How much to save before investing???

Question

Hi all,

I have a full time job (like many on this board I imagine), I work in NYC and rent (ridicously high! - which aside from an interest entrepreneurship, and the success of my god mother in REI, is the main reason for wanting to pursue this). I have still managed to save up cash during my first 6 months in the work force and hope to have 6k by end of the summer minimum.

My question is this - I could wait for years to save up the "10%" down on properties, take out a mortgage and do the whole renting or flipping investment approach. But i don't want to wait years, i want to get in as soon possible and what i failed to say last time is that if i was looking to buy into a property with the aim of either living in it for a few months while doing it up, or simply working on it weekends and week nights what are there realistic mortgages that allows me to do this without the 10% down (sliding scale so small payments for first few years). I expect to be viewing homes in borderline 'rough' neighborhoods where properties are around 150K. With that said, what would be a good amount to have safed prior to investment (closing costs etc)?

What amount did everyone have safed on their first investments?

John Worley · Answer

As a general rule, I would recommend having at the very least enough reserve money on hand to cover 6 to 12 months worth of mortgage payments. Many lenders won't make a loan to you if you can't show at least 6 months reserves. And even if you find a private/HML that won't care about what kind of reserves you have, it's still a very good idea to have the extra money at hand. You just never know when something may go wrong with a deal and you have to fall back on that reserve money.

Matt H · Answer

That six thousand hopefully could cover things that might come up like legal fees, and closing costs. However, I believe the bulk of your funds to buy a property would come in the form of a first and second mortgage. Or by using other creative financing strategies.

John Worley · Answer

Well Dealman, it sounds like you've got all of the angles figured out and us "ignorant people" just need to shut up. However I don't believe just shutting up and let you tell people what they think they want to hear is really helping anyone out.

Now you may very well have yourself an investing techique that allows you to buy up properties without going to a lender and without coming out of pocket with your own cash.  If so, then as someone who deals with investors from all backgrounds on a daily basis, let me be the first to say that you are one of the lucky ones. It's been my experience that proably 7 or 8 out of every ten of these "creative financing" techiques are nothing more than scams at best or alright fraud at worst. The ones I see that do work and are legit are usually only good for investing in one certain arena, be it fix 'n flip, short sales, subject to, etc.

Now as for the idea that you need no money or credit to invest in real estate, let me add this thought.

Investing in real estate is a business. If you are going to be a successful businessman then you need two things among others:
1) the ability to plan out how you are going to conduct your business
2) the financial discipline to manage and grow your assets while limiting your liabilities.

In this particular business (real estate investing) our two biggest assets are our credit and our cash on hand (followed very closely by our own personal education/knowledge). If you, as a businessman, cannot or will not maintain and grow these assets, then you are not going to last. If you want to put all of your investing energies into one arena of investing only (instead of investing in multiple types of real estate), then in the long run, again you are not going to last.

Real estate has been called the "best way to get rich slowly" and if you think about it, it is the literal truth. The guys who are truely successful in this business are the ones who are flexible enough to adjust to whatever situation is needed and the ones who can make constant small gains over and over again.

brit2nyc, the bottomline is this. You're going to get a lot of people telling you how to go about working in this business, but if you really want the best chance at success than I would stress to learn as much as you can BEFORE commiting your money to a particular deal. Don't let a lack of patience push you into diving into the latest "no cash/no credit" gimmick. While there are some deals like this that are perfectly legit, a great number of them simply are not. If you are looking at a deal where you don't have bring anything to the deal and are going to reap all of these great and wonderful benefits, then research it further because chances are something is not right.

Learn all you can about everything you can and most importantly, just use your head.

My $.02 for what it's worth.

N/A N/A · Answer

Mr. Webber is DEAD ON!!   Pick one of these techniques (pick JUST ONE), master it, and make money.

Despite what some (ignorant) people will tell you investors buy homes all day long w/ no cash and no credit.

Go get a deal and don't quit!!!

Jeremy Blunt

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Ryan Webber · Answer

There are lots of creative financing programs these days.  I would pull your credit report yourself from the three agencies and start shopping around with different loan officers.  Depending on your credit, you could qualify for 100% financing.  You could also look into hard money financing, which normally will loan on the entire loan amount and sometimes fix up costs also.  Rehab projects can be very challenging, and I would recommend having a good nest egg to fall back on.  If you don't have the capital for a rehab project, you might look into other investment strategies that don't require as much start up capital.