How to Prepare for Your First Rental Property (Beginner Steps) (Rookie Reply)

0:00A lot of rookie investors are not choosing between three deals. They are still trying to figure out whether they are ready, what to do first, or if the timing even makes sense. Today's questions all come from the BiggerPockets starting out forum, and each one is from someone who has not fully started yet. And today we're going to talk about preparing to invest while you're still young and in college, investing from a very, very far distance, and what to do if you have some savings but you live in an expensive.

0:32This is the Real Estate Rookie Podcast. I'm Ashley Kerr. And I'm Tony J. Robinson. And with that, let's get into today's first question. So question number one comes from Landon in the BiggerPockets forums. And Landon says, Hey, everyone, I'm heading into my last year of college, and I want to use this time to set myself up to buy a house once I graduate. I'd love input from people who've actually done this. A few things about my situation. I'll be graduating in May of 2027. I expect to be earning around$70 ,000 in the finance industry. My current savings are mostly in my Roth IRA, but I do have a nice nest egg.

1:07I have no student loan debt. My credit score is approximately 720 plus. I'm open to either a primary residence or house hacking slash a rental. My main question, what concrete steps should I take during this final year to be in the best position possible to buy after graduation. Specifically, I'm trying to figure out number one, financing. Is it worth exploring FHA loans, first-time buyer programs, or house hacking strategies straight out of school? How do lenders treat a brand new job with no work history? Number two, savings. How much should I realistically aim to have saved for a down payment and reserves?

1:40And any savings strategies that worked for you? Number three, education. What books, podcasts, or resources should I be working through during this year. Number four, mistakes. What do you wish you'd known or done differently before your first purchase? Number five, savings. I'd rather spend this year being intentional rather than scramble after I graduate. Any advice or frameworks would be super helpful. All right. So first, Landon, again, to all the folks who are listening that are in college and listening to this podcast, we applaud you. You guys are amazing because it's incredible that someone who's in their 20s who hasn't even started their career yet is thinking about real estate investing.

2:14So I'm going to answer these a little bit out of order, because I think the first one to me, actually, that I want to hit is just like the education piece. I think you're in the right spot, right? I mean, you're in the BiggerPockets forum. That's a great place to educate yourself. That is like a wealth of knowledge. And so many questions that you might have, have probably already been answered inside the forums by a real person, you know, not AI slop, someone who's actually lived it, done it, who's given you some advice. So the forums are a great place. continuing to listen to the Real Estate Rookie podcast.

2:44I mean, the entire reason we exist as a podcast is to help folks who are in your exact position, people who want to start educating themselves about all the strategies and the frameworks and the processes. And then I think once you've really maybe narrowed yourself down to the correct strategy, then go start reading some of the more detailed books. If you want a house hack, go read the book on house hacking, The Bigger Pockets Put Out. If you want to flip houses, go read the book on flipping houses by Jay Scott. If you want traditional long-term rentals, Go read the book on long-term rental investing by Brandon Turner.

3:14If you want to BRRRR, go read the BRRRR book. So every strategy, there's a book about that BiggerPockets is published to kind of give you more insight. So from an education perspective, that's probably where I start. I want to tackle the financing piece and how much capital you actually need. I guess one of the questions was how much do I need to have saved for a down payment? That's kind of hard to determine based on we're not even sure which market you're going to be buying in or what your price point is. But if you're going to do FHA financing, you would need 3.5 % down to 5.5 % down. If you're going to do a standard conventional loan, you either could need 5 % to 20 % down.

3:56So looking at purchase prices, that's what your down payment. You'll also need money for closing costs. So don't factor in just a percentage of your down payment. That's all you need. You also will have to pay closing costs like your appraisal, sometimes a money to your lender, a fee for them. So make sure you actually have more than what the down payment is. And then you want reserves, say three to six months of reserves. And I want to be very clear. We always say this if you're buying an investment property for your rental property. but if you are buying your primary home, you should have the same.

4:32Expenses will also come up. Repairs will come up. CapEx will come up in your primary home also. So you need to have reserves. You could lose your job, lose your primary source of income. You need some kind of runway to be able to pay your mortgage payment if that were to happen. So three to six months of reserves, heavy on the six-month side. He did say he does have a nice nest egg already. So maybe do have that. And then your down payment will vary depending on the loan type you get. With FHA, you're going to have to do an inspection of the property that you wouldn't have to do with conventional.

5:07But I am running into some people and also I had a buyer where they still had to have an inspection during a conventional loan too. And the appraiser called out different things that needed to be fixed before the lender would actually approve the loan. So this is very specific based down the lender as to what they would want repaired. But FHA does have a standard list of things like chipping paint. You'll need to repair. You need to have all your hand railings, different things. A lot of these are safety issues that should be done anyways. But just be cautious. There's more hoops to jump through for an FHA loan.

5:43A first time home buyer program. I don't love these because a lot of times they actually require you to live in the property for longer than a year. I've seen them like five years. You have to live there in the property. If you really want to propel your investing journey and start house hacking and moving from one property to another and turning the last one into a rental, it's going to take a lot longer to do if you have to stay in that property for five years. Also, you can't use those if you're going to do just an investment property. It would have to be your primary residence or you'd have to be house hacking to start.

6:19So I definitely think house hacking should be your route. I highly, highly recommend it. I know everyone's sick of house hacking, but house hacking is going to get you your best bang for your buck because you're going to be able to subsidize some of your living cost of housing by having roommates instead of buying a primary or buying an investment property and then paying for rent. So whether that's renting by the room or if that's buying a duplex, a triplex, a quadplex, and that also will be market dependent where you're investing, which of those strategies will work better. For example, high cost of living cities, probably rent by the room is going to be more affordable to get into.

7:05Where if you're buying a quadplex, it's going to be a lot more expensive to get a four unit property and have three people paying you rent than it would be to get a four bedroom house and have three people paying you rent. But that is where I would start as far as looking at your capital needed and which loan product to use. And one thing that you should be doing is not telling the loan officer what loan you want. Tell them the property you're buying, what you're going to do with it and let them tell you what loan products they have available for you to use. Yeah, all great points, Asha. I think the only last piece I'd want to answer is the mistakes part because Landon said like, hey, what are some of the mistakes that I should be aware of?

7:48And I think you're already asking all the right questions that should allow you to avoid most of those mistakes. But if I had to harp on one, I'd say it's really building confidence in your ability to analyze these deals because depending on the strategy that you choose, is each one has a slightly different way of analyzing deals. The way that we analyze short-term rentals is different than the way that we analyze midterm, is different than the way we analyze long-term, different than the way that we analyze flips, different than the way that we analyze, you know, BRRRR strategy. So just really understanding the strategy that you plan to employ and then knowing how to really project things like the revenue for that specific strategy, the expenses associated with that and your overall net income.

8:26I think a lot of rookie investors can talk themselves into a bad deal because it looks good aesthetically. You know, hey, it's a new construction, so it's gotta be a good deal. Or hey, it's in this part of town, so it's gotta be a good deal. Or hey, it has this thing, so it's gotta be a good deal. When really, what separates a good deal from a bad deal is the actual cold heart data, the cold heart facts. So just educating yourself on how to really, truly, confidently analyze, I think is where I spend the majority of my time. Coming up, an active duty military listener is overseas for the next few years and wants to know whether he should start investing now or wait until he is back in the US.

9:01We'll be right back after a short break. Summer bookings sound great until someone slips by the pool, gets hurt on your dock, or damages your property during a long holiday weekend. A lot of short-term rental investors don't realize their standard policy may leave gaps when it comes to short-term rental activity. That's why investors use Steadily. They offer landlord insurance built for real estate investors, including short-term rentals. And if you're a BiggerPockets Pro member, you'll also get 5 % off your landlord insurance premiums. Visit biggerpockets.com slash landlord insurance to learn more.

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12:10All right, so Landon has a year to prepare before graduation. Now let's talk about someone who wants to start, but may be physically far away from the market. This question comes from Taven Walker. I'm active duty military and expect to remain overseas for at least the next three to four years. I'm interested in getting into real estate investing, specifically house hacking, and small multifamily properties, but I'm trying to figure out how realistic it is to start while living outside the US. Does it make more sense to wait until I'm back stateside or is investing long distance not as big of a disadvantage as it seems?

12:46For those who've done it, how did you handle building a team, finding deals, managing properties, and reducing risk while overseas? I'm looking for honest advice, lessons learned, and suggestions on the best way to move forward given my situation. Okay, Tony, I actually have a question that I don't know the answer to is if you are stationed overseas and he plans to be there for the three to four years, would you still be able to have a go and purchase a primary residence in the U.S. not currently living here and won't be physically there for the three to four years unless, you know, you come back to visit, you know, but like, could he have the option of, even though he's serving overseas, could he have a primary residence in the U.S.

13:41now? Like, I understand if he already had one, you would keep your primary, you could keep your primary residence here and it'd be your primary. But while you're deployed, can you go and purchase a primary in the U.S.? I would assume so. And I feel, and again, like guys, check us in the comments here, Ash and I, neither one of us are active military or veterans here, but I feel like we've interviewed guests who've done exactly that. Like they've purchased properties while being stationed elsewhere. So I'm sure there's some nuance to that, but my assumption would be probably, right? Because what, I don't know what happens if your family decides to stay back in, you know, whatever place and they don't want to go with you to Germany on this tour, like your family still needs a place to live.

14:21Right. So I would assume yes, but I can't say with certainty. Yeah. Cause that's what I was saying. He was like, yeah, the best way would be to house hack you buy a house as your primary residence in the U S you're not even there. So you don't even have to live with your roommates and you still get the benefits of a primary residence loan product, a lower interest rate, a lower down payment. So if you are able to do that, that's what I would do is cause you're not even have to live with the people that, you know, it's you're going to be deployed anyways so it's not like you'll actually have roommates but it would be you know obviously only do it if it's legal and you satisfy the loan requirements but as far as managing remotely you just need to have a good team good boots on the ground team and that's someone who can show the apartment or show the rooms when you need to lease it and also a handyman that can come and make repairs for you.

15:16So everything else can pretty much be done remotely for a property. Or you could just hire a property manager, but I still think you can self-manage it from anywhere in the world if you have those two people. Leasing agent, super easy to find. Real estate agent. There's millions of them to find that. a good handyman that you can trust, you can rely on, that's available at random times, that's definitely the trigger one, the harder one to find. A lot of rookie investors have this perception that the longer or the further the distance, the harder it becomes to manage. But the truth is that whether you're like, let's say that your property's in Buffalo, New York, right?

16:02And say that you live in California. I'm clear across the country. There's nothing that I could do to be able to get out there today to go check on that property if it's in Buffalo and New York. So all of my systems and processes have to be set up in a way that allowed me to not be able to quickly get to that property physically. So even if I go from where I'm at in California, let's say I go all the way across the Pacific, now I'm in Japan, can, those systems and processes don't necessarily change just because I've gone further away because the inability to get there quickly is still true. So everything that I've set up to be able to remotely manage this Buffalo property from California, all of that translates even if I'm on a different continent.

16:49So I think the biggest thing is to worry less about how far am I away from this property and more so about how I set up the right systems and processes that allow me to remotely manage this from anywhere in the world. And we self-manage our portfolio. And we've done it from here at our home in California. We've done it from, you know, in Mexico and Europe. Like it doesn't matter where we go, where we travel. We still have the ability to remotely manage because our systems and our processes scale and they allow us to move no matter where we are in the world. So I think that is the goal is to build those systems and processes.

17:24Yeah. So a lot of that comes with the tech stack. So for my long-term rentals, I'm using Turbo tenant that does a lot of the property management portion of it, rent collection, maintenance request, any tenant communication, e-signing, lease agreements, creating any kind of agreements or addendums. That's all in that. And then as far as like my banking and bookkeeping, that's all through Baseline. So just those two things, I mean, just give you so many capabilities use to manage remotely. And then Tony, for your short-term rentals, you pretty much have two or three pieces of software too that do everything for you.

18:04The majority, right? So we use Hospitable as our property management software. We use Price Labs as our dynamic pricing tool. We use Hostfully as our digital guidebook. And those three together when set up correctly, along with like the physical space being set up correctly as well to kind of guide guests in the right direction allows us to, you know, it is not uncommon for us to have a guest who checks in, stays three or four days at one of our properties, and we never have to actually talk to them. They're just like going back and forth with all of our automated messages. They check out, they leave a five-star review, and they talk about how communicative, you know, Tony and his team were during our stay, not realizing that those are all automated messages.

18:42So when done the right way, you can give your guests, you can give your tenants a really good experience without it taking up a ton of your own time. I use hospitable too. And I use their AI chat and I just, people think I'm so nice and polite and friendly. This is great. You know, if it was me answering, I'd just be like real quick, one word. I'm like trying to feed one kid, trying to get one kid ready for football while that's happening. It would just be like short and sweet, but it's like so nice to have a lot of this AI to respond and do a great job with it. All right, guys, we're going to take a quick break, but when we're back, a California listener has$30 ,000 saved up and wants to know how to actually start building a rental portfolio.

19:22We'll be right back after this. A few weeks ago, I took a trip down to Pensacola, Florida with my dad and my kids. We spent our days at the beach and the pool. We cooked dinner together one night and I got to experience the simple joy of just watching my dad suck up time with his grandkids. We played a round of mini golf that ended up being the best part of the whole trip. And it was one of those visits where you just slow down with the people you love and realize how much these ordinary days together actually mean. But while I was gone, my house was just sitting there empty. That got me thinking about something I hadn't really considered before.

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25:04Alex says, I have about 30K saved up, but I'm based in California. Definitely not enough to buy any properties here. The goal is to have a rental portfolio. What are some strategies you guys would recommend? First, great question, right? And there's a lot of folks who live in these high cost of living areas that would like to start kind of building their rental portfolio, but aren't quite sure that they have enough capital to make that work. So the things that come to mind for me, number one is, can you leverage your primary residence as your first investment property? So maybe 30k isn't enough to go put 20 % down on like a traditional rental property.