How much cash do I need?

Question

Hi everyone,

I'm a complete newbie at investing, and I feel like even with the books I've read there are still so many unanswered questions I have. For information, I'm a year out of college and have a very decent W2 in San Diego. Investing here would be impossible for me as I've got very little cash, so the markets I have been looking at are Des Moines, Atlanta, and Jackson, MI. Ideally, I'd like to purchase a small multifamily for 100-150k that I can BRRR.

Questions:

- How much do I need to have saved up before my first purchase?

- Do I really need a landlord for one property?

- How do I convince my parent's I'm not gambling my savings?

Thank you!

Dan H. · Answer

>  How much do I need to have saved up before my first purchase?In general 20% for OOS SFH, 25% for OOS duplex to quad.  You can find properties in the price you indicated but they have historically appreciated less than inflation, they may attract poor tenants, they likely will have poor rent growth

Or house hack local market and need at low as 3.5% but easier at 5%.

>Do I really need a landlord for one property? I assume you mean a property manager.  You probably do not need one but you will likely be best served by having one.

>How do I convince my parent's I'm not gambling my savings

Are you financially independent of your parents?  If you are, I would not worry about what they think.  Time to be responsible for your life and make your own decisions.

Doing a local BRRRR is challenging. I would not recommend an OOS BRRRR for your first BRRRR. In addition low cost markets do not add much value for rehabs. In most markets at the current rates, the property is negative cash flow after extraction of equity via the refinance.

Good luck

Ashley Noethe · Answer

Hi Jacob, congrats on making the decision to start your investing journey! I am both an investor and a realtor in the Des Moines, Iowa area. It looks like most of your questions have been answered by the other responses. I agree you'll need 20-25% saved for down payment and closing costs for your purchase. You don't "need" a property manager, but managing out of state would not be an easy task especially as a first-time investor. It's doable for sure, but I'd suggest having a PM initially. As far as you parents, I would put your financials together to walkthrough with your parents that detail out the purchase, mortgage, expenses, cash flow, appreciation, etc. In terms of the Des Moines market, finding a multifamily in the $100-$150K would be extremely tough. Even if you could, you'd likely be looking at an older conversion property that will likely need consistent maintenance and wouldn't have the best appreciation. That being said, those properties can have great cash flow. If you have questions about this market in particular or want to see some examples what is currently out there and what the numbers would look like, feel free to reach out.

Nicholas Coulter · Answer

Have you explored any investor meet ups in the area? Might be a good opportunity to be mentored by someone you can learn from. Offer to help them in any way you can.

Nathan Gesner · Answer

Maybe you aren't reading the right books? I'll give some beginner advice below.

You should expect 25% of the sales price, plus you need some additional money set aside as a reserve to cover any surprise expenses during the purchase or within the first year. Don't ever spend your last dime on an investment!

You don't need a property manager, but you should budget for one, just in case. Most investors lose a TON of money by making amateur mistakes. Paying for a good PM can actually put more money in your pocket. However, you have to find the right one and that's not easy. I recommend you try managing on your own, but be smart and spend time educating yourself on how to do it well by reading books, listening to podcasts, and interacting in the forums.

You convince people you're not foolish by educating yourself. If you know how to analyze property and can explain it to a fifth grader, you won't have a problem. Besides, it's your life. You shouldn't need mom's permission to invest. Let your actions speak for you.

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. Prioritize your financial stability. Eliminate debt, establish a budget, and save. Remember, the notion of amassing wealth without investing is a dangerous myth perpetuated by self-proclaimed experts. A prudent investor doesn't seek quick riches through shortcuts. To thrive in real estate investing, you must maintain a firm grip on your finances. Explore my personal favorites, Set For Life by Scott Trench or The Total Money Makeover by Dave Ramsey, for invaluable financial insights.

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. NETWORK!!! Get out of your comfort zone. Stop hanging out with your deadbeat buddies who spend all day drinking, talking sports, and otherwise wasting away. Go to BUILD YOUR TEAM at the top of the screen and look for local investors or meetups in your area. You can also find real estate investing groups through meetup.com, Facebook, or a Google search. Birds of a feather flock together!

5. Now, you need to figure out how to find deals and pay for them. Again, the BiggerPockets store has some books on this topic, or you can learn about it by watching podcasts, reading blogs, and interacting on the forum. A handy search bar in the upper right makes it easy to find previous discussions, blogs, podcasts, and other resources. BiggerPockets also has a calculator 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, recognizing a good deal will be much easier 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.6. Study the market. You can learn to do this independently or get a rockstar REALTOR to lead the way. I highly recommend a well-qualified REALTOR who works with investors and knows how to help you best.

7. Jump in! Far too many get stuck in the "paralysis by analysis" stage, thinking they just don't know enough to get started. You could read 100 books and still need to learn more because certain things must be learned through trial and error. You don't need to know everything to get started; you 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 forgiving; the average person can still make money even with some big mistakes.

Wale Lawal · Answer

@Jacob Zeimet

Real estate investment may be a gratifying and financially lucrative endeavor. Consider the down payment, closing fees, remodeling budget, and financial reserves while saving for a house worth $100-150k. For out-of-state ventures, a property manager may be required even if you intend to handle it yourself. To persuade parents of the risks involved, educate them on the BRRR method, explaining how each phase works and why it's less dangerous than it appears. Show them the figures, including cash flow predictions, future appreciation, and risk management. Also, indicate any safety nets, such as a solid W-2 income. You may generate money in real estate investment by educating yourself, starting small, then expanding as you acquire expertise, particularly in low-cost regions.

How much cash do I need?

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