A real estate investor with 13 years of experience says the key to building wealth when you're young is keeping your housing costs low.
Chad Carson Chad Carson explains why young people should avoid "buying emotionally" when it comes to real estate. Courtesy of Steve Chandler
Chad Carson has been in real estate for the past 13 years, but he didn't find success as an investor overnight.
[post_ads]In fact, the former Clemson University football player graduated college in 2003 with just $1,000 in the bank, he said on a recent episode of the Mad Fientist podcast, (thanks to his football scholarship, he carried no student debt).
After spending the next year scouting properties for seasoned investors to buy and flip, Carson saved up enough cash to buy his own property. Soon, he started growing his wealth through a strategy he calls "house-hacking."
"I bought a house, a quadruplex that had four units. I lived in one unit, and then I rented the other three units out. And so I was basically living for positive $100 a month by getting $400 in rent for my three tenants. So that's $1,200 coming in. And my mortgage, taxes, and insurance were about $1,100," Carson, now 37, explained on the podcast. "So, I was living positive by using my skills as a real estate investor, and by living in an apartment that kept my overhead super low, even when I went and bought my own property."
This real estate strategy — along with another of Carson's favorites called "live-and-flip," where you buy a home, fix it up over a few years, and then resell it for a nice profit — are the best ways to increase savings and maximize earnings when you're young, he says.
The key is to treat your first home as an investment and avoid settling down too early.
"Particularly, in your first 10 years, if you make mistakes of buying emotionally on your residence as opposed to buying in a very calculated manner by making your residence a house-hack or a live-and-flip, or just renting and investing that somewhere else, the magnitude of that mistake is huge 20 to 30 years from now.
"It's like $700,000, [or] a million-dollar difference, for somebody 20 to 30 years later who made the choice to make their first home a nice home, a great neighborhood, and being in the top high school as opposed to making a decision to treat your home like an investment or just rent. It's a major, major difference."
Still, Carson said, before you start buying up rental properties, make sure you have a nest egg.
"Rental properties are wonderful for building wealth ... [but] they're not going to produce a lot of income on the front-end — at least not consistently — because you might make $200 a month on a rental property, but then what happens if a year and a half from now, the heating and the air system goes out on that rental property? That's a $4,000 to $5,000 hit," Carson said. "And so really, the rental property game, as opposed to flipping properties, is all about generating big chunks of cash that you can use to pay your bills, and hopefully, to save money."
For his part, Carson was able to take the money he earned from house-hacking and flipping and use it for down payments on rental properties and to build up his nest egg.
Today, he and his business partner manage 90 rental properties, mostly in and around his hometown in Clemson, South Carolina. Carson now lives off passive income from those properties, affording him the ability to spend this year living in Ecuador with his wife and two young daughters.
"In my mind, the game of rental properties is eventually getting it free and clear of debt, so that you have a very low risk, high income investment that allows you to go to Ecuador and do whatever else you're going to do with your life — leave your job or have a little independence to do other things," he said.
Ultimately, Carson said, "my main recommendation to everybody, whether you get into real estate investing or not, is if you're early in your career, or if you're growing your wealth ... you either need to do the house-hack, do a live-and-flip or rent somewhere because those are your three most financially viable ways to treat your residence."
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