THE BEST FINANCIAL INVESTMENT FOR NEWBIES

[Tom V.]

Awesome! You found biggerpockets and an encouraging community of people. Ready to start investing financially in real estate? Young and enthusiastic? Here are two secrets:

*** People who control their finances will always succeed over people who do not control their finances.

*** Debt is a tool that will bring you down unless you have it under complete control.

Read these again. Say them out loud.

Given points one and two, here are the best real estate investments for newbies:

1. Save up 3 months of living expenses in cash in a savings account and don't touch it. Ever. This is for emergencies. You lose your job. You are terribly injured and can't work. Don't touch this money.

2. Pay off all of your credit card debt. Are you a slick transferor of outstanding balances? You always pay your minimum? This kind of debt is the worst. It's expensive and it looks terrible on your credit report. Credit card companies exist profitably for people who do not control their finances. (See point 1).

3. Pay off your car loan. Sell that fancy car you have. Drive a 10 year old beater. Low insurance. Maybe a nice Camry with a dented fender. A teal Kia.

4. Pay off all of your student loan debt. Really? You have a low rate? You can defer it? It will hold you back from borrowing money intelligently. "Oh that's just old college debt." That's fine if you want people to treat you like an old college kid when you want to borrow money.

5. Save up a 30% down payment when you want to make a 20% down investment. If you become a real estate investor, you will have unforeseen expenses and you need to be prepared to absorb them. You need to have extra money in the bank. Your emergency fund is not extra money for a plumbing repair.

6. Know you credit score and keep it over 700. Go to

Annual Credit Report

and fill out your information. Is your score over 700? Do you have items up for collection? PAY THEM OFF. No one who is going to lend you money will care that your cousin stole your cell phone 3 years ago and he actually owes the $185 to Verizon. NO ONE CARES. JUST PAY THE BILLS OFF OR GET THEM CLEARED FROM YOUR RECORD.

Wait a minute, none of these are really Real Estate Investments!

But they are. Until you have your financial act in order, you shouldn't be working to put a dollar in real estate, you should improve your personal financial situation.

Then think about where to invest in real estate.

[Brie Schmidt]

Great Advice! We spent 2 years doing all of this before we got started in REI

[Carrie Westover]

We are working toward all of this. What is your opinion (or anyone else's) on using retirement funds to pay down current debt (student loans). Also refinancing our current rental which we have on a 12 year mtg. to a 30 year to increase cashflow to accomplish the debt pay off and funding savings faster?

also, what are your credentials? I didn't see much on your profile.

Thanks!

[Tom V.]

Hi Carrie,

I would keep your retirement funds as they are and work to pay down your student loan debt out of your monthly cash flow. You should continue to invest in your retirement funds especially if you are getting an employer match.

I think locking in a low rate on a 30 year mortgage today would be a good idea for your rental property but only if you have the resolve to use the 'extra' cash flow you will receive from a lower payment to aggressively attack your other debt. I think everyone is better off having debt paired against cash flowing assets rather than tied to their own personal efforts (credit cards, student loans, cars).

I am a professional real estate investor and I have worked in the financial world for 15 years. As a landlord I see so many people living from paycheck to paycheck and making very bad very basic wrong decisions about money. It doesn't sound like this applies to your case.

I think Brandon and Josh should add a 'Chapter 0' to their 'Starting Out' book on investing that encourages people to get their financial affairs straight before investing in real estate. So many people simply were never taught good habits about saving money.

Good luck to all!

[Wyteria Jacobo]

Stellar advice, Tom! Already have the beater and just secured a second job to attack my debt. Good to know I'm on the right track. Debt like the kind you mentioned in your post is just another form of modern-day slavery.

[Bryan L.]

@Tom V.

That's great advice. It amazes me about how many 22 year olds come on here to learn how to invest or wholesale or whatever, and they can't hold down a job, can't live within their means, have a credit score of 378, no money, etc, etc,.

But I would make 1 addition to your list. And that is to buy a great house at a great price to live in before you start buying investment property.

[Tom V.]

@Bryan L. - I agree - an investor herself will probably be the best tenant she ever has!

That argument even carries across investment categories. I am sometimes reminded that Peter Lynch who became famous for guiding Fidelity's Magellan fund during its heyday advocated that each investor own his own home before starting to invest in stocks.

If old white guys in tweed jackets are too dry, then at least younger participants can consider the wisdom of Jay Z's classic line, "I'm not a businessman, I'm a business, man." What does that mean? Each one of us is the keeper of his own balance sheet and income statement. Why not be our own best customers with AAA ratings? Save your money(!)

[Kyle Gregg]

This is the best advice. I used to not care about my finances while in high school and college. I let credit cards and school loans slip away and now looking back those are my biggest regrets. I took control and now i feel confident about my money. Although im rebuilding after a rough start, i know what good credit can get you and how fragile your credit actually is. 

PROTECT YOUR CREDIT!

[Lumi Ispas]

@Tom V. , this is great advice! I wish the school system will decide to introduce financial education in schools.

We'll all be in a better place!

[Clark Weger]

I would have to agree wholeheartedly letting your credit card debt get away from you can  be a long road to fix and I'm speaking directly from experience I wish they would teach the principles of  Learning how money works 

[Rosston Smith]

Absolutely great advice! Thanks