Do I invest with my own money or finance?

Question

Hi,

I’m an aspiring RE investor who’s looking for advice on how to enter.

I have about $350k of my own money I’m willing to invest and I’m considering multi-family. Is it advisable to enter in debt free to reduce risk? Or would financing be the best route?

- Dave

Eric Goldman · Answer

the goal is to use as little money of your own as possible. using some one else's money is key (financing/partners etc.) what will you do when that nest egg runs dry? you can get a lot more deals under your belt by financing.

Ty Ash · Answer

Hi @David Bearup!

Definitely agree with @Nathan G.! Sounds like you still need to build up your knowledge and confidence. Try to find a meet up in your local area which you can do right here on BP. Find people that are investing using strategies that excite you and find a way to give them value.

Your fear of the risk is normal but also comes from not knowing the next steps.

Best of luck getting started! Here for you with any questions you have along the way!

Scott E. · Answer

What?

Nathan Gesner · Answer

Welcome to the BiggerPockets forums!

You should read some books about the general practice and benefits of real estate investing. Get a better understanding of the benefits of leverage and then you'll answer your own question. This is a key lesson, so don't skip it!

1. Start with BiggerPockets Ultimate Beginners Guide (free). It will familiarize you with the basic terminology and benefits. Then you can read a more in-depth book like The Book On Rental Property Investing by Brandon Turner or The Unofficial Guide to Real Estate Investing by Spencer Strauss.

2. Get your finances in order. Get rid of debt, build a budget, and save. The idea that you can build wealth without putting any money into it is a recipe for disaster and the sales pitch of gurus trying to steal your money. A wise investor will not try to get rich quick with shortcuts. If you can't keep control of your personal finances, you are highly unlikely to succeed in real estate investing. Check out my personal favorite, Set For Life by Scott Trench , or The Total Money Makeover by Dave Ramsey.

3. As you read these books, watch the BiggerPockets podcasts. This will clarify and reinforce what you are reading. You can hear real-world examples of how others have built their investment portfolio and (hopefully) learn to avoid their mistakes.

4. Now you need to figure out how to find deals and pay for them. Again, the BiggerPockets store has some books for this or you can learn by watching podcasts, reading blogs, and interacting on the forum. There is a handy search bar in the upper right that makes it easy to find previous discussions, blogs, podcasts, and other resources. BiggerPockets also has a calculator you can use to analyze deals and I highly recommend you start this as soon as possible, even if you are not ready to buy. If you consistently analyze properties, it will be much easier to recognize a good deal when it shows up. Find Brandon's videos on YouTube for the "four square" method of analyzing homes and practice. It doesn't take long to learn how to spot a good deal.5. Study the market. You can learn to do this on your own or get a rockstar REALTOR to lead the way. I highly recommend a well-qualified REALTOR that works with investors and knows how to best help you.

6. Jump in! Far too many get stuck in the "paralysis by analysis" stage, thinking they just don't know enough to get started. The truth is, you could read 100 books and still not know enough because certain things need to be learned through trial-and-error. You don't need to know everything to get started; you just need a foundation to build on and the rest will come through experience and then refining your education.

You can build a basic understanding of investing in 3-6 months. How long it takes to be financially ready is different for everyone. Once you're ready, create a goal (e.g. "I will buy at least one single-family home, duplex, triplex, or fourplex before the end of 2019") and then do it. Real estate investing is a pretty forgiving world and the average person can still make money even with some pretty big mistakes.

Joe Villeneuve · Answer

First, debt free is maximum risk.  When you put cash into a deal, your cash, that's what is at risk.  Ask any lender.

Second, debt, good debt, makes you money.  The cash you put into a deal is what your cost is.  That's what you are paying for the property.  The mortgage payment is paid by the rent (tenant), as long as you have positive CF.

Third, profit is made AFTER you recover all of your cost.  The lower the cash you put in, the less you have to recover and the faster it will happen.