Wednesday | February 08, 2012
Real Estate: It’s Not Just for Your Parents Anymore
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By
Nicole Slaydon
2 June 2006
In May 2007, when Carl Sapp graduates from Virginia Tech, he will leave with an extra $55,000 in his pocket. No, this money didn’t come from a grant or scholarship. Carl doesn’t have a trust fund, and he didn’t win the lottery. All it took was a little bit of saving, a whole lot of patience, and a dash of luck.
Starting at 15, Sapp continuously invested money into secure stocks and at 20 cashed out at about $30,000. Now 21, the computer and electrical engineering major owns a townhouse and is landlord to four of his peers.
Between getting a loan, affording the down payment, and learning to identify a good deal on property when you see one, getting into real estate can seem a daunting task, says Sapp. However, he adds, with a little patience and a few hours of research, a student with enough ambition may find that this is a realistic and profitable endeavor.
Step 1: Get a loan
Unfortunately, notes Sapp, it takes money to make money. And quite a lump of dough is necessary to call a piece of property yours. So the first step in buying property is to determine which type of loan is best.
Generally, students can most easily acquire a "no doc," or no documentation, loan, according to Sapp. These loans usually require a substantial down payment and excellent credit, but the advantage of a no doc loan is that they do not ask your income. Lenders usually only ask your name, social security number, amount of down payment and address of the property. This is key for students with less than ample bank accounts.
Sapp received a 5/1 ARM no doc loan to purchase his townhouse in Blacksburg, Va. "No documentation means they won’t ask how much my salary is," he says, "and getting an ARM makes your interest rate lower." A 5/1 ARM, also known as a 5 to 1 Adjustable Rate Mortgage, basically means the interest rate is fixed for the first five years of the loan’s life. Besides offering a lower interest rate, this type of loan benefits students because most leave their college town in four or five years.
Step 2: Down payment
- Pick a type of loan. Check.
- Choose a time period. Check.
- Acquire a 20% down payment. Eeeek!
For the most part, a no doc loan requires a 20% down payment. For a few, this is easy: pop open the trust fund, cash in those savings bonds, or hit up the rich uncle. Piece of cake, right? Riiight. It can be fairly easy, however, to get a few friends to help you invest in the down payment.
Even after taxes, most hard-working students can make $5,000-6,000 each year. Find a piece of property for around $80,000, get four friends into the deal and that $16,000 down payment could be a breeze.
Sapp took the down payment route a different way. With $30,000 from his earlier stock investments, he was able to purchase a $150,000 townhouse at the tender age of 20. Sapp’s advice for those raising money for a down payment is simple: Start saving money NOW! He also says to always keep in mind your goal and to "think about what you HAVE to buy and buy nothing else."
Step 3: Finding Property
Now that the loan and down payment are out of the way, it’s time to find some property. Sapp put out the word that he was looking for property, and an acquaintance gave him a lead that panned out.
And of course, there is the ever-trusty Internet, which has many property listings by many different realty companies. Why not use a real estate agent and get rid of all the hassle? That makes sense, but Sapp says to be leery of sellers who raise the price of property to offset the cost of a realtor. Still, he says, "not using a Realtor® can make things more complicated when it comes to writing up contracts and getting all the legal things done. It’s important to be careful if you’re going to do it yourself; it’s a gamble."
Most of all, recommends Sapp, act professional. "People who are selling houses don’t want you to mess around," he points out. "Show them you mean business and have everything in line."
"So now I’m rich, right?"
Making money off a property investment may take some time, says Sapp. The big payoff comes in the end. (Refer to "patience," paragraph 1.) After expenses, he makes around $200 profit a month from collecting rent, which he says is far more than he expected.
His plans for the future? More of the same. He says he expects to sell the townhouse in three or four years and use the profit to invest in even bigger properties.
© 2008, Young Money Media, LLC. All rights reserved.
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