A good starting point.

5 Replies

Hi my name is Tj from around the Philadelphia suburban area and I’m just looking for some information regarding money needed to jump start my real estate investing career! I plan on house hacking within the next two years, now that includes saving enough money for down payment, closing costs, repair cost, etc. Just looking for some insight on how much cash I should have before jumping into my first property! For example say the down payment needed is around 8,000. Any and all help is greatly appreciated.

Welcome to BP from a fellow Delco member! It really depends on the property and the type of financing you're looking for. If you're house hacking you can qualify for an FHA loan with only 3.5% down. You can find a turnkey property that takes all your savings or find a fixer where you can use less down money and have some savings for repairs. It really depends on how you want to jump into this pool.
Good luck!

Originally posted by @TJ Reiley :
Hi my name is Tj from around the Philadelphia suburban area and I’m just looking for some information regarding money needed to jump start my real estate investing career! I plan on house hacking within the next two years, now that includes saving enough money for down payment, closing costs, repair cost, etc. Just looking for some insight on how much cash I should have before jumping into my first property! For example say the down payment needed is around 8,000. Any and all help is greatly appreciated.

 Hello and welcome! Best of luck to you!

@TJ Reiley If it helps at all, the closing cost SWAG that I use in my property screening calculations is 5% of the purchase price.  The property I'm closing on tomorrow had a purchase price of $41.5K (so my SWAG is $2075) and by closing (including the earnest money), I'll fork over $1930 above the purchase price, so it's a decent guess at least some of the time, but there are *many* factors at play, including the amount of taxes and when you're buying (which will determine the amount you have to credit the seller).

Hey @TJ Reiley , welcome! It will definitely depend on the loan type a bit, as well as the specific location you buy in. Transfer tax in most of Delaware county is 1% buyer 1% seller, in places like Philly and Delaware it can be above 2% buyer and 2% seller. Other closing costs such as loan origination, title fees, prepaid escrows etc also will be involved.

A good strategy I like to use with buyers is to get as much seller assist as possible. It will mitigate your transaction (non-equity) costs in the purchase and most loan types allow up to 6% assist for owner occupied properties such as a househack.

Shoot me a message if you want to chat. I can even send you a full closing cost estimate that will provide a breakdown of typical fees on a property if you want to look at a specific example property.

I always recommend having reserves and then some. You will find surprises and nothing is worse than being handcuffed on a repair by cash limitations. Like @Elizabeth Connelly said, it will depend on the property condition. Just keep in mind that a new furnace or water heater costs the same amount of money no matter how much you put down on a property!

@Charles McCabe makes a good point about taxes on the property and when in the year you purchase. If you have to reimburse the seller for a full 12 months worth of taxes paid, that will be your peak point of closing costs.

Originally posted by @John Knisely :

Hey @TJ Reiley , welcome! It will definitely depend on the loan type a bit, as well as the specific location you buy in. Transfer tax in most of Delaware county is 1% buyer 1% seller, in places like Philly and Delaware it can be above 2% buyer and 2% seller. Other closing costs such as loan origination, title fees, prepaid escrows etc also will be involved.

A good strategy I like to use with buyers is to get as much seller assist as possible. It will mitigate your transaction (non-equity) costs in the purchase and most loan types allow up to 6% assist for owner occupied properties such as a househack.

Shoot me a message if you want to chat. I can even send you a full closing cost estimate that will provide a breakdown of typical fees on a property if you want to look at a specific example property.

I always recommend having reserves and then some. You will find surprises and nothing is worse than being handcuffed on a repair by cash limitations. Like @Elizabeth Connelly said, it will depend on the property condition. Just keep in mind that a new furnace or water heater costs the same amount of money no matter how much you put down on a property!

@Charles McCabe makes a good point about taxes on the property and when in the year you purchase. If you have to reimburse the seller for a full 12 months worth of taxes paid, that will be your peak point of closing costs.

John with great points as always! I'd like to answer your "needed money" question a bit differently -- I think the cash needed is important as it'll dictate what you can ultimately spend on a house. John and Elizabeth made great points about reserves as well; nobody buys a house and just drops their stuff in with a sigh of "I'm home!" Ultimately you'll need to fix something, change something, etc.

I'd also draw attention to the cash flow number at the end of the month you want to hit. You could find the property you want, in the area you want, at the price you want, have the right cash on hand, have a tenant lined up, etc. -- but if the numbers don't work, is it a good deal? The idea behind house hacking should not be about "hoping" your mortgage gets covered. What do you want out of this, and what is your long term plan?


Frankly, if I was to do a house hack at this point, I'd want the mortgage covered, which might allow me to spend the money I would have on mortgage into a savings account, which might give me 20-25% in X years to execute my first investment property. That's a goal, that's a plan. Don't house hack just to house hack -- make the numbers work and make sure whatever it is you are doing, it fits within whatever plan/goal you've outlined. And if you haven't outlined a plan/goal, then I suggest you do that first.

I was renting out my first home while my wife and I moved into our primary residence. I KNEW I wanted to be investment properties, yet I had no goal of getting there. I made ZERO money on that property because the numbers WERE NOT RIGHT. It took me 2 years to figure out that the only way to advance my true goal forward was to dump that property because it was never going to happen otherwise. The biggest mistake I made was not having a goal in mind, and not having a plan behind it. Learn from my mistake -- figure out what the end goal is and then start framing your next steps with that goal in mind. You'll get there quicker and more efficiently.

Good luck - never hesitate to reach out!

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