How to Start off in Real Estate with $20k

Phoenix, Arizona
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How to Start off in Real Estate with $20k

Jesus Ramos
Member since 2022 · 1 post · 1 vote

Hi I am a 22 year old and I currently run a fairly successful clothing brand and I do that full-time. I want to expand my business portfolio by breaking into the real estate business. I just don't know how to start off with $20k. I know that I want to buy property in Phoenix or Tucson. The population here is growing since a lot of Californians are moving out of California to AZ, TX, and other more affordable states. Plus Tucson has a very popular University. Please if anyone has any advice on how to start off with $20k I would very much appreciate it. Currently im thinking of just taking out a mortgage and buying like a duplex or a house and just renting it out? Is that a good way to start off or would you start off differently?

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Marshall Leipprandt
Real Estate Agent · Miramar Beach, FL · Member since 2016 · 285 posts · 245 votes
4y

@Jesus Ramos I would try to buy a duplex or a house like you mentioned, but would house-hack meaning that you would live in the property yourself while renting out the other units or bedrooms simultaneously. There are some good loan options for doing this that will not require a 20% down payment since that wouldn't get you very far in a market like Tucson.

If you use an FHA loan (3.5% down) and plan to live in the property as your primary residence, that $20K can go much further, although I would try not to use it all if possible so you can keep some cash on hand for issues that may arise at the property. Probably your main issue will be qualifying for a loan since you appear to be self-employed and lenders will be looking for a strong history of verifiable income. Doesn't mean that you shouldn't try, just something to know going while you start your research and communicating with lenders.

Many on BP will agree that house-hacking is quite possible the best strategy to getting started in real estate, particularly at a young age where there is so much to learn. Managing a property yourself will be a great introduction to the fundamentals of owning property and will be a spring board for scaling in the future and tackling bigger deals.

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  • Marshall Leipprandt
    Real Estate Agent · Miramar Beach, FL · Member since 2016 · 285 posts · 245 votes
    4y

    @Jesus Ramos I would try to buy a duplex or a house like you mentioned, but would house-hack meaning that you would live in the property yourself while renting out the other units or bedrooms simultaneously. There are some good loan options for doing this that will not require a 20% down payment since that wouldn't get you very far in a market like Tucson.

    If you use an FHA loan (3.5% down) and plan to live in the property as your primary residence, that $20K can go much further, although I would try not to use it all if possible so you can keep some cash on hand for issues that may arise at the property. Probably your main issue will be qualifying for a loan since you appear to be self-employed and lenders will be looking for a strong history of verifiable income. Doesn't mean that you shouldn't try, just something to know going while you start your research and communicating with lenders.

    Many on BP will agree that house-hacking is quite possible the best strategy to getting started in real estate, particularly at a young age where there is so much to learn. Managing a property yourself will be a great introduction to the fundamentals of owning property and will be a spring board for scaling in the future and tackling bigger deals.

    4Reply
  • Lane Aakhus
    Investor · Honolulu, HI · Member since 2019 · 47 posts · 25 votes
    4y

    You may want to consider purchasing a place and house hacking for a few years while you build up your business and reserves. You could also consider taking on a partner.  Best of luck! 

    1Reply
  • Jordan Young
    Rental Property Investor · Baton Rouge, LA · Member since 2019 · 3 posts · 0 votes
    4y

    You could use that as a down payment to house hack, you could partner up with someone, or you could find a value add deal and use the 20k as any up front costs a hard money lender would require. if thats not enough money to do that in your market, maybe combine 2 and 3.

    0Reply
  • Greg Huegel
    Lender · Greenville, SC · Member since 2022 · 37 posts · 10 votes
    4y

    @Jesus Ramos,

    I love that you are expanding your business portfolio and breaking into real estate, especially at the age of 22! You are already ahead of others your age.

    In my opinion, the best way to deploy your $20k, would be using the BRRRR method/Fix-to-Rent option. It will be easier to find a distressed property that requires rehab for a lower purchase price. Plus going the short-term FNF loan route requires less of a down payment (10-15% depending on the lender), and 100% of the rehab would be financed. Upon completion of the rehab, you could refinance into a long-term rental, start collecting passive income, and potentially receive more cash out proceeds than you initially put as a down payment (depending on how good of a deal it is). Using the cash out proceeds, you could repeat, acquire another property, and start to scale your real estate business! The most important factor going this route is building out a solid team (contractor, real estate agent, lender, etc). You will thank yourself down the road (and potentially save yourself a lot of $$) for building out a solid team from the very beginning.

    Considering the current market, it would be difficult to acquire a turn-key ready rental property for $20k, unless you go the conventional lending route, as @Marshall Leipprandt mentioned, and obtain an FHA loan to limit your down payment. Going the FHA route, you would need to live in one of the units and still keep some cash on hand for any repairs or maintenance. If you can find a rent ready duplex in this price range to live in one side and rent out the other, and find a conventional lender to not have an issue with your clothing business income, then that is still a great plan!

    Hope this helps.

    0Reply
  • Cade Olof
    Real Estate Agent · Tucson, AZ · Member since 2020 · 103 posts · 64 votes
    4y

    @Jesus Ramos

    Dude! That's awesome you're looking into investing your money into Real Estate! There's no better way!

    I just turned 21 and bought my first triplex last year using the FHA program that was mentioned above. This is a great way to get started because I only had to put down 3.5% which came out to about 18k. This allowed me to move out on my own and live for not only free, but I'm also making money each month as well as appreciating in value the longer I hold. What's even cooler is that my property is just 2 miles from the University and Downtown Tucson.

    I think I could bring you a ton of value! Send me a PM so we can connect further! I look forward to hearing from you :)

    0Reply
  • Travis Smith
    Investor · Columbus, OH · Member since 2017 · 12 posts · 7 votes
    4y

    @Jesus Ramos you are way ahead of me when I was your age. At 29, I was having the same struggles to 'break in" to Real Estate and get started. My three brothers were also at a similar crossroads in their life journey and ended up forming a multi-membered LLC and started to pool funds so we could get over the initial capital barrier of entry into Real Estate ownership. But just as important as getting over the capital threshold was getting over our lack of confidence and know-how as individuals. Doing it as a Tribe was the key for me and my brothers to get started. 12 years later we have a pretty impressive portfolio and it has changed the trajectory of our family's wealth journey. Dare I say we've achieved financial independence via our Tribe! Anyway, it only makes sense if you can find tribe members that are in similar situations and you know, like, and trust them. With fintech platforms, it's never been easerier to Tribevest! Give it some thought and let me know if you have any questions. Always happy to share my experience in the collaborative investing category! Cheers, Travis

    3Reply
  • Ty AshBusiness Member
    Real Estate Agent · Milwaukee, WI · Member since 2018 · 201 posts · 132 votes
    4y

    Hi @Jesus Ramos!

    A few other members have already called this out but definitely look into getting started with a house hack. I think that you'll also find a lot of value in listening to the BiggerPockets Money podcast to learn more about financial independence. It sounds like you're already well on your way but they (@Scott Trench and @Mindy Jensen) consistently talk about the 4 key levers in personal finance. Earn more, spend less, build a business, invest in assets (real estate fits into the last two levers but you're also working on your apparel business as well).

    Next steps for you are to keep learning (Read Set for Life), interview a few investor friendly agents, and start analyzing deals that fit in your purchase price!

    Best of luck, definitely keep us posted on your progress!

    4Reply
  • Andrew McGuire
    Real Estate Agent · Chandler, AZ · Member since 2022 · 215 posts · 156 votes
    4y

    @Jesus Ramos

    That is enough down payment to get a fixer and house hack it. I would save another 10-15K for closing cost and reserve, something always goes wrong when you buy a fixer....

    0Reply
  • Zierry Eme Carl T. Tagbas
    Realtor · Spokane, WA · Member since 2020 · 138 posts · 87 votes
    4y
    Quote from @Jesus Ramos:

    Hi I am a 22 year old and I currently run a fairly successful clothing brand and I do that full-time. I want to expand my business portfolio by breaking into the real estate business. I just don't know how to start off with $20k. I know that I want to buy property in Phoenix or Tucson. The population here is growing since a lot of Californians are moving out of California to AZ, TX, and other more affordable states. Plus Tucson has a very popular University. Please if anyone has any advice on how to start off with $20k I would very much appreciate it. Currently im thinking of just taking out a mortgage and buying like a duplex or a house and just renting it out? Is that a good way to start off or would you start off differently?

    Hello Jesus,
    Congratulations on your business! That is so awesome that you want to invest in real estate. I see that you own a business and not sure if you are well aware. If you are a 1099 or self employed, and you are trying to get financing (loan) you will need 2 years of tax return report. With 20k available, I would use that for downpayment and closing cost. Have you thought about house hacking and using an FHA (if you have limited funds). If you are not able to find a property that makes sense to you, would you be open minded to OOS investing?

    Good luck out here and wishing you all the best. Please feel free to connect with me if you have any questions 
    0Reply
  • Bradley Dosch
    Real Estate Agent · Seattle, WA · Member since 2019 · 301 posts · 188 votes
    4y

    Hey Jesus, that's pretty neat you have a successful clothing operation going. Definitely continue focusing on growing that! Your idea you mentioned at the end of your post is perfect. Buying something to live in and then renting out the extra space is a great way accelerate your wealth!

    0Reply
  • Basit SiddiqiBusiness Member
    Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
    4y

    Closing costs are likely around $5,000 which leaves you $15,000 towards a 20% down payment. This will allow you to purchase a $75,000 investment home.

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  • Jimmy Rojas
    Member since 2020 · 146 posts · 39 votes
    4y
    Quote from @Basit Siddiqi:

    Closing costs are likely around $5,000 which leaves you $15,000 towards a 20% down payment. This will allow you to purchase a $75,000 investment home.


    In Phx,Az you cant even get a dirt lot  for $75k lol.
    0Reply
  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    4y

    @Jesus Ramos

    Start off as the bank and do private lending or buy a mortgage note. That can be done with $20k easily.

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