Hello my friends and welcome to another episode of Ask Marco where I answer your investing related questions.
Today’s question comes from Max. He says, hi, my name is Max and I was wondering what kind of strategy you would use given my financial position. I am turning 25 and finally moved out of my parents’ home from New Jersey to beautiful and cheap Memphis, Tennessee. I make $35,000 per year before taxes and my rent and utilities are about 900 a month. I also have about $25,000 saved up in my bank account. I budget every cent that comes in and out of my pocket and saves as much as I can after taxes, food, and rent. I’m only able to save about $400 a month. I’m thinking about buying my first property now but I am a little hesitant given where the housing market may be headed. What would you do if you were me, please? Thank you – Max.
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Okay. I think you have two comments or questions in here that need addressing. Overall what you’re asking is how do I start investing with a low salary? So first and foremost, given what you’re saving, that’s great. You know, if you’re saving $4,800 a year, it’s gonna take you a little while to get up to 18,20 $22,000 to make up enough for a down payment on a good quality rental property and probably a B class neighborhood. Um, because that’s what it’s going to take. Somewhere around 18 to $25,000 is what you’re looking at on a per property basis. And typically we’re talking about middle of the road, middle-class bread, and butter housing, three-bedroom, one and a half, two baths. Now first and foremost, the thing I want to say is that if you’ve got $25,000 saved up, that’s great before you deploy those funds into an investment and leave yourself with nothing in savings or on the side and cash.
The first thing I would do is make sure you have some reserves for yourself for emergencies in case you lose your job or you have to move or you get transferred or you have an unexpected expense come up, be it. You know with your car, a medical emergency, you know you always want to have reserves for yourself personally before you spend every last cent you have in savings for an investment. You just got to put yourself first. Your income is okay, it’s just on the low end. Of course of the spectrum that you are on and you could do better. So how do you do that? Well, it’s going to be challenging to cut your expenses, especially if there’s not much to cut. What you want to do is increase your income. You want to focus on the top, not so much the expenses.
Focus on income. So how do you increase your income so you have more to save and you can save faster? Well, there’s really two basic ways to do that. The first would be to change your employment. In other words, get a new job or a promotion where you are earning more. I’m sure there’s a lot of opportunities. I don’t know what your uh, skills are or your education or what line of business you’re in, but you know, stop and think about what other opportunities there might be available to you given your skillset and your knowledge that can increase your income can. Because sometimes that could be a sizable jump right away. Just finding new employment where you can apply yourself. The other way is to get a second job and that doesn’t mean a full-time job. It means just additional employment. And that could be a small sideline business.
It could be literally a, a job, a job, it could be anything that increases your income, where you have the time and the ability to do that. So you want to increase your income. Now, if that’s going to be challenging or hard to do, then uh, what you might want to consider is wholesaling if you have the time to do it. So if you understand wholesaling, it’s essentially finding distressed sellers or distressed properties that you can put under contract at a deeply discounted rate where you flip the contract. In other words, you assign that contract to another real estate investor for a fee. And that fee could be in the thousands and in the inside, in the expensive markets, it could be five figures, it could be $10,000 or more for each assigned contract. You’re not actually closing on the property, you’re just finding the deal for the investors that are looking for those deals.
And, and then just putting it under contract. So you tie it up and then you sign the contract and you take a fee for it. Uh, it does involve some, an investment in time and obviously a little bit of experience and running around and doing this. But, um, it is a way for some people who have the patience and the persistence to do it, to make some extra chunks of cash. And that might be a faster way to save up those chunks of cash to achieve, you know, those blocks of 20 to 25,000 plus that you need for each and every rental property. So just food for thought. The last suggestion I have is just to simply find yourself a partner, a cash partner, someone who’s got the same desire that you have. They’re like-minded. You know, it could be a friend, a colleague, or just simply a business relationship with another investor.
And maybe, um, you handle virtually everything except for the cash component. You do all the work, find the deals you negotiate, you’re really the frontman and your partner is the person who’s putting up some or all or most of the capital required, to make those investments. And so now you form a partnership. I have mixed feelings about partnerships. There’s nothing wrong with them. You just have to make sure you have the right partner. Um, because a partnership that dissolves can be kind of ugly. So that’s a fast way to get going is really just to find yourself a partner that you can work with and has the capital to make it happen with you. So that’s my answer to your question about how you start investing when you have a low salary, increase your income, control your expenses wholesale, or create yourself a second job or a small sideline business.
Now a quick comment about the housing market. You sound like you have a little bit of a reluctance given your comment of where the housing market may be headed, quote-unquote. Well, first of all, you have to be specific about the housing market you’re talking about because there’s no such thing as this blob called the housing market. All real estate is local. So if you’re in Memphis, you need to talk about the Memphis market. Uh, you can even break Memphis down into regions and suburbs and talk about those hyper-local markets within the Memphis Metro area. Real estate is very local in nature. You have to look at it that way. Second, there are no red sirens and flashing lights going on about the housing market or markets right now. We have seen some slow down in many markets around the country and cooling off in the expensive, very pricey markets like San Francisco, but markets around the country are taking a breather.
And um, and that’s good. We did want to see a slowdown. We don’t want to see rapid appreciation year after year because that is certainly not sustainable. But as of September of this year, which was the last time I checked the 405 or so markets that I’m tracking, 45 of those markets, only 11% of all us real estate markets experienced real meaning inflation-adjusted declines in property values over the previous year. So that’s a very small percentage. That’s only about a 10th 11% are those markets actually experienced a slow down in price appreciation. And that was adjusting for inflation. We are still, for the most part in most of our markets in what I’ll call a growth phase or a wealth accumulation phase. So these markets are still appreciating much slower than they were, let’s say three, four and five years ago. But that’s okay. We want to see slowdown.
We want to see controlled growth, we want to see it to be in pace with inflation. We don’t want to see rapid ongoing appreciation. I mean it’s nice to have it when you can, but that’s not sustainable and you don’t want to chase it and you don’t want to come in late in a real estate cycle because that’s just speculative in nature. So I don’t think you have much to worry about. Just keep your eye on the market, but focus on the local markets and, and be very specific about the suburbs and the areas that you’re looking at, whether it’s Memphis or anywhere else. If you have questions about that, talk to one of my investment counselors here. We certainly get into more detail about it with you and that’s it. So I hope, max, I’ve answered your question and if you have any other questions, just let us know. And so for everybody else, if you have any questions about real estate or investing, just click the Ask Marco button at the top of the website at passiverealestateinvesting.com and remember to subscribe to the show if you haven’t done so already, so every week you get updated with these. Ask Marco episodes as well as our main episodes that we release Tuesday mornings and help us share the show with other likeminded people because we want to reach as many people as we possibly can. Thanks again for listening and we’ll see you next week on our next episode.
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