Whether you’re buying a house with an extra room that you can rent out on Airbnb or buying an entire building and turning it into apartments, homes and properties can be hugely lucrative assets.
Todd Baldwin would certainly agree. The 31-year-old has grown his net worth to over $4 million through smart real estate investing (and a few frugal habits).
From buying houses to rent on Airbnb to converting your basement into an apartment to rent, Baldwin has used real estate in many ways over the years to generate extra income and even live in his home for free.
Here are Baldwin’s two top tips for getting started building wealth through real estate.
Before you buy a property: Get your finances in order
The first step to getting into real estate investing is determining how you are going to pay for it. Before you’re ready to buy a property, Baldwin recommends lowering your living expenses and making sure you have a solid credit score.
Finding a roommate or two is a great way to save on rent, though it becomes a less attractive option for many people as they get older.
Baldwin encourages you to enjoy your youth when you can tolerate a little more discomfort. “If it’s going to suck, take it while you’re young,” he told CNBC Make It. “You can find roommates at 22, you won’t want any more at 42.”
Imagine, for example, that you want rent an apartment in New York where the median rent for a one-bedroom apartment is around $3,800 per month, according to real estate platform Zumper. In the meantime, The 3 bedrooms cost an average of $4,500. If you live with two roommates, you could reduce your rent to around $1,500.
While you’re piling on that extra cash, Baldwin suggests you work on building your credit. Putting everyday purchases on a credit card and paying them off immediately can help you build up credit for the first time or improve your current score, he says.
However, “don’t go out of your way to spend more money than you normally would,” he says. “Just put your regular expenses on [your credit card] and eventually, you’ll earn credit.”
When you’re ready to buy: Be picky
Baldwin is proud of the fact that he has never lost money on a real estate transaction. He attributes his success to his extreme selectivity in the properties he buys.
Any home he invested in had to meet five strict criteria. “If someone sent me a house [to consider buying] who had four out of five, I wouldn’t buy it,” he said. “It must have had five out of five.”
When looking for a property to rent by the piece, Baldwin looks for:
- Good bedroom/bathroom ratio
- Sufficient parking spaces for the expected number of tenants
- A location that is going through a transition, such as an increase in new business openings or the opening of a new grocery store nearby
- No homeowners association (HOA) fees
- Proximity to public transport
These are not necessarily the criteria you use. Yet Baldwin’s commitment to ticking every one of his boxes has helped him stay focused on making every deal a success and growing his business without too much additional risk.
“Maybe I haven’t evolved as fast as [someone] who has way more money than me,” he says. “But I’ve never had a scary moment where I’m like, ‘Oh, I might lose my pants on this.'”
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