Starting out with 20K is multifamily the best option?

Question

Hi everyone,

I am Nina and new to BiggerPockets and Real Estate Investing. My brother, who has the better credit and some cash flow, would like to join me on this journey to build on our cash flow and eventually invest in Multifamily properties. Where should we begin and what can we do to start investing and turning $1000 or $3000 into double or more? Thank you in advance for your assistance and suggestions. We have 20 thousand to start but not sure if the LA market is where we can begin.

Nathan Gesner · Answer

Welcome to the BiggerPockets forums!

That's not enough to invest in LA, but it can get you started in other states/cities. You can read "Long-Distance Real Estate Investing" by David Greene to get an understanding of how this works and practical steps to take.

You need a good partnership agreement. If you clearly spell out how the partnership operates, you are less likely to have problems with your partner. If you wing it, you run the risk of losing your business partnership and your personal relationship.

I'll also share some basic beginner advice that you may find useful.

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.

Doug Spence · Answer

@Nina Gibson Welcome to bigger pockets! Before you spend that 20k, I would do two things:

1. Educate yourself! Books, podcasts, youtube videos etc - however you like to consume information... start learning! There are TONS of great, free (or very inexpensive) multifamily education resources out there.

2. Surround yourself with people who are already doing (and have done) what you want to do. Go to local meetups, get in mastermind groups, take investors out to lunch/coffee to pick their brains and always seek to provide value first!!

Good luck and keep us updated on your journey!

Jessica Von Zastrow · Answer

Hi Nina,

You're in the right place to start your investment journey! Multi-family properties are a great option to have a lower cost/unit and higher cash flow. Purchasing a multi-family property can be more expensive up front compared to a single-family home due to down payment requirements for conventional loans.

• Single Family (1 Unit) = minimum 15% down payment
• Multi-Family (2-4 Unit) = minimum 25% down payment

(Fannie Mae Guidelines)

Theresa Harris · Answer

Both of you should go to a bank or mortgage broker and find out how much money you can borrow for a mortgage. In CA, $20K is unlikely enough to get started especially with a multifamily home. Once you know how much you can borrow, start looking online at what houses cost in your area.

Nina Gibson · Answer

Thank you for the kind and friendly replies. We will consider all of our options before making a decision and diving off the deep end. I think Nathan has a point and we may need to start elsewhere outside of California to build enough wealth to invest in LA or California.

Thank you again,

Nina

Thank you again,

Nina

Starting out with 20K is multifamily the best option?

Starting out with 20K is multifamily the best option?

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