How much cash did you need saved to feel comfortable purchasing your first property?

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How much cash did you need saved to feel comfortable purchasing your first property?

Isabel Anness
New to Real Estate · Cleveland, OH · Member since 2022 · 21 posts · 11 votes

I realize this question is incredibly vague and depends on a whole plethora of factors…

In general, what benchmark or criteria did you use to feel financially “comfortable” investing in real estate? I graduated last May and would love to begin my real estate investing journey as soon as possible,  but struggling with landing on what I need saved up to feel like I am making a financially responsible decision.  With about 6 months of big girl work under my belt, I am trying to  build my liquid cash savings for an emergency fund, down payment, closing costs, etc. 

I would appreciate any and all thoughts on when you felt like you had “enough” to get started.  Thanks all in advance and looking forward to the discussion!

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Nathan Brown
Property Manager · Phoenix, AZ · Member since 2023 · 101 posts · 77 votes
3y

Lender, shmender! Most people know in general it's 0% down for VA, 3.5% down for FHA and 20% down for conventional. As you've already stated in your question, the rest of the money you want to save up for is entirely dependent upon your personal situation and which house you buy. You will likely need as much as 2% of the purchase price for closing costs (bearing in mind this could also include up front expenses like a house inspection and appraisal). That's my bare minimum "benchmark": down payment + closing costs. You will also likely have moving expenses and incidental house upgrades and repairs as well. I didn't feel like I had enough at the time of my first investment, but the opportunity presented itself and I took the risk anyway. You're in for a wild ride, but it's worth it. Good luck!

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  • Michael Coco
    Attorney · Princeton, NJ · Member since 2021 · 39 posts · 15 votes
    3y

    I have enough for 15 percent but talking to the good members over on the financing forum I'm thinking I need at least 20 to 25 percent or my financing is going to cost too much. So, I would look at the type of homes you want to buy and the area, and look at the average price. You should get 20 to 25 percent of that saved. Or, you could look into "house hacking", which there are topics about here. 

    0Reply
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    3y

    It really depends on how much you need for a down payment and how much you can borrow.  I'd want the down payment, closing costs and at least a few months of rent in the bank (assuming you have no renos).

    1Reply
  • Eliott Elias
    Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
    3y

    Start the process with talking to a lender and they will tell you your loan options and what you need as a down payment to close on a property. You also need to be thinking about what kind of monthly payment you can afford. 

    0Reply
  • Jeff S.
    Specialist · Portland, OR · Member since 2010 · 3k+ posts · 1k+ votes
    3y

    @Isabel Anness your best bet is to sit down with a bank loan officer and see how you are as far as qualifying for financing. This is a good starting point to learn about financing. Many factors come into play which a loan officer can educate you on. 

    0Reply
  • Nathan Brown
    Property Manager · Phoenix, AZ · Member since 2023 · 101 posts · 77 votes
    3y

    Lender, shmender! Most people know in general it's 0% down for VA, 3.5% down for FHA and 20% down for conventional. As you've already stated in your question, the rest of the money you want to save up for is entirely dependent upon your personal situation and which house you buy. You will likely need as much as 2% of the purchase price for closing costs (bearing in mind this could also include up front expenses like a house inspection and appraisal). That's my bare minimum "benchmark": down payment + closing costs. You will also likely have moving expenses and incidental house upgrades and repairs as well. I didn't feel like I had enough at the time of my first investment, but the opportunity presented itself and I took the risk anyway. You're in for a wild ride, but it's worth it. Good luck!

    2Reply
  • Richard Loniewski
    Real Estate Agent · NJ · Member since 2021 · 573 posts · 127 votes
    3y

    I got my first property with only 2k deposit, I got approved for hard money and did a JV with my Barber of all people to give me the gap funding I needed, Tell everyone what you do, you never know who might have money and wants to get into investing!

    1Reply
  • Isabel Anness
    OP
    New to Real Estate · Cleveland, OH · Member since 2022 · 21 posts · 11 votes
    3y
    Quote from @Michael Coco:

    I have enough for 15 percent but talking to the good members over on the financing forum I'm thinking I need at least 20 to 25 percent or my financing is going to cost too much. So, I would look at the type of homes you want to buy and the area, and look at the average price. You should get 20 to 25 percent of that saved. Or, you could look into "house hacking", which there are topics about here. 

    Awesome, Michael. Thank you for this insight! I appreciate it. 
    0Reply
  • Isabel Anness
    OP
    New to Real Estate · Cleveland, OH · Member since 2022 · 21 posts · 11 votes
    3y
    Quote from @Theresa Harris:

    It really depends on how much you need for a down payment and how much you can borrow.  I'd want the down payment, closing costs and at least a few months of rent in the bank (assuming you have no renos).

    Thank you, Theresa! This makes sense. Forgive me for my very basic question - but is there a hard and fast rule on what fees/expenses are included in the “closing costs” bucket? I know the general rule is allot ~3-5% of the loan amount to closing costs. But what does this category of expenses usually cover? Is there anything additional I should budget for at closing that would not fall under the closing costs category(inspection, property taxes, etc.)? Thanks so much!
    0Reply
  • Isabel Anness
    OP
    New to Real Estate · Cleveland, OH · Member since 2022 · 21 posts · 11 votes
    3y
    Quote from @Eliott Elias:

    Start the process with talking to a lender and they will tell you your loan options and what you need as a down payment to close on a property. You also need to be thinking about what kind of monthly payment you can afford. 

    Thank you, Elliott! I appreciate your reply and will definitely be sure to think about these things :)
    0Reply
  • Isabel Anness
    OP
    New to Real Estate · Cleveland, OH · Member since 2022 · 21 posts · 11 votes
    3y
    Quote from @Jeff S.:

    @Isabel Anness your best bet is to sit down with a bank loan officer and see how you are as far as qualifying for financing. This is a good starting point to learn about financing. Many factors come into play which a loan officer can educate you on. 

    Very good point, Jeff! I agree - actually talking to people and getting a look into the process if the best way to learn! Thank you for your reply.
    0Reply
  • Isabel Anness
    OP
    New to Real Estate · Cleveland, OH · Member since 2022 · 21 posts · 11 votes
    3y
    Quote from @Nathan Brown:

    Lender, shmender! Most people know in general it's 0% down for VA, 3.5% down for FHA and 20% down for conventional. As you've already stated in your question, the rest of the money you want to save up for is entirely dependent upon your personal situation and which house you buy. You will likely need as much as 2% of the purchase price for closing costs (bearing in mind this could also include up front expenses like a house inspection and appraisal). That's my bare minimum "benchmark": down payment + closing costs. You will also likely have moving expenses and incidental house upgrades and repairs as well. I didn't feel like I had enough at the time of my first investment, but the opportunity presented itself and I took the risk anyway. You're in for a wild ride, but it's worth it. Good luck!

    Hi Nathan - thank you for your reply! I definitely tend to be overly conservative, so it’s nice to hear you felt you weren’t necessarily ready but took the risk anyways. Definitely a mindset I need to instill in myself a bit more :)
    0Reply
  • Isabel Anness
    OP
    New to Real Estate · Cleveland, OH · Member since 2022 · 21 posts · 11 votes
    3y
    Quote from @Richard Loniewski:

    I got my first property with only 2k deposit, I got approved for hard money and did a JV with my Barber of all people to give me the gap funding I needed, Tell everyone what you do, you never know who might have money and wants to get into investing!


    That’s awesome, Richard! Very good advice to socialize your plans as much as possible.  Thank you for your reply, I appreciate it!

    0Reply
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    3y
    Quote from @Isabel Anness:
    Quote from @Theresa Harris:

    It really depends on how much you need for a down payment and how much you can borrow.  I'd want the down payment, closing costs and at least a few months of rent in the bank (assuming you have no renos).

    Thank you, Theresa! This makes sense. Forgive me for my very basic question - but is there a hard and fast rule on what fees/expenses are included in the “closing costs” bucket? I know the general rule is allot ~3-5% of the loan amount to closing costs. But what does this category of expenses usually cover? Is there anything additional I should budget for at closing that would not fall under the closing costs category(inspection, property taxes, etc.)? Thanks so much!

     I'm in Canada, so it may differ.  There will be property taxes (credit or debit depending on when they are due), lawyer's fees, there may be mortgage fees, transfer taxes.  Whoever handles your closing, should be able to give you an estimate.

    0Reply
  • Bob S.
    Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes
    3y
    Quote from @Isabel Anness:

    I realize this question is incredibly vague and depends on a whole plethora of factors…

    In general, what benchmark or criteria did you use to feel financially “comfortable” investing in real estate? I graduated last May and would love to begin my real estate investing journey as soon as possible,  but struggling with landing on what I need saved up to feel like I am making a financially responsible decision.  With about 6 months of big girl work under my belt, I am trying to  build my liquid cash savings for an emergency fund, down payment, closing costs, etc. 

    I would appreciate any and all thoughts on when you felt like you had “enough” to get started.  Thanks all in advance and looking forward to the discussion!

     My 1st deals in Cleveland were all in 20k, duplex with rent of 850/ 850. So really not a concern. Now those same duplexes are 100k ++. In your market you can buy a rental with about 20k down,  PP 115k - 135k and get about 22- 25k in gross rents, 

    Good luck 

    1Reply
  • Nicholas L.Pro Member
    Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
    3y

    @Isabel Anness

    check out some personal finance podcasts to get ideas on emergency fund, savings, etc.  and look into house hacking.  you can get an estimate of closing costs when you apply for a loan so you know how much you'll need to have without committing to anything or paying any fees.   

    0Reply
  • Isabel Anness
    OP
    New to Real Estate · Cleveland, OH · Member since 2022 · 21 posts · 11 votes
    3y
    Quote from @Nicholas L.:

    @Isabel Anness

    check out some personal finance podcasts to get ideas on emergency fund, savings, etc.  and look into house hacking.  you can get an estimate of closing costs when you apply for a loan so you know how much you'll need to have without committing to anything or paying any fees.   


     Hey Nick! Thanks so much for the reply! Personal finance content/and the FI/RE community are actually what got me interested in real estate in the first place! With that being said, one of the major things I am struggling with is deciding how much I should be prioritizing investing in my tax advantaged investment accounts vs beefing up my savings as quick as possible to have the liquid cash to get into real estate when the opportunity presents itself.  Again, I know this is definitely a personal decision (as most things in personal finance are :) ).  But do you have any thoughts/advice on what makes most sense to be putting more money towards right now? Thank you so much in advance!! 

    0Reply
  • Scott E.
    Contractor · Scottsdale, AZ · Member since 2010 · 2k+ posts · 3k+ votes
    3y

    I bought my first house in 2011 at the age of 25. I had around $10,000 in my bank account. I used an FHA loan and my realtor chipped in some money towards my closing costs. I ended up being around $7,000 out of pocket to do that first deal.

    It was frightening to buy my first house with basically all of the savings I had to my name. Didn't help that I was also living paycheck to paycheck at the time. If 1 major expense came up I would have gone into credit card debt (which did end up happening lol, but that's another story).

    Anyways all that being said I sold the house 5 years later and walked away with $130,000 tax-free profit in my pocket.

    So would I do it all again? Yes. But would I recommend others to do the same? Not sure.

    2Reply
  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    3y
    Quote from @Isabel Anness:

    How much cash did you need saved to feel comfortable purchasing your first property?

    No cc or car debt. 
    2 months living expenses as a reserve/emergency fund. Your lender may require more. 
    5% above your down payment and pre-paids/ closing costs.    Generic ballpark. 

    0Reply
  • Isabel Anness
    OP
    New to Real Estate · Cleveland, OH · Member since 2022 · 21 posts · 11 votes
    3y
    Quote from @Steve Vaughan:
    Quote from @Isabel Anness:

    How much cash did you need saved to feel comfortable purchasing your first property?

    No cc or car debt. 
    2 months living expenses as a reserve/emergency fund. Your lender may require more. 
    5% above your down payment and pre-paids/ closing costs.    Generic ballpark. 


     Thanks, Steve! This is a helpful breakdown.  I appreciate the reply.

    1Reply
  • Nicholas L.Pro Member
    Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
    3y

    @Isabel Anness

    wow, great question.  do you have a 401k that you're contributing to and getting a match on?

    you could decide "i want to start making offers in X months in this price range," and then save up for the down payment and reserves it would take to get there.  you're not likely going to have an offer accepted on day 1, so you might have a month or a few months more to save.

    are you renting now?

    0Reply
  • Isabel Anness
    OP
    New to Real Estate · Cleveland, OH · Member since 2022 · 21 posts · 11 votes
    3y
    Quote from @Scott E.:

    I bought my first house in 2011 at the age of 25. I had around $10,000 in my bank account. I used an FHA loan and my realtor chipped in some money towards my closing costs. I ended up being around $7,000 out of pocket to do that first deal.

    It was frightening to buy my first house with basically all of the savings I had to my name. Didn't help that I was also living paycheck to paycheck at the time. If 1 major expense came up I would have gone into credit card debt (which did end up happening lol, but that's another story).

    Anyways all that being said I sold the house 5 years later and walked away with $130,000 tax-free profit in my pocket.

    So would I do it all again? Yes. But would I recommend others to do the same? Not sure.


     Thank you so much for sharing this, Scott! I am currently in a similar position to you when you decided to start out (enough for down payment + closing costs, but would be feeling pretty vulnerable savings-wise after that lol).  I am definitely a more conservative leaning person with my money, so it is nice to hear a story like yours that, although it was probably a lot of stress, taking the risk ended up being worth it.  I am definitely planning to save more to feel more comfortable with my choice, but stories like this will definitely help persuade me to take a bit more of a risk than I may have been originally willing to take.  Thanks again for sharing :)

    1Reply
  • Isabel Anness
    OP
    New to Real Estate · Cleveland, OH · Member since 2022 · 21 posts · 11 votes
    3y
    Quote from @Nicholas L.:

    @Isabel Anness

    wow, great question.  do you have a 401k that you're contributing to and getting a match on?

    you could decide "i want to start making offers in X months in this price range," and then save up for the down payment and reserves it would take to get there.  you're not likely going to have an offer accepted on day 1, so you might have a month or a few months more to save.

    are you renting now?


    I am contributing to a 401k and Roth IRA but unfortunately do not start getting the company 401k match for about another year :( I really like the way you framed the thought process, though, about "making offers in X months" to help develop an actionable plan to get there. Definitely something I will consider going forward.

    And no, not renting; I am currently living at home with my parents trying to save as much as I can.

    Thanks for sharing your insight, I appreciate it!!

    1Reply
  • Sam McCormackBusiness Member
    Real Estate Agent · Cincinnati, OH/NKY · Member since 2021 · 1k+ posts · 834 votes
    3y

    @Isabel Anness

    Hi Isabel, I normally tell my clients 50k is a good amount of safe money to have to invest with. Anything more is icing on the cake, in case the worst happens

    You don't NEED this much to start, that is just what I tell my OOS clients. 

    [email protected]859-443-4952
    Sam McCormack Realtor
    View Page
    0Reply
  • Isabel Anness
    OP
    New to Real Estate · Cleveland, OH · Member since 2022 · 21 posts · 11 votes
    3y
    Quote from @Sam McCormack:

    @Isabel Anness

    Hi Isabel, I normally tell my clients 50k is a good amount of safe money to have to invest with. Anything more is icing on the cake, in case the worst happens

    You don't NEED this much to start, that is just what I tell my OOS clients. 

    Thank you for your reply, Sam! This is a great tangible benchmark to shoot for.  Appreciate your insight!
    1Reply
  • Duncan Kaja
    Lender · Pleasant View, TN · Member since 2023 · 25 posts · 9 votes
    3y

    Hey Isabel, I'd be happy to discuss numbers with you! Send me a message to set up a call and we can take it from there.

    0Reply
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