- Abraham Anderson bought his first property when he was 18 years old.
- He saved as much as he could and picked a job that was commission-based to maximize his income.
- If you’re just getting started, money management is the first thing Anderson recommends focusing on.
Abraham Anderson started investing in real estate when he was 18 years old. Now, eight years later, he has an ownership stake in several mobile home parks which, combined, include over 1,500 rental lots. Roughly 60% of the properties that Anderson has an interest in are solely in his name, while the remainder are all a 50-50 partnership with other investors, he tells Insider.
“I didn’t want to be in my 80s and still have to work or rely on Social Security to survive,” Anderson said.
He turned to real estate because he felt it was a great way to have cash flow while hedging against inflation. Housing is also essential, he added. “During the COVID-19 pandemic, you didn’t need to rent a boat or go to the movies, but you still had to live somewhere,” Anderson suggested.
You also don’t need to sell the asset to see returns, unlike stocks or crypto, he noted. That’s why he recommends considering real estate over other investing opportunities.
Currently, his real estate portfolio consists of 11 single-family homes, two apartments within a duplex, and the remainder are tracts in mobile home parks.
In 2017, Anderson paid $1.3 million for a 20-unit apartment building in Kodak, Tennesee, which he credits as being the deal that led to his continued momentum and rapid expansion in real estate. While he has since sold the property, that particular acquisition helped his business grow and set him down the path towards financial freedom and the ability to leave his job if he wished.
While Anderson scaled up quickly, there were a number of crucial preliminary steps to get to a point where he had both the experience and financial qualifications to secure the building. The following are the top seven things he recommends every beginner take based on his experience.
Top seven tips for getting started
Money management is important for Anderson. He reviews his expenses monthly and reflects on which ones weren’t necessary.
If you’re just getting started, Anderson recommends reviewing your expenses weekly. You’d be surprised to see you may be spending $200 to $300 a month on just eating out, he said. This money could be put towards investing.
Anderson had many ways of saving money, but for example, if he had to drive a long distance for work, he avoided booking a hotel and would sleep in his car. If he needed to eat while traveling, he would sometimes buy a loaf of bread from the local Walmart.
Additionally, don’t be ashamed to live with your parents, he added. The biggest expense most adults have is housing. So if you can delay moving out for a couple of years, by all means, do it, he said. Anderson lived at home until he bought his second property, which was a commercial mixed-use building in Sevierville, Tennessee, that he used as an office and living space. This allowed him to save an average of $850 monthly and another $150 on utilities, based on rents in Cleveland, Tennessee.
Although the Sevierville property was not cash-flowing, it came in handy because it was used as collateral against the loan he took out to secure the 20-unit apartment building in Kodak, which was the investment that really helped to solidify Anderson’s career in real estate.
Second, while saving money is important, increasing income is even more important, he said.
“The most you can save is 100%, but the most you can earn is unlimited,” Anderson said.
Being 18 years old meant it would have been difficult for him to earn a high salary based on experience alone. So he deliberately picked a commission-based job as an insurance salesman for medicare. In his first year on the job, Anderson made $143,000 in salary, according to a 2014 tax return viewed by Insider.
He also turned to a side hustle. On Saturday mornings he went to yard sales and bought electronics that he re-sold online for a profit. This would make him a few hundred dollars each weekend.
Between his primary job and side hustle, Anderson was able to save $56,000 in cash in less than a year to put towards his first piece of land in Cleveland, Tennessee. It was a vacant lot that he’d eventually build four townhomes on. While he was building on that lot, he kept at his day job and continued to aggressively save, which allowed him to stash away another $150,000 in less than a year.
Third, the time you would normally spend on entertainment and scrolling through social media should be used to educate yourself about real estate investing. Anderson recommends listening to podcasts and watching Youtube videos.
In Anderson’s former job, he drove an average of two to three hours each day. Instead of listening to music while he was driving, he would listen to audiobooks about real estate investing.
Fourth, talk to local banks and look into getting pre-approved for a loan. He highly recommends approaching small, local banks over national ones, because the loan officer has the time to be more attentive to local investors and is easier to get in touch with, especially for commercial loans.
The great thing about this particular step is that even if you’re not eligible, or rejected, the bank will tell you what you need in order to qualify for a loan. Requirements could include hitting key underwriting targets, such as raising your credit score or saving up a larger down payment. Having this data helps set clear goals.
For instance, with Anderson’s first property, he went to a local community bank, Bank of Cleveland, that was recommended by the contractor who would later be the one to build the townhomes for him. The contractor also had a relationship with the bank because he had done deals with them for other construction projects.
He submitted a credibility book to prove his ability to pay back the loan. He didn’t have a tax return at the time, so he provided awards he received for being a top salesperson, a copy of his bank statement to show his savings, a printout of his credit score, and a blueprint of his plan.
Anderson was approved for a $300,000 construction loan that would disperse funds on a step-by-step basis. Every expense would need to be submitted to the bank for the release of funds, and interest would only be applied to the cash received at each step. He was able to make a net profit of $74,000 after completing and selling this property and paying off his loan.
Another perk of getting a preapproval is that you can — and should — include this information with your offer. Doing so illustrates to the seller that you are a serious buyer and have the means to back up your offer, which in turn, helps boost your odds of going under contract on a property, Anderson added.
Anderson was only 21 years old when he purchased a 20-unit apartment building. He told Insider that real estate agents hardly took him seriously when they saw how young he was. However, after bringing a pre-approval from a local bank, agents changed their tune.
Fifth, is to actually start taking action by making offers on properties, Anderson said. Real estate is a numbers game and the more offers you make, the higher the odds that you’ll have one accepted.
“Run the numbers and see what price you can buy the property for that would make sense for you and don’t be afraid of offering it to the seller,” Anderson said. “A lot of times, sellers list a home for much higher than they think it’s worth. If it’s been listed for a while and no one has bought it, they may be willing to take a lower offer.”
He added that the numbers you need to take into consideration include what the monthly mortgage would be and the property’s other major monthly expenses, such as taxes and insurance. All of these expenses would have to be deducted from the projected rent roll. If Anderson can cash-flow at least $100 monthly after everything is covered, then it’s a possible investment. To make the most accurate and educated estimate of what his total rents could be before acquisition, Anderson would look up what similar properties in the area were renting for.
You can find properties by speaking to local agents and having them add you to their mailing list, he noted.
Sixth, get advice from an experienced real estate investor who has been successful in the industry you want to invest in, whether that be residential or commercial properties.
In every big city, there are free real estate meet-ups every month. Anderson does a simple Google search with the city name to see what events are happening. Two platforms he recommends checking are Meetup.com and the BiggerPockets website.
Finally, Anderson noted that buying detached single-family homes has become increasingly competitive, especially because hedge funds and other institutional investment firms have been buying up a lot of these properties across the country to rent them out. Since they have access to loans at 0% rates, it’s hard for an individual investor to compete with that, he said.
His advice is to become impressionable and to build a good relationship with the seller or agent, something large investment firms don’t often do.