first step to make. Smart. And after maybe 10 of those conversations, we found one individual who was willing to dive deep into this with us. And this individual, her name was Amanda, and she was the one that really helped us out throughout this whole journey.

4:57Because like I said, we didn't have any lenders lined up. We didn't have any GCs, any handymen. We didn't know anything about the market that we were looking into. So we used Amanda as that key piece to then build the team around us and really piggyback off of her experience there. Wow, that's great. I mean, I love that story, just sort of like hustling your way into it, which congratulations seem that's kind of like your personality and spirit. But still, it takes a lot of work, especially when you start getting rejected like that. It can feel a little bit discouraging, but you stuck with it.

5:28Oh, yeah. Okay, so 20 grand was enough to buy something that she recommended. What did the buy box ultimately look like? So the buy box was we wanted a three bedroom property. We wanted our rehab to be under 10 grand. We wanted to aim for a more turnkey property. But in that market, it was hard to really find true turnkey properties. And we also didn't want to have too big of a property because we knew we wanted to take that Section 8 route. So we didn't want a property that was over 1 ,500 square feet just because the more square footage, the more maintenance we were going to have, which would have diminished our returns kind of a long term time horizon.

6:05In 2022, market was still pretty hot. How hard was it to find something like that? How it would work is Amanda at the end of every week, she would send us an Excel file. In column A, it had the address, column B, the bedrooms, column C, the bathrooms, and then a link to the deal, as well as the estimate of what we thought it was worth, slash like the list price. And then she would give us like a little back of napkin rehab budget, just off first glance. That's awesome. And from there, we would kind of underwrite it ourselves. And this was where a big skill that we gained throughout this process was the ability to underwrite these deals.

6:39We were getting maybe 20, 30 properties a week, and we would go line by line analyzing these. And you guys had this calculator on the BiggerPockets website. Oh, yeah. And we were just plugging every single deal into there, understanding the numbers, and maybe took us 80, 90 deals until we found the one that worked for us. Wow. 80 or 90. Okay. Yes. I mean, it took us maybe three months to go and get this first deal. A couple of things I want to call out here. First and foremost, I love the fact that you looked at 90 to 100 deals. That is just the way to do this. And I know people get discouraged if you look at eight, 10 deals and you don't find them.

7:15This is just the job of an investor. Your job is to go out and find the good assets. And sometimes that takes 90 or a hundred. And you probably got faster at this too, right? Like the first one's really hard. Second one's hard, But by the 50th one, you're probably pretty quick at it. And I guess like with Section 8, like you know the rents. So like that's one of the harder parts of underwriting the deal that is actually kind of done for you, right? Yep, exactly. That was what was nice about the Section 8 is we could see on the Housing Authority website that, hey, we'll get$1 ,300 for a three bed.

7:44We've learned now that that actually deviates a little bit kind of given the area that you're in. And like you said, those first 10 deals that we were underwriting, maybe each deal took us an hour to dive into to try and figure out all this information. and once we got to deal 70 and deal 80 boom in two minutes we could look at a deal and know exactly what kind of return we would get it was just a big volume game we're big believers in volume negates luck and we knew that we just needed enough times at bat until we found that deal and that was kind of when we decided to go and pull the trigger there that's totally right i i say this to people all the time because i buy deals mostly on market people say you can't find deals on the market it's like you're just not looking at enough of them if you just keep looking there There are things that are inefficiently priced all the time.

8:27It's your job to spot that and go out and find it. The other thing I love about doing this many reps is that it also really helps you sort of benchmark your expectations. I often advise people to do this. If you're between deals, you're saving up money, just keep running deals because you'll know what to expect. You learn that the average cash on cash return is 8 % or whatever. And then when you do that 91st analysis and it's 12%, you're like, wow, okay, now I've actually found the good deal. And that really helps staving off analysis paralysis. You don't get overwhelmed because you're like, oh, I know that most deals are in this range and I found one that is significantly better.

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14:30Welcome back to the BiggerPockets podcast. I'm here with investor Daniel Kaplan talking about how he and a partner bought their first deal as college sophomores across the country. So you found this deal, Daniel. Did you go visit it in person at all? We have still to this date, never even seen the property. And I think now I bought almost like 10 properties in Birmingham and still have never even been to the state of Alabama. Really? Okay. We were shooting blinds here. And what gave you that confidence? We just knew we had to take action. We were confident in our team, in the systems and people we put in place that we could execute on this deal.

15:08And it really came down to finding that key player that we trusted with everything to make that decision, that we could blindly trust them. I mean, we FaceTimed her as they walked the property and as the GCs were on site. We were getting that feedback loop, but it really just came down to the people and the team that we built in that market that allowed us to feel confident buying that deal without ever even being in the state ourselves. How did you build that rapport with Amanda? Because yeah, I'm sure you get a vibe, right? When you talk to someone, but was there anything particular you did?

15:41Because that's a lot of trust you're putting in someone. Oh yeah. The biggest thing with us with building rapport is we really wanted someone who believed in our story and believed in our vision. at the end of the day we're two 19 year old college kids with a 20 grand net worth who are trying to go all in on real estate and most people are not going to take you seriously most people are going to call you guys dumb hey maybe wait another five years daniel maybe wait till you kind of get a job and recoup and get some more capital but for us we really wanted to sell our story and sell our dream and i think amanda really bought into that and really resonated with it And I think she saw some potential in us, kind of saw us as a penny stock that she wanted to invest in.

16:21Don't see it as a disadvantage of you being young and in college. Use that to your advantage. I've got no mortgage. I don't have a car payment. I don't have a family. I don't have kids. I'm going all in on this. And we really just wanted to find that person who was willing to go and work with us and buy into our story. Very cool. Well, that is bold and brave. I don't know if I would advise everyone to do that. I honestly think for the right person, you can do it. I have bought properties sight unseen in new markets, but I've been to the market. I go and just look around. But I respect the faith you had in yourself and the team that you put in place.

16:59That was a big piece of it, too, is what we realized is if we can buy good enough deals where we have a big margin of error, where we can still be profitable, that was our key is, hey, even if we messed up and let's say, hey, we're vacant for an extra one or two, two months or we go over in our rehab budget. We knew that because of how good of a deal that we were buying, we had that room for error. We could make mistakes and still stay profitable and not go underwater. How long did it take? The work took us about a month and then it took us another two months to actually go and lease the property, which was longer than we anticipated because we thought that, hey, snap of our fingers, we can get this thing rented.

17:38But the housing authorities, they thought differently. They were a little bit slower to get everything in place. So we closed on it in, I think it was November of 22. And then come January of 23, we were leased and cash flowing. Awesome. I mean, overall, pretty good. Three months to stabilize essentially. And how much rent could you get for this when you filled it out? So we ended up renting this for$1 ,300. And your mortgage was what? It was like a couple hundred bucks a month. So yeah, crazy. So what does your cash flow look like? So it was about 600 bucks a month for those kind of first six months after fully leasing it.

18:18We got like a 28 % cash on cash return, which blew all expectations out of the water. And we built in 20, 30 grand in equity from buying it at such a good price. And it's such a good basis where, hey, we had that equity gap as well. Where in the future, if we want to refi or want to go and capture some of that equity, we can. Yeah, that's great. Wow. One of the reasons I wanted to call this out because, yeah, the 28 % cash and cash return is great. But as you alluded to, for you to really understand cash and cash return, you got to put in those repairs, CapEx. So over the years, have you figured out like on average what those repair and CapEx that you need to set aside for?

19:00Because this is a common error a lot of investors make is they take their their rent, they subtract their taxes, their insurance, their mortgage payment, and then that's cash flow. But as you now know, there are other expenses. So like, how have you changed your underwriting, I guess, to like account for those expenses? So what we do is we'll look at the asset, we'll see, hey, this property is going to rent for it. And just for easy math, let's say it was renting for$2 ,000. How we do our underwriting in these Class C, a little bit rougher of areas, we assume that of that top line rent that we're collecting, 40 to 45 % of that is going to go to our operating expenses.

19:39So our property management, our repairs, our utilities, our taxes, our insurance. So we underwrite pretty conservatively now with every asset that we look at. It's that back of napkin rent times 0.6 minus your mortgage payment. And boom, that's your bottom line cash flow. That's a good way to do it. Makes a lot of sense. So I want to ask you, you know, you said it took a little while to get it rented. What was it like working with the housing authorities and going with the Section 8 approach? So it's not all sunshine and rainbows, unfortunately, as if anyone in college is looking into buying real estate, they see these Section 8 guys who say how easy it is.

20:14Oh, you're going to get this guaranteed rent. There's a lot of headaches that go into it. And at the time, if it was still a three-month lease up period today, I would be stoked for some of the other assets that we bought. It's now pushing six months to get these things leased. It's maybe only a couple people in the office with very lackluster systems. So we could have our property fully renovated on December 1st, submit everything to them and even have a tenant lined up. And it still just might take two months to do all the paperwork, to get all the inspections in place, just to go and start cash flowing.

20:46So now what we underwrite with our deals is, hey, when we buy these, we're going to be vacant for three, four, four, five, six months. It is a massive headache. And then also a big fallacy I see people kind of follow is the look at the housing authority website. They can see the rent that they get. You almost will never get that rent. Really? Because what they're doing is they're saying, hey, that is the most we'll rent for. But they're also going to be looking at conventional comps with regular cash tenants. And they're going to say, hey, I know you submitted for$1 ,300. We're only going to approve you for$1 ,200, which that$100 difference could mean a deal or no deal.

21:18So I always tell people when you're underwriting a Section 8 deal, assume it's going to take you four months to even start cash flowing. And also that rent you see in the housing authorities, just do a 10 % reduction because you likely won't get that figure. And if you do, amazing. But if not, you got to be happy with that figure. I like this approach a lot because people look at some of these market conditions like, oh, it's going to take six months. I can't do Section 8. Yeah, you can. You just need to underwrite it. It all just comes down to putting these assumptions and accurate assumptions into the way that you're analyzing deals.

21:52Because if you're doing what Daniel does and say, hey, I know I'm going to put six months of vacancy in the front of this. If you say I'm going to get 90 percent of the maximum listed rent and the deal still pencils still do the deal. And if it doesn't, don't don't blur the lines. Don't get overly optimistic, rose tinted glasses, especially in this type of market, you can't assume everything is going to go right when you're underwriting a deal. Something always goes wrong. You have to just assume for that. And then when it goes wrong, you're not even mad about it because you were just waiting for it to happen instead of like hoping that everything goes perfectly and getting frustrated when it doesn't.

22:29That's just not how the industry works. Exactly. Well, it sounds like you got an awesome first deal, Daniel. I want to hear about how you've grown your portfolio from there. We got to take one more quick break, though. We'll be right back. April is a beautiful month. The flowers are blooming. The days are getting longer. Everyone's outside. Everyone except you. You are stuck in the seventh circle of tax hell. You forgot to separate your mileage. You've got cash transactions that your CPA is refusing to touch. You replaced the HVAC in March, called it a player, and just learned it should have been capitalized and depreciated over 27 and a half years or possibly 39 years.

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