Episode 5: Transcription
Steph:
Okay. All right. Start it off whenever you want.
Kristina:
Hey, you all, welcome to the Open House Podcast where women's-
Steph:
Cool. What do we do?
Kristina:
Welcome to the Open House Podcast where women talk real estate, I'm Kristina Modares.
Steph:
And I'm Steph Douglass.
Kristina:
And in today's episode, we will be talking about the best ways for twenty-somethings to buy an investment property. But first, Steph, how are you? How was your weekend?
Steph:
Oh, man. Yeah, it's Monday today, when we're recording. And I have not been drinking very much over quarantine. It's been very chill. I'm not a big casual drinker, I don't know what that means. But this weekend, I did drink a lot. So, I feel like I'm having a-
Steph:
... three day hangover. Nowhere really.
Kristina:
Where would... I mean, I don't know, outside on walk?
Steph:
Yeah, we did that. We actually went and had a social distance dinner with a couple. And they set up their dining room table outside on their front lawn, and it was very cute. Everyone who walked by was like, "Oh my God, I love Austin, this place is..." It was really cute. But I don't know, I felt like... I think I told myself, needed a break. And I was just like, "Well, wine then."
Kristina:
Yeah, wow.
Steph:
How was your weekend?
Kristina:
It was good. I think I had almost two full days off, which felt as... We both haven't been taking... I know in the past five years, I have not been taking much needed time off, and now having time off, I was like, "What do I do?" It was bad, though, I don't want to become that person. I was like, "Wait, what do I..." I don't know. So, I don't know, I read a lot, I watched a lot of Netflix.
Steph:
Good. You need that to unwind. I was talking to friends, and they were talking about their new hobbies, like, "What have you picked up over quarantine?" And I was like, "Oh my God, I need a hobby."
Kristina:
Well, I started a yard project, which I didn't do any of this weekend because it was just-
Steph:
Oh my God, yeah. Why didn't you... Because it was too hot?
Kristina:
I don't know, because we were like... We just wanted to not do anything. And then, I guess, I did help Eric in his coffee shop this weekend. But I don't know, we just wanted to chill. Also, I have been drinking a lot more than usual, I'm... Kudos to you. Because I think I wasn't that big of a drinker, yes, in my early 20s, heavy drinker. I think I stopped, and now, I'm definitely drinking a lot more, I drink every single day.
Steph:
This is an intervention.
Kristina:
[inaudible 00:03:05] But I don't know, I guess, I was talking to my sister about it, I was like, "I don't know, I just have two casual drinks." And she was like, "Yeah, before, when I'd go out, how many drinks would I have, four, five?" She's definitely in her earlier-
Steph:
In her 20s, yeah. Well, that's a perfect segue because we're going into our twenty-somethings investing in real estate. Go ahead.
Kristina:
Okay. So, we wanted to go over the five best ways for twenty-somethings to buy investment properties. Number one being, getting a minimum down payment program, house hacking, which we'll get into in a bit, partnering with friends, roommates, family members. Also, learning to do things on your own to increase value, and then buying further away for a lower sales price and down payment amount.
Steph:
Yes, and these are five best ways but also, you can do every single one of them in one deal.
Kristina:
Exactly.
Steph:
So, we organize them in that way, but really, you can do them all. So, let's jump in.
Kristina:
Yeah. So, number one, minimum down payment amount. I think a lot of people in their early 20s, this might be one of your first big career jobs, and maybe if you're just starting out, you might qualify for a first time homebuyer program, or just a homebuyer program in general. This allows you to have a little bit less in your savings account. So, you might qualify for a program, and it might pay for your down payment amount, or part of your closing costs. I know my boyfriend got a program where it paid for both, and this is for teachers, right, Steph? I know you-
Steph:
Yeah.
Kristina:
... had that as a program when you were a teacher. Even firefighters, I think there's some minimum salary, right? There's a minimum wage.
Steph:
Yeah, there's salary requirements on some of them. There's just so many different ones, so I wouldn't... There's not a blanket rule to say, okay, you qualify if you're this, but I would highly encourage you... Just a little bit of research, we have some resources on this. I think this is such a good way to get into the market. Even though some people think you have to put 20% down, you just don't, you don't have to. Everybody has a different opinion about this, but financially, you... I mean, and logistically, you can put as little as 0% down, and then without a down payment assistance program, you still could put 3% down.
Kristina:
Yeah. Like she said, there's so many different programs. The one my boyfriend had, there's not as much restrictions of... When he goes to sell, he can sell it himself. I would say the only con, I guess, for that would be that his interest rate was a little bit higher. So, he could have gotten a 4% interest rate, instead, he got a 5.5%. But with that, he was able to buy three years earlier than he would have been able to before. And then, he had a salary job at the time, and I told him, "Buy this house before you try to jump careers, or start a new business, because that will restrict you later on." So, he was able to get this home and now has a little bit more freedom of what he can do.
Kristina:
And then, I had another client who used the program, and she really wanted to live close to downtown, because of her job, she wanted to use public transit. And she didn't want to do a fixer-upper, so she did a new build program in the Mueller district actually, in Austin. And she bought a home that... It's probably worth $550,000, and purchased it for 170,000, has a roommate or two, and makes money on that home, so.
Steph:
Which is so awesome. And those affordable housing programs, builders have to build those into their plans. So, those, a lot of times, maybe aren't on the MLS, it just takes a little bit more digging. So, the basic moral is just don't stop before you get started, try. If buying a house is in your plans, which I think it should be... I have two younger sisters and two younger brothers and everybody... I'm just shouting at them to buy houses. So, if me, saying advice to people I love, and I love all of you, my advice is to buy a house early. So, these programs are there to help people and to stimulate the economy, and to help people get into the housing market.
Kristina:
These programs are here to allow more people into the housing market, right? I know, as a 23 year old, you might be thinking, "Well, I can't do this." But if you just got that salary job and you have a little bit of savings, look into some of these programs, do a little research and you might be surprised that, "oh, hey, I'm already living with three people, and I can buy this house and have someone help pay for my mortgage payment?" It might make sense for you. Even if you're like, "Oh my gosh, I only have $5,000 in savings," you might still be able to buy a house, and you might still be able to make it work for you. And that kind of leads into the next, I guess, tactic of buying a house as a young twenty-something year old, is house hacking.
Steph:
Yes, our very favorite.
Kristina:
Yes. And house hacking, what that means is having other people pay for a mortgage... Or helping you pay for your mortgage in a house that you occupy. So, essentially, if you bought a house and lived in it, and then rented out a part of your house, that would be house hacking. Or if you lived in a house, and had a tiny house in the back, and you were renting out part of your house, the back unit to someone, that would be house hacking. There's so many different ways, even just having a roommate. And we both got into that-
Steph:
Open House is the house that house hacking built.
Kristina:
It's true.
Steph:
Because you and I both house hacked and we both... I mean, we started with the simplest form, which is having a roommate, and we both recognized at a pretty young age... I bought when I was 24, for the first time, and you were how old? 27?
Kristina:
25.
Steph:
25.
Kristina:
Mm-hmm.
Steph:
So, we both were like, "Wait, we have roommates, we could continue to have roommates, but we could own the home, and then our roommates could help us pay the mortgage.
Kristina:
Yeah.
Steph:
And it's a much more stable way to continue living with roommates, and just to continue living in general, because no one can raise your rent. They can't tell you that your lease is over. You have a lot more control over your situation.
Kristina:
Yeah. And I remember when I first moved to Austin, right after I had graduated college, and I really did want to be in a more central location, but I had no money. So, I lived in a very old home with four people. And it was like a little, I don't know, family, and I was like, "Wait a second, why are we all paying this? Why are we all paying rent to a landlord when we could probably buy a house and rent the rooms out? Or, we each get equity."
Kristina:
I kind of was like, "Oh, I could buy a house maybe, and rent. I don't mind, as a 23 year old, living with three people, especially if I get money every month. If I get to live in this five bedroom house, but I get $400 a month in income, that would be great. I'm okay, I'll do whatever. At 22, 23, I'm going to do whatever." And I did whatever, I remember. I remember.
Steph:
Whatever it takes. Live for free, but the best case is to cash flow on where you live, it's so invigorating.
Kristina:
There's so many different ways to do it. It doesn't mean you have to have your whole mortgage payment paid for.
Steph:
No.
Kristina:
Even if you're like, "I just want to buy this place, and my mortgage will still be 2000 a month, and I'll have one roommate, and they'll cover half of it." You're still saving money, and you're still essentially, putting equity into your home that you'll hopefully get back later. So, it just-
Steph:
You're paying yourself and your roommate is paying yourself, instead of you paying someone else's mortgage.
Kristina:
Exactly. And I remember... So, how I got started house hacking, and it's the house I live in now. I bought this house when I was 26 or something? Yeah, I think, and it was just me, I was single. And it was a three bedroom, one bath house. I was coming from really affordable rent. I lived really close to downtown, my rent was only 700 a month with all utilities paid, and I was like, "If I'm going to buy a house, I want to see if I can pay less than that with my mortgage every month." So, for the first year... I think I wrote an article on this, we can link it in the show notes, of the numbers of how I did this. But I rented out a room in my house for 850 a month, and then I would do Airbnb sometimes.
Kristina:
So, I had a girl that I met off Craigslist, and she lived with me and she's awesome, I got really lucky with her. And she was month-to-month, and I think she was with me for four months. And then, I did Airbnb, and I kind of did that throughout the year. And in average, I think I only spent like... I should look back at that article, I think 500 or 400 a month-
Steph:
A month?
Kristina:
Yeah, for my mortgage. And I didn't have people living with me all the time. So, it worked out for me. And then now, I just live with my partner, Eric, and we can't have any more people. I'm now in my 30s and we have a tiny home. So, it's just me and him. But he still pays me. So, essentially, still making money. I call that house hacking.
Steph:
Still house hacking. So, I got started really similarly, I was living with five people and we were renting, and I decided I wanted to buy a house, and I knew I was just going to continue to have roommates for quite a while. At 24, you're still living with people. So, I bought a little house with two bedrooms. And Nancy, who was on episode two, moved in with me, and we just split the mortgage in half. My mortgage was 1100 dollars with taxes and insurance, and I paid 550 and she paid 550. I thought that was so great. My rent would have been, I think 600, 700 at that time. I just saw it continued to go up and up, and so it made me really nervous as a teacher, with a pretty low salary, or a pretty... My income couldn't afford the rising rents in Austin. I was about to be priced out of anywhere in Central Austin. So, I bought and then, house hacked in that way.
Steph:
And then, when I bought my second house, I hyper house hacked, kind of like you... I bought it, renovated it in the first two months. I had a full time roommate who signed a year lease. She was also awesome. Craigslist is the best. And then, she actually-
Kristina:
Oh, yeah.
Steph:
I was going to get two roommates, because it was a three bedroom, two bathroom, and she suggested that we Airbnb the third room, and she would manage it for a lower rent. So, it kind of worked out for everyone. We Airbnbed that little room, she got a lower rent, and I lived for free. I think it covered my mortgage, those two rents. The house was 300,000 and my mortgage, I think, was 2100. And she paid 750, and then I think, we got around 900 to 1100 per month from that little Airbnb room, so yeah.
Steph:
And never a bad experience. I mean, we both, you and I Kristina, have Airbnbed a room in our house. I mean, there's been some annoying things, you're like, "Get out of my kitchen, please." But I mean, I wouldn't... It was never a bad experience, or I never felt unsafe, I was totally fine.
Kristina:
Yeah, and I think even for me, when I Airbnbed in the beginning, because honestly, I even did it when I lived in the five bedroom house, renting. That's where I kind of got started with Airbnb because our bill was 500 a month. This house was so old, and that was so much money to all of us. So, we started renting out our back room, and it was a futon, and a couch. And people would couch surf and pay $50 a night. And we met so many cool people that way. Honestly, that sounds like my hell right now, but when I moved to Austin, I was so excited to meet new people, and I don't know, it was just so exciting, and I loved it. But again, there's different stages of house hacking for every stage of your life. I wouldn't do that now, totally loved it in my early 20s.
Kristina:
And that kind of leads me also to remember... Remember Julianne? One of our clients, she bought a house with a lot of land. And one way that she house hacks is she rents out part of her backyard to someone with an Airstream, so people rent out her land. And that's a way of house hacking. So, there's lots of ways to do it, and it doesn't always need to be someone in your house. But I really think, when you're in your early 20s, you don't give a fuck, or usually you don't. I didn't, I don't know. I know a lot of people I lived with didn't either, so.
Steph:
I agree. And I think meeting new people was such a priority to me also in my 20s. I've been reading my old journals and being like, "Oh my God, I was so adventurous, and I was so excited to meet new people." And now, I'm like, "No."
Kristina:
I know, [crosstalk 00:18:11]. This quarantine thing is pretty-
Steph:
I know.
Kristina:
Is pretty good.
Steph:
But I continue to house hack. So, this is my third house in house hacking, and I really struggle to see a life where I don't do this, even though one day I'm sure that I won't. But I bought a house in the Holly neighborhood of Austin, and this is my favorite neighborhood. I've been on a quest to live here, and finally found a house to buy, and I renovated. And there was already-
Kristina:
An expensive neighborhood.
Steph:
It's a pretty expensive neighborhood, yeah. Now even more so. And very close to downtown. There was already a little wing of the house that had an exterior entrance, and it didn't have a kitchen, it wasn't a duplex by any means, but it was a room with a bathroom. And the family that lived here before they were like, "We had to build that because my grandpa got tired of being around kids." So, they were just like, "We built him his own little suite." So, I bought this house and made that suite into an Airbnb suite. So, it's kind of like Airbnbing a room in my house, but they don't come into my house at all. They enter through an exterior entrance, they have their own little patio, and they have their own bathroom, so kind of like a hotel room.
Kristina:
Yeah.
Steph:
Since it's so close to downtown, there's no way that I could rent that full time, which kind of makes me feel good about... I can still Airbnb and not feel like I'm taking away a space for someone else to rent, because it's just not a long term rental space. But it does cover my mortgage. So, I'm living downtown in this amazing neighborhood for free.
Kristina:
Yeah. That is amazing.
Steph:
Oh.
Kristina:
Yes?
Steph:
Sorry, one more thing. So, my partner, Alan, who's the producer of this podcast... We should just start referring to them as Eric and Alan.
Steph:
So, Alan lives with me as well, we've been living together for three or four years. But he is the manager of the Airbnb next door. So, he lives here on quote, unquote, rent free, which it really isn't rent free because he has a really full time... Not full time job, but he manages it. And so, we don't have to pay a property management company. I don't have to manage, and he gets a place to live. So, it's a very cool setup, and another way to demonstrate that you can have partnerships and house hacking situations in all different shapes and sizes.
Kristina:
I guess that also kind of leads into our third route for twenty-somethings to afford and be able to buy investment properties, is partner with a friend, partner with a roommate, a family member. So, I think honestly, if you live with your best friend, and you're renting, and you're both paying high rent, maybe look into partnering with them on house. Maybe you could buy a condo, or a house and split that mortgage together. And I don't know, you know people who've done that? Right, Steph?
Steph:
Yes.
Kristina:
I think some of our clients have done that.
Steph:
I love this strategy so much, because not only does... You and I both bought houses alone. And so, we were, I mean, responsible for everything. And there's a big piece of the real estate process that people are intimidated by, because it's all falling on your shoulders. You have to fix everything. You have to pay for everything. So, if you have a partner, that means obviously, you don't have 100% ownership, but you are sharing the financial burden, you're sharing the emotional burden. It's such a good way to do this. I have clients... I don't have as many as I wish I had, or I think that this should just be like a more widely accepted way to buy a house. But I do have two clients, two female, probably late 20s, and they bought a house together in Montopolis, and they're just sharing everything. And they bought a three bedroom, so they'll also have a roommate to help them supplement. So, they're splitting the remaining balance of their mortgage after the roommate pays. So, I just thought that was so cool.
Kristina:
And you're splitting the responsibility. You can split up the time, you can split up the roles that you guys have. So, when I bought my house, I had just kind of gotten my license. If you don't have a W-2 job, it's a little bit harder, it's a little bit trickier to buy a house. You have to have two years backing of income, and that income... It can't just be like, "I made $10,000 one year." You have to show good income for two years. So, I had cash, but I didn't have that W-2 job. But my sister had the W-2 job, and she didn't have as much cash, and she lived in New York City. So, she wasn't really going to be buying a house in New York City, because it's crazy expensive. So, we came up with an agreement, where I would live in the house, I would cover the mortgage every month, and she would apply with me to be on the loan. And she would be like a... She's a 5% owner. So, when we sell it, she gets 5%.
Kristina:
And so, right now, I'm even in the process of doing a cash out refinance of my house, and I even asked her like, "Do you still want to be a part of this?" And she does. So, she's like, "When we sell, I still want 5%." So, that worked for us, I was able to buy a house. It worked for her because she's putting in a little bit of cash that she's going to get in maybe 10 or 20 years, and it's cash you didn't even think about. And she has no responsibility, no liability really, especially once her name is off that loan.
Kristina:
So, there's, I don't know, different ways to do it, where it's not just like, "Oh, my best friend and me are buying this house together." It could be a sister who lives in LA and probably, it's expensive, would you want to partner with me? And let's work out the terms. Let's get a real estate lawyer and get an operating agreement going, which might be why people are fearful of doing that a little bit.
Steph:
I think that was going to bring that up, the fear around entering into a financial relationship with someone, it can be scary. You don't want to ruin the relationship, it's a little daunting. However, there's so many ways around that, and I don't think that should be something that stops people, even though I get it. There's lawyers, there's... It's basically like a prenup, where you talk through all the terms before you enter into this relationship. So, in your investment together, your partnership, you drew out what would happen, and what would happen if someone wants to sell, what would happen if someone wants out of the partnership, all of these things before you enter into the actual legal relationship. And I just think it's such a good way. And I always say, 50% or 5% of a deal is better than 0%.
Kristina:
Exactly, and there's... Didn't we talk about this? A silent partnership versus... What?
Steph:
An active partnership? Yeah.
Kristina:
Active versus silent partnership. And then, yeah, I think we all... Me and you, Steph, we both purchase property with partners, we've purchased almost every property we've owned, right? I know I do.
Steph:
Yeah.
Kristina:
Every property I've bought has been with a partner. I've bought with a friend and we just came up with an operating agreement. And we both know our responsibilities, I'm talking with the property manager, he's dealing with the taxes. So, there's different ways to do it. Especially when you're younger and you're like... Maybe you have more time than your friend who works a 50 hour work week. So, it's kind of nice to find someone with complimentary skills, I guess.
Steph:
Absolutely. And in this case, just getting into the market sooner, it's going to have a huge impact on your overall wealth and net worth in the long run. So, it's worth it to learn about these things. You might feel overwhelmed by this, but it is so worth it. So, I encourage you to think about that. Also, I encourage you to find people that don't live in... Maybe you live in a hot market, we've been lucky to live in Austin, where... People in LA and people in New York that we know, aren't buying real estate like we are. So, if you live in an affordable market and have people that live in an unaffordable market, then I would reach out to them. See if they want to be a part of this because it could be a really good opportunity for them, in addition to helping it become possible for you.
Kristina:
Exactly. And I think the overarching theme of this whole episode, it's like, live and think differently than others now, so you can do more with your money later. And set yourself up for success, it's going to snowball. And I think it's probably easier when you're younger to get into this because... Maybe I'm just speaking for myself, but I think I was just more willing to live with more people. I was more willing to move around or maybe live in a house that's not the fanciest. I was just willing to do anything and so excited about things. And-
Steph:
Be uncomfortable now, so you can be the most comfortable later.
Kristina:
Yeah, set yourself up for success and [inaudible 00:27:59].
Steph:
And even being uncomfortable quote, unquote, is having roommates. You might have these discomforts anyway, so you may as well own property in the meantime.
Kristina:
Yeah. And, I don't know, I mean, living with roommates isn't the worst. I think-
Steph:
No, it can be the worst, but it doesn't have to be.
Kristina:
We need to talk about how to find good tenants or roommates, that should be an episode.
Steph:
Yes.
Kristina:
Because I think that is scary, a lot of people... And I know a lot of our clients have bought houses and house hacked, and then they're like, "I don't know, I had this weird experience with this person who lived in my house." And I'm like, "Oh, that could happen, I guess, I just never-"
Steph:
Yeah.
Kristina:
The worst experience I had, I think, was like, a girl lived with me for two months... I always did month-to-month, that was the thing. So, if I needed them to leave because they were scaring me or anything, being strange, I was like... I don't know, it's a good protection, I think, for everyone. If they also hate me... If they moved in and they were like, "I can't live with you, I'm going," they can leave. So, I think she just was a little strange and drank my wine sometimes, which [crosstalk 00:29:08] annoying, but whatever. I couldn't relate to some of the stories that I'm sure some of the tenants have told me, or some of our clients have told me, but there's definitely an art to finding good roommates and tenants.
Steph:
Definitely. I actually found... One of my Craigslist roommates is now a partner on one of my real estate properties, and she's one of my best friends.
Kristina:
Oh, yeah.
Steph:
So-
Kristina:
I went on a walk with someone, one of my friends, three days ago, and she was like, "Remember how we met?" And I was like, "No, didn't we meet through my friend, Kendall?" And she was like, "No, we met on Craigslist, remember? You were looking for a roommate, and then, I was like, "Well, I found another place to live, but can we be friends?" And that's how we became friends." I was like, "What? How did I forget?" So, many of my friends right now in Austin are from Craigslist, I would say at least, eight of them, it's crazy.
Steph:
Matchmaker. It's so amazing.
Kristina:
It is.
Steph:
So, yes, house hacking and then partnerships, for sure, for sure. And I want to just touch on this, because it's not uncommon, but we're not saying that you should ask your parents to pay your down payment, and that's not what we mean by partnering with potentially, a family member. What really is the best way to do this, is to approach it as an investment partnership, I live in this place, I can manage it, I can manage finding roommates, and working in a way where you're-
Kristina:
[crosstalk 00:30:44] benefiting.
Steph:
Mm-hmm (affirmative).
Kristina:
Yeah, like, hey, sister, or brother, or uncle, I have an investment opportunity for you, if you're interested. And here is what I found, and here is how we could do it. And how impressive... I don't know, if I had someone who just graduated college approach me and they were like, "Hey, I have this investment opportunity." If they were my family member, or some friend of a friend, and they approached me with something like that, I would be like, "Wow, that's..." Even if I couldn't do it, I'd be like, "I can't do this, but [inaudible 00:31:21]" I would try to help them, I'd be like, "Oh, this person might be able to do it in my network, they're looking." So, I don't know, just be professional about it and look at it from their perspective too.
Steph:
Yes, do the research upfront, you're right, that is so impressive. And that's also what you're offering them, is like, I'm coming to you with this opportunity, and that's worth a lot.
Kristina:
Mm-hmm. Okay, so, we've got the minimum down payment, we're house hacking, we're partnering, number four, I think, would be what you're really good at, Steph, is learning to do things yourself to increase value. So, essentially, YouTube University is what you've called it.
Steph:
Mm-hmm (affirmative). I'm a four time graduate from YouTube university. But yeah, I think learning to do things yourself, even if it's simple... I mean, Kristina, you say you're not handy but you know things about houses. And that you've learned over time, obviously you go in house every day. But it could be the simplest thing, and knowing just like... Even if you know how it's supposed to be done and you hire someone, that helps you probably get a lower price.
Kristina:
So true.
Steph:
You can understand the inner workings of underneath the sink, and you can say, "Okay, I know kind of how I might address this leak." You won't get taken advantage of by contractors or plumbers or electricians, and then... Especially cosmetic, this is where you can save so much money by doing it yourself, one.
Kristina:
Mm-hmm.
Steph:
Two, it's kind of fun, or it can be fun. And three, you are raising your equity more than you think. It is so amazing what new tile in the kitchen, or new floors, new paint, can do to a house. People don't want to deal with it, but if you are willing to deal with it and put in that sweat equity, you are going to 10X, 5X your investment into the house with equity.
Kristina:
That's a good point, and I guess I wasn't thinking... So, when I bought my house, it was a fixer upper. And again, I'm not the most handy person, I think I'm resourceful, is the word I would use for myself. Half the work, I hired out because it was like, install AC and put floors in... What else did I do? And install two or three windows.
Steph:
Paint.
Kristina:
Well, those are the things that I hired out, was the floors, the windows, and AC. And then, the things that I could do was paint. I could knock down this wall in my kitchen, and patch it up a little bit, I patched up all the holes. So, there is still things where I'm like, "Oh, I still saved probably like $8,000." Just by painting my house, 8000.
Steph:
It's so cool. And you increased the value of your house by a lot.
Kristina:
Exactly. And I like that. The thing is though, you can read about everything, you just have to jump into it. And that's why I think it's so important if you can do this early, when you're younger, because you're just going to start picking things up as you go. Your first house, you're going to mess something up, and that's okay. I probably didn't get the best quote for AC on my first go around. I didn't get the best contractor to come in. I didn't communicate the best with everyone doing the project on my house. But then, I learned, and I gained those skills as I was able to project manage, and paint things, and drop paint everywhere. You just learn as you go, like, "Oh, next time, I'm going to paint before I install floors, or whatever." So, you kind of learn as you go. And if you start when you're younger, you're just going to get more competence.
Steph:
I agree. I think that the way that you learn... And when I say YouTube university, I wasn't watching YouTube videos before I even bought a house. I was literally on the ground with all the tools, and then watching a YouTube video, and not even watching the whole thing, and then doing it wrong. It is a jump in and swim type of thing. You can paralyze yourself with the research because you can get so scared of reading people's horror stories that you won't even try. And so, I mean, while risk tolerance is definitely variable, everyone has a different risk tolerance, I think it's worth it to examine that in yourself. And also, risk tolerance is kind of like a muscle, so every time you risk a little bit more and you are successful, you're able to take a bigger risk. And when I say risk, I'm just saying trying new things, or being... Or getting a new skill.
Kristina:
And that's funny because I'm thinking back, and I think, I don't know, I'm more cautious now, which is funny. I think I am, maybe I think I'm more cautious now. But when I was younger, I had nothing to lose. I didn't have that much money. I was naive in a lot of this where, I think I just jumped into it with this blind ambition and was just like, "I can do it." I don't know why... I think it was just empowering to, first of all, just be able to buy a house and have it as mine. And then, I was like, "I mean, I can figure this out." And I had nothing really to lose at that point in my mind. I was just young and dumb, and worked out for me.
Steph:
Yeah, well, I think you made calculated risks. It's not like you did this without any thought. You knew that buying a house is a good idea in this area, in this city, in this time, it was not like you just randomly... You did your research still. It's not like you didn't know anything. So-
Kristina:
I did enough research to feel excited and empowered. And then, I used that momentum to move forward. And then-
Steph:
Yes, momentum is a great word for it. It's like, you can lose momentum pretty quickly, and it's easy just to be like, "Okay, well, I can put that off for five more years, because that's what everyone else does." And you're not feeling the social pressure when you're in your 20s to buy a house or to buy property because no one else is doing it.
Kristina:
Yeah, but imagine doing it now before everyone else. And then, when you're 30, you're like, "I mean, if I sell this property, I get 200K." How amazing?
Steph:
And then, you really can set yourself up. The reason I'm able to live downtown right now is because of the foundation I built in buying other property. There's no way I would be able to live in my dream neighborhood if I just waited until now to buy a house.
Kristina:
Yeah. Or we would have had to pay so much more. And it would have been more stressful-
Steph:
So much more.
Kristina:
... because starting now, and you're like, "I have this career, I've... I'm well off in my career, I have less time. I don't know what's going on." You would just throw more money at it probably, because it would be stressful.
Steph:
Totally. So agree. Is that a tangent?
Kristina:
No.
Steph:
[crosstalk 00:38:36].
Kristina:
So, that's number four, basically YouTube university is-
Steph:
Yes. Oh, yeah, yeah.
Kristina:
The intricacies of what you're doing a little bit. And then, number five, I think we were saying like, in your 20s maybe buying a little bit further away from downtown, if that's where you're trying to be, where actually right now during COVID, I'm seeing a lot of our clients being like, "Well, I don't need to work downtown, I don't need to be downtown. Downtown is a ghost town right now." So, they are buying a little bit further away. I think that's number five for us, is maybe buy a little bit further away from downtown and you get a lower sales price.
Kristina:
People think in Austin... I was just talking to someone yesterday about this, where they were like, "Well, I might buy in Atlanta because Austin's just not affordable." And I was like, "Well, what is not affordable to you?" And they told me, "I want to buy a house for 250." And I was like, "You can actually buy a house for $250,000 in Austin, you just can't be right downtown. You would just have to be 15 to 20 minutes outside of downtown, and maybe in the suburbs. But in Atlanta, it's huge, Atlanta is a huge city. Where our suburbs are in Austin would still kind of be Downtown Atlanta. It's a sprawling, huge metropolitan city." So, I think it's just the context, people don't realize. I think you need to know your city.
Steph:
Absolutely, and know the direction your city is moving in. Even if you bought in Round Rock or Cedar Park, they're growing so rapidly that... Austin Downtown is expanding every day, so you will be a lot closer in five years than you feel like you are now, just from the pure growth of Austin.
Kristina:
Yeah. And if you can just, again, live a little bit differently than others, which I know that would be hard for me. I know when I was 24... And still now, it's really important for me to love where I live. And that includes being close to things I want to be close to. But if you can be like, okay, for one year of my life, I'm going to buy this house that's really affordable. Maybe it's not in the most central area that I want to be in, but how do I buy there, live there just for a year or two, have a few roommates, pay nothing, or make a lot of money through your monthly payment, rental income, then you can buy something a little bit more essential, you'll have more money, and you'll have a rental property now, with a low mortgage.
Steph:
I think looking at the process of buying a house as more of a phase rather than, I'm buying the house of my dreams. You're doing it in phases. So, I love that you said, "Live in it for a year or two years," because it can literally be one year. You own that house, you live in that house, you increase your savings rate because you've house hacked it. And then, with that savings and with maybe even your equity from that house, you can buy in a more desirable location for yourself, maybe closer to work, or maybe closer to downtown, and still own the first house. So, you're leveling up, you're phasing out your process, and you're upgrading your quality of life.
Kristina:
Exactly. Yeah. I mean, that kind of sums up the five ways we think are ideal for twenty-somethings to invest. And you can do a combination of all of those, you could live in a home that you need to fix up further from downtown, and have roommates. You could live in a flip and live there with your significant other, or your best friend, you could buy a brand new home and rent it out, rent out the rooms. You could just rent out one room, or do Airbnb. You could do what Steph does and have a section of the house that you're Airbnbing, and you don't have to see the guests. So, there's so many different ways to do it. And it's so much better to start when you're younger, because usually, you have more time, and you have more threshold to doing some of these strategies, I think.
Steph:
Yeah, threshold for discomfort is... It's a declining graph, if you're graphing out your threshold for discomfort. And even with travel, you see it in every situation. Because when I was in my 20s, even in college, I would travel and take a 20 hour bus ride over a flight that was $75 difference.
Kristina:
Oh, for sure.
Steph:
You just have just a higher threshold. So, I agree, you could do any and all of these together, you could choose one strategy. The basic idea is to be creative with your resources, with your partners, with your location, and with your strategy.
Kristina:
Yeah, yeah, I think that sums it up. I mean-
Steph:
Yay.
Kristina:
Obviously, there's so much more to say about this, but if you all have any questions, other suggestions for us, please feel free to reach out to us. Again, it's podcast@openhouseaustin.co, you can also find us on Instagram at openhouse_austin.
Steph:
Neither of us can get that right. And then, please send this to your twenty-something people in your life. If anything, this is where my passion lies for sure. I want to get people when they're fresh out of college, or even out of trade school, or out of high school even, and get this in their brain, so they can start thinking about this earlier. So, you love a twenty-something, send them this episode, and maybe they'll start on that train of thought.
Kristina:
Yes, so true. These strategies empowered us, we wouldn't be the same people we are today-
Steph:
Oh, my gosh.
Kristina:
... if we didn't house hack and learn all these skills at such an early age. I don't know, it's, what you said, amazing.
Steph:
All right. Well, thank you, everybody, we will see you next week. [inaudible 00:45:06] Okay.
Kristina:
Okay.
Steph:
That was great.
Kristina:
That was totally great.
Steph:
Yeah.
Kristina:
Okay.
Steph:
For whatever, cute little tidbits. (silence).
Hey, you all, welcome to the Open House Podcast where women's-
Steph:
Cool. What do we do?
Kristina:
Welcome to the Open House Podcast where women talk real estate, I'm Kristina Modares.
Steph:
And I'm Steph Douglass.
Kristina:
And in today's episode, we will be talking about the best ways for twenty-somethings to buy an investment property. But first, Steph, how are you? How was your weekend?
Steph:
Oh, man. Yeah, it's Monday today, when we're recording. And I have not been drinking very much over quarantine. It's been very chill. I'm not a big casual drinker, I don't know what that means. But this weekend, I did drink a lot. So, I feel like I'm having a-
Steph:
... three day hangover. Nowhere really.
Kristina:
Where would... I mean, I don't know, outside on walk?
Steph:
Yeah, we did that. We actually went and had a social distance dinner with a couple. And they set up their dining room table outside on their front lawn, and it was very cute. Everyone who walked by was like, "Oh my God, I love Austin, this place is..." It was really cute. But I don't know, I felt like... I think I told myself, needed a break. And I was just like, "Well, wine then."
Kristina:
Yeah, wow.
Steph:
How was your weekend?
Kristina:
It was good. I think I had almost two full days off, which felt as... We both haven't been taking... I know in the past five years, I have not been taking much needed time off, and now having time off, I was like, "What do I do?" It was bad, though, I don't want to become that person. I was like, "Wait, what do I..." I don't know. So, I don't know, I read a lot, I watched a lot of Netflix.
Steph:
Good. You need that to unwind. I was talking to friends, and they were talking about their new hobbies, like, "What have you picked up over quarantine?" And I was like, "Oh my God, I need a hobby."
Kristina:
Well, I started a yard project, which I didn't do any of this weekend because it was just-
Steph:
Oh my God, yeah. Why didn't you... Because it was too hot?
Kristina:
I don't know, because we were like... We just wanted to not do anything. And then, I guess, I did help Eric in his coffee shop this weekend. But I don't know, we just wanted to chill. Also, I have been drinking a lot more than usual, I'm... Kudos to you. Because I think I wasn't that big of a drinker, yes, in my early 20s, heavy drinker. I think I stopped, and now, I'm definitely drinking a lot more, I drink every single day.
Steph:
This is an intervention.
Kristina:
[inaudible 00:03:05] But I don't know, I guess, I was talking to my sister about it, I was like, "I don't know, I just have two casual drinks." And she was like, "Yeah, before, when I'd go out, how many drinks would I have, four, five?" She's definitely in her earlier-
Steph:
In her 20s, yeah. Well, that's a perfect segue because we're going into our twenty-somethings investing in real estate. Go ahead.
Kristina:
Okay. So, we wanted to go over the five best ways for twenty-somethings to buy investment properties. Number one being, getting a minimum down payment program, house hacking, which we'll get into in a bit, partnering with friends, roommates, family members. Also, learning to do things on your own to increase value, and then buying further away for a lower sales price and down payment amount.
Steph:
Yes, and these are five best ways but also, you can do every single one of them in one deal.
Kristina:
Exactly.
Steph:
So, we organize them in that way, but really, you can do them all. So, let's jump in.
Kristina:
Yeah. So, number one, minimum down payment amount. I think a lot of people in their early 20s, this might be one of your first big career jobs, and maybe if you're just starting out, you might qualify for a first time homebuyer program, or just a homebuyer program in general. This allows you to have a little bit less in your savings account. So, you might qualify for a program, and it might pay for your down payment amount, or part of your closing costs. I know my boyfriend got a program where it paid for both, and this is for teachers, right, Steph? I know you-
Steph:
Yeah.
Kristina:
... had that as a program when you were a teacher. Even firefighters, I think there's some minimum salary, right? There's a minimum wage.
Steph:
Yeah, there's salary requirements on some of them. There's just so many different ones, so I wouldn't... There's not a blanket rule to say, okay, you qualify if you're this, but I would highly encourage you... Just a little bit of research, we have some resources on this. I think this is such a good way to get into the market. Even though some people think you have to put 20% down, you just don't, you don't have to. Everybody has a different opinion about this, but financially, you... I mean, and logistically, you can put as little as 0% down, and then without a down payment assistance program, you still could put 3% down.
Kristina:
Yeah. Like she said, there's so many different programs. The one my boyfriend had, there's not as much restrictions of... When he goes to sell, he can sell it himself. I would say the only con, I guess, for that would be that his interest rate was a little bit higher. So, he could have gotten a 4% interest rate, instead, he got a 5.5%. But with that, he was able to buy three years earlier than he would have been able to before. And then, he had a salary job at the time, and I told him, "Buy this house before you try to jump careers, or start a new business, because that will restrict you later on." So, he was able to get this home and now has a little bit more freedom of what he can do.
Kristina:
And then, I had another client who used the program, and she really wanted to live close to downtown, because of her job, she wanted to use public transit. And she didn't want to do a fixer-upper, so she did a new build program in the Mueller district actually, in Austin. And she bought a home that... It's probably worth $550,000, and purchased it for 170,000, has a roommate or two, and makes money on that home, so.
Steph:
Which is so awesome. And those affordable housing programs, builders have to build those into their plans. So, those, a lot of times, maybe aren't on the MLS, it just takes a little bit more digging. So, the basic moral is just don't stop before you get started, try. If buying a house is in your plans, which I think it should be... I have two younger sisters and two younger brothers and everybody... I'm just shouting at them to buy houses. So, if me, saying advice to people I love, and I love all of you, my advice is to buy a house early. So, these programs are there to help people and to stimulate the economy, and to help people get into the housing market.
Kristina:
These programs are here to allow more people into the housing market, right? I know, as a 23 year old, you might be thinking, "Well, I can't do this." But if you just got that salary job and you have a little bit of savings, look into some of these programs, do a little research and you might be surprised that, "oh, hey, I'm already living with three people, and I can buy this house and have someone help pay for my mortgage payment?" It might make sense for you. Even if you're like, "Oh my gosh, I only have $5,000 in savings," you might still be able to buy a house, and you might still be able to make it work for you. And that kind of leads into the next, I guess, tactic of buying a house as a young twenty-something year old, is house hacking.
Steph:
Yes, our very favorite.
Kristina:
Yes. And house hacking, what that means is having other people pay for a mortgage... Or helping you pay for your mortgage in a house that you occupy. So, essentially, if you bought a house and lived in it, and then rented out a part of your house, that would be house hacking. Or if you lived in a house, and had a tiny house in the back, and you were renting out part of your house, the back unit to someone, that would be house hacking. There's so many different ways, even just having a roommate. And we both got into that-
Steph:
Open House is the house that house hacking built.
Kristina:
It's true.
Steph:
Because you and I both house hacked and we both... I mean, we started with the simplest form, which is having a roommate, and we both recognized at a pretty young age... I bought when I was 24, for the first time, and you were how old? 27?
Kristina:
25.
Steph:
25.
Kristina:
Mm-hmm.
Steph:
So, we both were like, "Wait, we have roommates, we could continue to have roommates, but we could own the home, and then our roommates could help us pay the mortgage.
Kristina:
Yeah.
Steph:
And it's a much more stable way to continue living with roommates, and just to continue living in general, because no one can raise your rent. They can't tell you that your lease is over. You have a lot more control over your situation.
Kristina:
Yeah. And I remember when I first moved to Austin, right after I had graduated college, and I really did want to be in a more central location, but I had no money. So, I lived in a very old home with four people. And it was like a little, I don't know, family, and I was like, "Wait a second, why are we all paying this? Why are we all paying rent to a landlord when we could probably buy a house and rent the rooms out? Or, we each get equity."
Kristina:
I kind of was like, "Oh, I could buy a house maybe, and rent. I don't mind, as a 23 year old, living with three people, especially if I get money every month. If I get to live in this five bedroom house, but I get $400 a month in income, that would be great. I'm okay, I'll do whatever. At 22, 23, I'm going to do whatever." And I did whatever, I remember. I remember.
Steph:
Whatever it takes. Live for free, but the best case is to cash flow on where you live, it's so invigorating.
Kristina:
There's so many different ways to do it. It doesn't mean you have to have your whole mortgage payment paid for.
Steph:
No.
Kristina:
Even if you're like, "I just want to buy this place, and my mortgage will still be 2000 a month, and I'll have one roommate, and they'll cover half of it." You're still saving money, and you're still essentially, putting equity into your home that you'll hopefully get back later. So, it just-
Steph:
You're paying yourself and your roommate is paying yourself, instead of you paying someone else's mortgage.
Kristina:
Exactly. And I remember... So, how I got started house hacking, and it's the house I live in now. I bought this house when I was 26 or something? Yeah, I think, and it was just me, I was single. And it was a three bedroom, one bath house. I was coming from really affordable rent. I lived really close to downtown, my rent was only 700 a month with all utilities paid, and I was like, "If I'm going to buy a house, I want to see if I can pay less than that with my mortgage every month." So, for the first year... I think I wrote an article on this, we can link it in the show notes, of the numbers of how I did this. But I rented out a room in my house for 850 a month, and then I would do Airbnb sometimes.
Kristina:
So, I had a girl that I met off Craigslist, and she lived with me and she's awesome, I got really lucky with her. And she was month-to-month, and I think she was with me for four months. And then, I did Airbnb, and I kind of did that throughout the year. And in average, I think I only spent like... I should look back at that article, I think 500 or 400 a month-
Steph:
A month?
Kristina:
Yeah, for my mortgage. And I didn't have people living with me all the time. So, it worked out for me. And then now, I just live with my partner, Eric, and we can't have any more people. I'm now in my 30s and we have a tiny home. So, it's just me and him. But he still pays me. So, essentially, still making money. I call that house hacking.
Steph:
Still house hacking. So, I got started really similarly, I was living with five people and we were renting, and I decided I wanted to buy a house, and I knew I was just going to continue to have roommates for quite a while. At 24, you're still living with people. So, I bought a little house with two bedrooms. And Nancy, who was on episode two, moved in with me, and we just split the mortgage in half. My mortgage was 1100 dollars with taxes and insurance, and I paid 550 and she paid 550. I thought that was so great. My rent would have been, I think 600, 700 at that time. I just saw it continued to go up and up, and so it made me really nervous as a teacher, with a pretty low salary, or a pretty... My income couldn't afford the rising rents in Austin. I was about to be priced out of anywhere in Central Austin. So, I bought and then, house hacked in that way.
Steph:
And then, when I bought my second house, I hyper house hacked, kind of like you... I bought it, renovated it in the first two months. I had a full time roommate who signed a year lease. She was also awesome. Craigslist is the best. And then, she actually-
Kristina:
Oh, yeah.
Steph:
I was going to get two roommates, because it was a three bedroom, two bathroom, and she suggested that we Airbnb the third room, and she would manage it for a lower rent. So, it kind of worked out for everyone. We Airbnbed that little room, she got a lower rent, and I lived for free. I think it covered my mortgage, those two rents. The house was 300,000 and my mortgage, I think, was 2100. And she paid 750, and then I think, we got around 900 to 1100 per month from that little Airbnb room, so yeah.
Steph:
And never a bad experience. I mean, we both, you and I Kristina, have Airbnbed a room in our house. I mean, there's been some annoying things, you're like, "Get out of my kitchen, please." But I mean, I wouldn't... It was never a bad experience, or I never felt unsafe, I was totally fine.
Kristina:
Yeah, and I think even for me, when I Airbnbed in the beginning, because honestly, I even did it when I lived in the five bedroom house, renting. That's where I kind of got started with Airbnb because our bill was 500 a month. This house was so old, and that was so much money to all of us. So, we started renting out our back room, and it was a futon, and a couch. And people would couch surf and pay $50 a night. And we met so many cool people that way. Honestly, that sounds like my hell right now, but when I moved to Austin, I was so excited to meet new people, and I don't know, it was just so exciting, and I loved it. But again, there's different stages of house hacking for every stage of your life. I wouldn't do that now, totally loved it in my early 20s.
Kristina:
And that kind of leads me also to remember... Remember Julianne? One of our clients, she bought a house with a lot of land. And one way that she house hacks is she rents out part of her backyard to someone with an Airstream, so people rent out her land. And that's a way of house hacking. So, there's lots of ways to do it, and it doesn't always need to be someone in your house. But I really think, when you're in your early 20s, you don't give a fuck, or usually you don't. I didn't, I don't know. I know a lot of people I lived with didn't either, so.
Steph:
I agree. And I think meeting new people was such a priority to me also in my 20s. I've been reading my old journals and being like, "Oh my God, I was so adventurous, and I was so excited to meet new people." And now, I'm like, "No."
Kristina:
I know, [crosstalk 00:18:11]. This quarantine thing is pretty-
Steph:
I know.
Kristina:
Is pretty good.
Steph:
But I continue to house hack. So, this is my third house in house hacking, and I really struggle to see a life where I don't do this, even though one day I'm sure that I won't. But I bought a house in the Holly neighborhood of Austin, and this is my favorite neighborhood. I've been on a quest to live here, and finally found a house to buy, and I renovated. And there was already-
Kristina:
An expensive neighborhood.
Steph:
It's a pretty expensive neighborhood, yeah. Now even more so. And very close to downtown. There was already a little wing of the house that had an exterior entrance, and it didn't have a kitchen, it wasn't a duplex by any means, but it was a room with a bathroom. And the family that lived here before they were like, "We had to build that because my grandpa got tired of being around kids." So, they were just like, "We built him his own little suite." So, I bought this house and made that suite into an Airbnb suite. So, it's kind of like Airbnbing a room in my house, but they don't come into my house at all. They enter through an exterior entrance, they have their own little patio, and they have their own bathroom, so kind of like a hotel room.
Kristina:
Yeah.
Steph:
Since it's so close to downtown, there's no way that I could rent that full time, which kind of makes me feel good about... I can still Airbnb and not feel like I'm taking away a space for someone else to rent, because it's just not a long term rental space. But it does cover my mortgage. So, I'm living downtown in this amazing neighborhood for free.
Kristina:
Yeah. That is amazing.
Steph:
Oh.
Kristina:
Yes?
Steph:
Sorry, one more thing. So, my partner, Alan, who's the producer of this podcast... We should just start referring to them as Eric and Alan.
Steph:
So, Alan lives with me as well, we've been living together for three or four years. But he is the manager of the Airbnb next door. So, he lives here on quote, unquote, rent free, which it really isn't rent free because he has a really full time... Not full time job, but he manages it. And so, we don't have to pay a property management company. I don't have to manage, and he gets a place to live. So, it's a very cool setup, and another way to demonstrate that you can have partnerships and house hacking situations in all different shapes and sizes.
Kristina:
I guess that also kind of leads into our third route for twenty-somethings to afford and be able to buy investment properties, is partner with a friend, partner with a roommate, a family member. So, I think honestly, if you live with your best friend, and you're renting, and you're both paying high rent, maybe look into partnering with them on house. Maybe you could buy a condo, or a house and split that mortgage together. And I don't know, you know people who've done that? Right, Steph?
Steph:
Yes.
Kristina:
I think some of our clients have done that.
Steph:
I love this strategy so much, because not only does... You and I both bought houses alone. And so, we were, I mean, responsible for everything. And there's a big piece of the real estate process that people are intimidated by, because it's all falling on your shoulders. You have to fix everything. You have to pay for everything. So, if you have a partner, that means obviously, you don't have 100% ownership, but you are sharing the financial burden, you're sharing the emotional burden. It's such a good way to do this. I have clients... I don't have as many as I wish I had, or I think that this should just be like a more widely accepted way to buy a house. But I do have two clients, two female, probably late 20s, and they bought a house together in Montopolis, and they're just sharing everything. And they bought a three bedroom, so they'll also have a roommate to help them supplement. So, they're splitting the remaining balance of their mortgage after the roommate pays. So, I just thought that was so cool.
Kristina:
And you're splitting the responsibility. You can split up the time, you can split up the roles that you guys have. So, when I bought my house, I had just kind of gotten my license. If you don't have a W-2 job, it's a little bit harder, it's a little bit trickier to buy a house. You have to have two years backing of income, and that income... It can't just be like, "I made $10,000 one year." You have to show good income for two years. So, I had cash, but I didn't have that W-2 job. But my sister had the W-2 job, and she didn't have as much cash, and she lived in New York City. So, she wasn't really going to be buying a house in New York City, because it's crazy expensive. So, we came up with an agreement, where I would live in the house, I would cover the mortgage every month, and she would apply with me to be on the loan. And she would be like a... She's a 5% owner. So, when we sell it, she gets 5%.
Kristina:
And so, right now, I'm even in the process of doing a cash out refinance of my house, and I even asked her like, "Do you still want to be a part of this?" And she does. So, she's like, "When we sell, I still want 5%." So, that worked for us, I was able to buy a house. It worked for her because she's putting in a little bit of cash that she's going to get in maybe 10 or 20 years, and it's cash you didn't even think about. And she has no responsibility, no liability really, especially once her name is off that loan.
Kristina:
So, there's, I don't know, different ways to do it, where it's not just like, "Oh, my best friend and me are buying this house together." It could be a sister who lives in LA and probably, it's expensive, would you want to partner with me? And let's work out the terms. Let's get a real estate lawyer and get an operating agreement going, which might be why people are fearful of doing that a little bit.
Steph:
I think that was going to bring that up, the fear around entering into a financial relationship with someone, it can be scary. You don't want to ruin the relationship, it's a little daunting. However, there's so many ways around that, and I don't think that should be something that stops people, even though I get it. There's lawyers, there's... It's basically like a prenup, where you talk through all the terms before you enter into this relationship. So, in your investment together, your partnership, you drew out what would happen, and what would happen if someone wants to sell, what would happen if someone wants out of the partnership, all of these things before you enter into the actual legal relationship. And I just think it's such a good way. And I always say, 50% or 5% of a deal is better than 0%.
Kristina:
Exactly, and there's... Didn't we talk about this? A silent partnership versus... What?
Steph:
An active partnership? Yeah.
Kristina:
Active versus silent partnership. And then, yeah, I think we all... Me and you, Steph, we both purchase property with partners, we've purchased almost every property we've owned, right? I know I do.
Steph:
Yeah.
Kristina:
Every property I've bought has been with a partner. I've bought with a friend and we just came up with an operating agreement. And we both know our responsibilities, I'm talking with the property manager, he's dealing with the taxes. So, there's different ways to do it. Especially when you're younger and you're like... Maybe you have more time than your friend who works a 50 hour work week. So, it's kind of nice to find someone with complimentary skills, I guess.
Steph:
Absolutely. And in this case, just getting into the market sooner, it's going to have a huge impact on your overall wealth and net worth in the long run. So, it's worth it to learn about these things. You might feel overwhelmed by this, but it is so worth it. So, I encourage you to think about that. Also, I encourage you to find people that don't live in... Maybe you live in a hot market, we've been lucky to live in Austin, where... People in LA and people in New York that we know, aren't buying real estate like we are. So, if you live in an affordable market and have people that live in an unaffordable market, then I would reach out to them. See if they want to be a part of this because it could be a really good opportunity for them, in addition to helping it become possible for you.
Kristina:
Exactly. And I think the overarching theme of this whole episode, it's like, live and think differently than others now, so you can do more with your money later. And set yourself up for success, it's going to snowball. And I think it's probably easier when you're younger to get into this because... Maybe I'm just speaking for myself, but I think I was just more willing to live with more people. I was more willing to move around or maybe live in a house that's not the fanciest. I was just willing to do anything and so excited about things. And-
Steph:
Be uncomfortable now, so you can be the most comfortable later.
Kristina:
Yeah, set yourself up for success and [inaudible 00:27:59].
Steph:
And even being uncomfortable quote, unquote, is having roommates. You might have these discomforts anyway, so you may as well own property in the meantime.
Kristina:
Yeah. And, I don't know, I mean, living with roommates isn't the worst. I think-
Steph:
No, it can be the worst, but it doesn't have to be.
Kristina:
We need to talk about how to find good tenants or roommates, that should be an episode.
Steph:
Yes.
Kristina:
Because I think that is scary, a lot of people... And I know a lot of our clients have bought houses and house hacked, and then they're like, "I don't know, I had this weird experience with this person who lived in my house." And I'm like, "Oh, that could happen, I guess, I just never-"
Steph:
Yeah.
Kristina:
The worst experience I had, I think, was like, a girl lived with me for two months... I always did month-to-month, that was the thing. So, if I needed them to leave because they were scaring me or anything, being strange, I was like... I don't know, it's a good protection, I think, for everyone. If they also hate me... If they moved in and they were like, "I can't live with you, I'm going," they can leave. So, I think she just was a little strange and drank my wine sometimes, which [crosstalk 00:29:08] annoying, but whatever. I couldn't relate to some of the stories that I'm sure some of the tenants have told me, or some of our clients have told me, but there's definitely an art to finding good roommates and tenants.
Steph:
Definitely. I actually found... One of my Craigslist roommates is now a partner on one of my real estate properties, and she's one of my best friends.
Kristina:
Oh, yeah.
Steph:
So-
Kristina:
I went on a walk with someone, one of my friends, three days ago, and she was like, "Remember how we met?" And I was like, "No, didn't we meet through my friend, Kendall?" And she was like, "No, we met on Craigslist, remember? You were looking for a roommate, and then, I was like, "Well, I found another place to live, but can we be friends?" And that's how we became friends." I was like, "What? How did I forget?" So, many of my friends right now in Austin are from Craigslist, I would say at least, eight of them, it's crazy.
Steph:
Matchmaker. It's so amazing.
Kristina:
It is.
Steph:
So, yes, house hacking and then partnerships, for sure, for sure. And I want to just touch on this, because it's not uncommon, but we're not saying that you should ask your parents to pay your down payment, and that's not what we mean by partnering with potentially, a family member. What really is the best way to do this, is to approach it as an investment partnership, I live in this place, I can manage it, I can manage finding roommates, and working in a way where you're-
Kristina:
[crosstalk 00:30:44] benefiting.
Steph:
Mm-hmm (affirmative).
Kristina:
Yeah, like, hey, sister, or brother, or uncle, I have an investment opportunity for you, if you're interested. And here is what I found, and here is how we could do it. And how impressive... I don't know, if I had someone who just graduated college approach me and they were like, "Hey, I have this investment opportunity." If they were my family member, or some friend of a friend, and they approached me with something like that, I would be like, "Wow, that's..." Even if I couldn't do it, I'd be like, "I can't do this, but [inaudible 00:31:21]" I would try to help them, I'd be like, "Oh, this person might be able to do it in my network, they're looking." So, I don't know, just be professional about it and look at it from their perspective too.
Steph:
Yes, do the research upfront, you're right, that is so impressive. And that's also what you're offering them, is like, I'm coming to you with this opportunity, and that's worth a lot.
Kristina:
Mm-hmm. Okay, so, we've got the minimum down payment, we're house hacking, we're partnering, number four, I think, would be what you're really good at, Steph, is learning to do things yourself to increase value. So, essentially, YouTube University is what you've called it.
Steph:
Mm-hmm (affirmative). I'm a four time graduate from YouTube university. But yeah, I think learning to do things yourself, even if it's simple... I mean, Kristina, you say you're not handy but you know things about houses. And that you've learned over time, obviously you go in house every day. But it could be the simplest thing, and knowing just like... Even if you know how it's supposed to be done and you hire someone, that helps you probably get a lower price.
Kristina:
So true.
Steph:
You can understand the inner workings of underneath the sink, and you can say, "Okay, I know kind of how I might address this leak." You won't get taken advantage of by contractors or plumbers or electricians, and then... Especially cosmetic, this is where you can save so much money by doing it yourself, one.
Kristina:
Mm-hmm.
Steph:
Two, it's kind of fun, or it can be fun. And three, you are raising your equity more than you think. It is so amazing what new tile in the kitchen, or new floors, new paint, can do to a house. People don't want to deal with it, but if you are willing to deal with it and put in that sweat equity, you are going to 10X, 5X your investment into the house with equity.
Kristina:
That's a good point, and I guess I wasn't thinking... So, when I bought my house, it was a fixer upper. And again, I'm not the most handy person, I think I'm resourceful, is the word I would use for myself. Half the work, I hired out because it was like, install AC and put floors in... What else did I do? And install two or three windows.
Steph:
Paint.
Kristina:
Well, those are the things that I hired out, was the floors, the windows, and AC. And then, the things that I could do was paint. I could knock down this wall in my kitchen, and patch it up a little bit, I patched up all the holes. So, there is still things where I'm like, "Oh, I still saved probably like $8,000." Just by painting my house, 8000.
Steph:
It's so cool. And you increased the value of your house by a lot.
Kristina:
Exactly. And I like that. The thing is though, you can read about everything, you just have to jump into it. And that's why I think it's so important if you can do this early, when you're younger, because you're just going to start picking things up as you go. Your first house, you're going to mess something up, and that's okay. I probably didn't get the best quote for AC on my first go around. I didn't get the best contractor to come in. I didn't communicate the best with everyone doing the project on my house. But then, I learned, and I gained those skills as I was able to project manage, and paint things, and drop paint everywhere. You just learn as you go, like, "Oh, next time, I'm going to paint before I install floors, or whatever." So, you kind of learn as you go. And if you start when you're younger, you're just going to get more competence.
Steph:
I agree. I think that the way that you learn... And when I say YouTube university, I wasn't watching YouTube videos before I even bought a house. I was literally on the ground with all the tools, and then watching a YouTube video, and not even watching the whole thing, and then doing it wrong. It is a jump in and swim type of thing. You can paralyze yourself with the research because you can get so scared of reading people's horror stories that you won't even try. And so, I mean, while risk tolerance is definitely variable, everyone has a different risk tolerance, I think it's worth it to examine that in yourself. And also, risk tolerance is kind of like a muscle, so every time you risk a little bit more and you are successful, you're able to take a bigger risk. And when I say risk, I'm just saying trying new things, or being... Or getting a new skill.
Kristina:
And that's funny because I'm thinking back, and I think, I don't know, I'm more cautious now, which is funny. I think I am, maybe I think I'm more cautious now. But when I was younger, I had nothing to lose. I didn't have that much money. I was naive in a lot of this where, I think I just jumped into it with this blind ambition and was just like, "I can do it." I don't know why... I think it was just empowering to, first of all, just be able to buy a house and have it as mine. And then, I was like, "I mean, I can figure this out." And I had nothing really to lose at that point in my mind. I was just young and dumb, and worked out for me.
Steph:
Yeah, well, I think you made calculated risks. It's not like you did this without any thought. You knew that buying a house is a good idea in this area, in this city, in this time, it was not like you just randomly... You did your research still. It's not like you didn't know anything. So-
Kristina:
I did enough research to feel excited and empowered. And then, I used that momentum to move forward. And then-
Steph:
Yes, momentum is a great word for it. It's like, you can lose momentum pretty quickly, and it's easy just to be like, "Okay, well, I can put that off for five more years, because that's what everyone else does." And you're not feeling the social pressure when you're in your 20s to buy a house or to buy property because no one else is doing it.
Kristina:
Yeah, but imagine doing it now before everyone else. And then, when you're 30, you're like, "I mean, if I sell this property, I get 200K." How amazing?
Steph:
And then, you really can set yourself up. The reason I'm able to live downtown right now is because of the foundation I built in buying other property. There's no way I would be able to live in my dream neighborhood if I just waited until now to buy a house.
Kristina:
Yeah. Or we would have had to pay so much more. And it would have been more stressful-
Steph:
So much more.
Kristina:
... because starting now, and you're like, "I have this career, I've... I'm well off in my career, I have less time. I don't know what's going on." You would just throw more money at it probably, because it would be stressful.
Steph:
Totally. So agree. Is that a tangent?
Kristina:
No.
Steph:
[crosstalk 00:38:36].
Kristina:
So, that's number four, basically YouTube university is-
Steph:
Yes. Oh, yeah, yeah.
Kristina:
The intricacies of what you're doing a little bit. And then, number five, I think we were saying like, in your 20s maybe buying a little bit further away from downtown, if that's where you're trying to be, where actually right now during COVID, I'm seeing a lot of our clients being like, "Well, I don't need to work downtown, I don't need to be downtown. Downtown is a ghost town right now." So, they are buying a little bit further away. I think that's number five for us, is maybe buy a little bit further away from downtown and you get a lower sales price.
Kristina:
People think in Austin... I was just talking to someone yesterday about this, where they were like, "Well, I might buy in Atlanta because Austin's just not affordable." And I was like, "Well, what is not affordable to you?" And they told me, "I want to buy a house for 250." And I was like, "You can actually buy a house for $250,000 in Austin, you just can't be right downtown. You would just have to be 15 to 20 minutes outside of downtown, and maybe in the suburbs. But in Atlanta, it's huge, Atlanta is a huge city. Where our suburbs are in Austin would still kind of be Downtown Atlanta. It's a sprawling, huge metropolitan city." So, I think it's just the context, people don't realize. I think you need to know your city.
Steph:
Absolutely, and know the direction your city is moving in. Even if you bought in Round Rock or Cedar Park, they're growing so rapidly that... Austin Downtown is expanding every day, so you will be a lot closer in five years than you feel like you are now, just from the pure growth of Austin.
Kristina:
Yeah. And if you can just, again, live a little bit differently than others, which I know that would be hard for me. I know when I was 24... And still now, it's really important for me to love where I live. And that includes being close to things I want to be close to. But if you can be like, okay, for one year of my life, I'm going to buy this house that's really affordable. Maybe it's not in the most central area that I want to be in, but how do I buy there, live there just for a year or two, have a few roommates, pay nothing, or make a lot of money through your monthly payment, rental income, then you can buy something a little bit more essential, you'll have more money, and you'll have a rental property now, with a low mortgage.
Steph:
I think looking at the process of buying a house as more of a phase rather than, I'm buying the house of my dreams. You're doing it in phases. So, I love that you said, "Live in it for a year or two years," because it can literally be one year. You own that house, you live in that house, you increase your savings rate because you've house hacked it. And then, with that savings and with maybe even your equity from that house, you can buy in a more desirable location for yourself, maybe closer to work, or maybe closer to downtown, and still own the first house. So, you're leveling up, you're phasing out your process, and you're upgrading your quality of life.
Kristina:
Exactly. Yeah. I mean, that kind of sums up the five ways we think are ideal for twenty-somethings to invest. And you can do a combination of all of those, you could live in a home that you need to fix up further from downtown, and have roommates. You could live in a flip and live there with your significant other, or your best friend, you could buy a brand new home and rent it out, rent out the rooms. You could just rent out one room, or do Airbnb. You could do what Steph does and have a section of the house that you're Airbnbing, and you don't have to see the guests. So, there's so many different ways to do it. And it's so much better to start when you're younger, because usually, you have more time, and you have more threshold to doing some of these strategies, I think.
Steph:
Yeah, threshold for discomfort is... It's a declining graph, if you're graphing out your threshold for discomfort. And even with travel, you see it in every situation. Because when I was in my 20s, even in college, I would travel and take a 20 hour bus ride over a flight that was $75 difference.
Kristina:
Oh, for sure.
Steph:
You just have just a higher threshold. So, I agree, you could do any and all of these together, you could choose one strategy. The basic idea is to be creative with your resources, with your partners, with your location, and with your strategy.
Kristina:
Yeah, yeah, I think that sums it up. I mean-
Steph:
Yay.
Kristina:
Obviously, there's so much more to say about this, but if you all have any questions, other suggestions for us, please feel free to reach out to us. Again, it's podcast@openhouseaustin.co, you can also find us on Instagram at openhouse_austin.
Steph:
Neither of us can get that right. And then, please send this to your twenty-something people in your life. If anything, this is where my passion lies for sure. I want to get people when they're fresh out of college, or even out of trade school, or out of high school even, and get this in their brain, so they can start thinking about this earlier. So, you love a twenty-something, send them this episode, and maybe they'll start on that train of thought.
Kristina:
Yes, so true. These strategies empowered us, we wouldn't be the same people we are today-
Steph:
Oh, my gosh.
Kristina:
... if we didn't house hack and learn all these skills at such an early age. I don't know, it's, what you said, amazing.
Steph:
All right. Well, thank you, everybody, we will see you next week. [inaudible 00:45:06] Okay.
Kristina:
Okay.
Steph:
That was great.
Kristina:
That was totally great.
Steph:
Yeah.
Kristina:
Okay.
Steph:
For whatever, cute little tidbits. (silence).