Investing With Low Money Down

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Investing With Low Money Down

Ben Morand
Property Manager · Central Florida · Member since 2020 · 236 posts · 128 votes

Hey guys! My name is Ben Morand and I’m a 20 year old college student at the University of Florida. Over the past several months I have taken all the action I feel I could’ve taken in terms of growing my real estate knowledge base. I took my real estate agent pre-licensing course (and am planning on taking the exam mid-August after my summer classes), read countless BP books by Brandon Turner, J Scott, David Greene, etc., listened to HOURS of the BP podcast, posted nearly 100 times on the forums, and connected with several people in the industry, chatting through the forums and over phone.

Since I started my journey, my biggest motivator has been to just go for it: educate myself, take action now, and figure it out as I go. For the first time, I finally feel ready to jump into my first deal and get my portfolio moving. I would like to use the BRRRR strategy to acquire a SFR with virtually no money out of my own pocket. My criteria goes as follows:

- SFR

- minimum 3+ beds

- minimum 1+ baths

- No pool

- A or B class neighborhood

- Orlando Market

- Purchase price: max $250,000

- Price + rehab: max 70% of ARV

- Moderate rehab: avoid any with extreme fixes

- (post-refi 25% kept in equity): 15% minimum CoC return from that "down payment"

In terms of my current situation, I have a 751 credit score and about $4,000 in cash reserves. As a college student, I have no source of steady income yet, but my parents have agreed to co-sign until I can refi them out later down the line (to help me get started now).

My questions are:

1) I know it won't be an easy task finding one to match such terms, but is it possible that I will be able to obtain a HML to cover my costs, seeing that I have no prior experience and very little money to fund a down payment/points without sucking up my cash reserves? I am fine with using my cash reserves for the project, but I will need them to pay off the HML interest payments until I can have it rent ready and tenants paying each month.

2) With this in mind, do you think I'd be able to hop into my first deal soon? I have started my search primarily in bank-owned REO's, but I also plan to post ads on Craigslist and FB marketplace. I have been studying and learning all I can over the past few months, and I finally feel ready to push forward and escape any threat of analysis paralysis.

Thanks everyone for the help! I am open to any and all advice, and also would love to connect if anyone would be interested in chatting further!

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Brett McManus
Minneapolis, MN · Member since 2020 · 94 posts · 161 votes
6y

Hey Ben, 

Appreciate the enthusiasm as you are in a very similar situation that I was just a few months back. I too was ready for my first deal with inspiration to BRRRR from posts on these forums as well as BP Podcasts. The reality was that as I began taking action I realized a few things:

1) BRRRR has some risks associated to it that can be easily overlooked by new investors (calculating ARV, managing rehabs, etc.)

2) Hard money is freakin expensive (not the low money down I needed)

3) Lack of experience makes it very difficult for HML's, Contractors, and Property suppliers (wholesalers) to take you seriously.

Instead of this I took the advice that many offer to beginners on these forums and hunt down a Duplex to house hack. In doing this I was able to purchase a great starter property within 3 months of this mindset change by doing the following:

1) Connecting with a local agent/investor who was able to set me up with an MLS search that could fuel properties to be analyze with BP calculators.

2) Working with local mortgage brokers to understand FHA owner occupant loans which combined with a state funded new-buyer assistance program (and negotiated seller paid closing costs) allowed me to close with only $2,000 out of pocket.

3) Ultimately close on a base-hit property with virtually no money out of pocket, source my first tenants, do some basic cosmetic work to boost rents, and gain a TON of relatively low risk knowledge that will better set my up for future BRRRR investing.

Although BRRRR is an amazing strategy, I highly recommend exploring house hacking in order to hit the ground running and get some experience under your belt.

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  • Ryan Howell
    Rental Property Investor · Hendersonville, NC · Member since 2016 · 446 posts · 412 votes
    6y

    @Ben Morand - Have you talked with your landlord about breaking your lease and what they would charge you?  I wouldn't right off a house hack only on the basis of being in a lease.  Compare the costs.  They may charge you $XX to get out of your lease, but you could save significantly more buying being able to get an owner occupant mortgage instead of an investor type loan, plus the opportunity costs I discussed above.  It could still be worth it.  Remember, successful people don't say "I can't" but "How can I" - I think that's a Robert Kyosaki quote (not sure), but I've learned to ask myself that in every decision I make and it has made a huge difference in my decision making ability.

    1Reply
  • Ben Morand
    OP
    Property Manager · Central Florida · Member since 2020 · 236 posts · 128 votes
    6y

    @Ryan Howell That is such a valid point. And yes, that quote is definitely from Rich Dad Poor Dad haha! I’ll look into it, but I’ll also have to talk to my roommates, as they’d also need to find someone to fill in for me. And make sure I would be able to acquire a deal as well. Lots of boxes to check off but who’s to say it can’t be done, right? Thanks so much for your advice and encouragement Ryan!

    0Reply
  • Katie Haman
    Member since 2020 · 9 posts · 4 votes
    6y

    @Ben Morand that’s some awesome enthusiasm and you are definitely motivated. I haven’t read all the comments, but you should definitely have more in your reserves than $4,000. Unless your parents will assist, you should have around 3 months of rental income in your pocket, especially if you don’t have a steady income yet.

    Living in a college town is great and you could consider a house hack first with buying a house and renting out rooms to roommates? Reading about owning a property (primary or rental) and owning one are two different things. A lot of unexpected can come up that you didn’t even think about.

    Keep that fire in you and good luck!!!

    3Reply
  • Ben Morand
    OP
    Property Manager · Central Florida · Member since 2020 · 236 posts · 128 votes
    6y

    @Katie Haman Thanks so much Katie! I appreciate your insight!

    0Reply
  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    6y
    Originally posted by @Ben Morand:

    Hey guys! My name is Ben Morand and I’m a 20 year old college student at the University of Florida. Over the past several months I have taken all the action I feel I could’ve taken in terms of growing my real estate knowledge base. I took my real estate agent pre-licensing course (and am planning on taking the exam mid-August after my summer classes), read countless BP books by Brandon Turner, J Scott, David Greene, etc., listened to HOURS of the BP podcast, posted nearly 100 times on the forums, and connected with several people in the industry, chatting through the forums and over phone.

    Since I started my journey, my biggest motivator has been to just go for it: educate myself, take action now, and figure it out as I go. For the first time, I finally feel ready to jump into my first deal and get my portfolio moving. I would like to use the BRRRR strategy to acquire a SFR with virtually no money out of my own pocket. My criteria goes as follows:

    - SFR

    - minimum 3+ beds

    - minimum 1+ baths

    - No pool

    - A or B class neighborhood

    - Orlando Market

    - Purchase price: max $250,000

    - Price + rehab: max 70% of ARV

    - Moderate rehab: avoid any with extreme fixes

    - (post-refi 25% kept in equity): 15% minimum CoC return from that "down payment"

    In terms of my current situation, I have a 751 credit score and about $4,000 in cash reserves. As a college student, I have no source of steady income yet, but my parents have agreed to co-sign until I can refi them out later down the line (to help me get started now).

    My questions are:

    1) I know it won't be an easy task finding one to match such terms, but is it possible that I will be able to obtain a HML to cover my costs, seeing that I have no prior experience and very little money to fund a down payment/points without sucking up my cash reserves? I am fine with using my cash reserves for the project, but I will need them to pay off the HML interest payments until I can have it rent ready and tenants paying each month.

    2) With this in mind, do you think I'd be able to hop into my first deal soon? I have started my search primarily in bank-owned REO's, but I also plan to post ads on Craigslist and FB marketplace. I have been studying and learning all I can over the past few months, and I finally feel ready to push forward and escape any threat of analysis paralysis.

    Thanks everyone for the help! I am open to any and all advice, and also would love to connect if anyone would be interested in chatting further!

    If your local market works, definitely stay in it. You're still in college, so nothing on fire here.  

    The old 70% minus repair model will be tough to take down, especially if not dealing with a motivated seller off-market. Firing off low offers at the MLS without knowing seller motivation is pretty fruitless and alienating. Just another offer from that low-baller is what the agents will soon say.

    My current purchase is at about 90% of market value but with proper seller-financing. If I had to apply with a bank and go through all that, my hassle and cost discount requirement would be much higher, like 80% of FMV. This is also in my specific farm. As you go along, you will or should develop a favorite neighborhood or area you know well.

    At this point, I'd be doing side hustles and saving like crazy as I learn.  I'd be on the look out for high grass  distressed places while I take different routes to where I normally go.  D4D. Send those owners a mail piece. I prefer postcards but don't hustle a ton anymore.  My sellers are older landlords in transition and not online much. SEO, PPC, etc does not reach my target seller. 

    Anyway, you have a great attitude and are obviously willing to learn.  Take your time and lean towards a househack as others have suggested👍

    2Reply
  • Mikael Winkler
    Rental Property Investor · Columbus, OH · Member since 2015 · 344 posts · 258 votes
    6y

     @Ben Morand

    It has been mentioned a few times here, but I would also recommend a house hack starting out, if you're willing to live in a property. That allows you so many more options regarding financing etc. I did that on my first deal - a duplex in Columbus, OH. My wife and I used an FHA loan 3.5% down, lived in one side, fixed it up, refinanced, moved out and filled both sides. It's been a great investment. And, the beauty of the refinance is that it removes the FHA mortgage, and the accompanying stipulation that you live in the property for a year. We lived there for just about 6 months.

    Honestly, you could even do this with a single family, since it appears that's what you may be interested in. If you're willing to live there, and do some renovations during that time, you can always use an FHA loan (there's a 203k FHA loan product that might work), refinance once the work is done, move out, and you have a renovated rental property.

    That's just a rough example, but feel free to reach out if you have any questions!

    2Reply
  • Ben Morand
    OP
    Property Manager · Central Florida · Member since 2020 · 236 posts · 128 votes
    6y

    @Mikael Winkler Thanks so much Mikael, I’ll PM you with some questions if that’s okay?

    0Reply
  • Ryan Deasy
    Lender · Farmington, CT · Member since 2015 · 542 posts · 321 votes
    6y

    @Ben Morand congrats on even thinking of this at your age. you have a lot of responses here already. unless your inventory in your area is only single family homes, please don't buy a single family for a rental. it will never perform like a multi. i have two singles and they are laughable compared to the multis. please let me know if i can help you at all. thanks. 

    1Reply
  • Thomas Enright
    Investor · Silver Spring, MD · Member since 2020 · 127 posts · 58 votes
    6y

    I love your motivation! Unfortunately, investing with no or low money down doesn't mean investing with no money. You need a bit of cash. $4,000 is barely enough to cover a life emergency like a car crash or family sickness. Definitely keep learning and sharpening your ax and stacking cash wherever you can. Maybe listen to the money podcast and pick up some side hustles. Maybe drive for Uber and listen to every single one of the BP podcasts.

    3Reply
  • Ben Morand
    OP
    Property Manager · Central Florida · Member since 2020 · 236 posts · 128 votes
    6y

    @Ryan Deasy Hey Ryan! Thanks for your insight! So where I live permanently, there is a lack of small multifamily (however, there is a lot of large MF opportunity). By my university, though, which is about 2 hours from my permanent residence, small multifamily properties are very common. I have considered investing in this market, especially with the option to house hack while I’m still in school there. I appreciate your insight. It’s cool to hear from people that already have experience in the industry!

    0Reply
  • Ben Morand
    OP
    Property Manager · Central Florida · Member since 2020 · 236 posts · 128 votes
    6y

    @Thomas Enright Thanks Thomas! I agree, starting with $4000 is a bit ambitious. I actually recently completed my pre-licensing course, as well as my application and fingerprinting to become an agent, so I am planning on focusing on that, and hoping to get a sale or two in the next year. With that, I will be able to build additional cash reserves as well as greater knowledge on the market.

    Thank you for the podcast recommendation! I’m an active listener of the real estate one and the rookie one, but have not yet listened to the money one. I’ll be sure to listen to that one starting today! Funny enough, I actually do Uber Eats right now like you mentioned. It’s a great way to make money on your own schedule (and a lot more than minimum wage at that haha).

    Again, I really appreciate your insight and I’d love to connect!

    1Reply
  • Katalina Mendoza
    Banker · Charlotte, NC · Member since 2020 · 23 posts · 9 votes
    6y

    Hi Ben,

    My name is Katalina and I am also a 20-year-old college student studying to get my California real estate license and in the longterm become an investor. I just got on the biggerpockets website and thought I would never find someone in my similar position wanting to deep dive into real estate. 

    I hope you can achieve your first deal wisely and strategically, but you seem to have your head in the right place if that gives you any reassurance. I myself struggle with the market here in California as properties, in general, are really high, which for college students like us seems really impossible. I am interested in looking in other states to buy that first investment property. 

    I would love to connect as I am considering looking into Florida and I feel you could give some really interesting insight as I feel many young people our age just do not even consider real estate investing as a long-term wealth builder for their futures. 

    If anyone else reading this who is more experienced, what would you advise rookie investors to start in when getting into the business like Ben and myself? 

    Thank you for your time. 

    Katalina Mendoza 

    1Reply
  • Ben Morand
    OP
    Property Manager · Central Florida · Member since 2020 · 236 posts · 128 votes
    6y

    @Katalina Mendoza Hey Katalina! That's awesome to hear of another aspiring investor my age! I'd definitely love to connect. There are a ton of strong markets in Florida worth considering. Orlando, Tampa/St. Pete, and West Palm Beach are some of the strongest that I hear of for a variety of aspects. All have different strengths depending on what you are looking for. Do you have any idea of what kinds of properties you are looking for and what you want out of your REI journey? I'd love to keep in touch going forward!

    0Reply
  • Katalina Mendoza
    Banker · Charlotte, NC · Member since 2020 · 23 posts · 9 votes
    6y

    @Ben Morand That is such interesting information. I will definitely look into those areas to get ideas on the market. I do not have a specific strategy yet or preferred strategies as I honestly have no idea which ones would be a good option to even begin for my situation. I feel I am still learning and on my downtime, I continue to learn about the real estate world in general. 

    But, if you any ideas of ones to look at and study to get a better grasp, please let me know :) I think the major barrier is not having high amount of cash reserves, but I have seen many people figure out a way to invest with little money, but I am leery of the whole idea. Your thoughts? 

    Thank you for responding back. Sincerely appreciated. 

    1Reply
  • Ben Morand
    OP
    Property Manager · Central Florida · Member since 2020 · 236 posts · 128 votes
    6y

    @Katalina Mendoza For sure! From what I've heard, house hacking serves as the best entry strategy for new investors, especially with little money because with the FHA program, you can obtain loans for very low money down. And on top of this, it is a solid way to learn the process without diving straight into the deep end. However, I've also heard that it's smart to have at least $10,000 in cash reserves before investing. This way, you can cover 6 months of PITI payments just in case (also this is a requirement from most lenders) and have extra cash to handle any unforeseen circumstances.

    For me, I am planning on starting as an agent (I take my exam in August, fingers crossed!) so that I can build some stronger cash reserves, as well as knowledge on the market I’d like to invest in. Also I’ve been doing hours of educating myself every day haha! By any chance, have you read any of the BiggerPockets books? If not, I’d love to recommend a few.

    0Reply
  • Katalina Mendoza
    Banker · Charlotte, NC · Member since 2020 · 23 posts · 9 votes
    6y

    @Ben Morand that is really great to know for how much cash reserve to have and to know more about the FHA program. I really hope you pass your exam, as seeing your enthusiasm, I have faith you will do it.

    I have not read any of the biggerpockets books, please send recommendations of which ones to look into. I saw them and they all seem super interesting. 

    0Reply
  • Ben Morand
    OP
    Property Manager · Central Florida · Member since 2020 · 236 posts · 128 votes
    6y

    @Katalina Mendoza So far, I’ve read:

    - The Book on Rental Property Investing

    - The Book on Investing in Real Estate With No (and Low) Money Down

    - The Book on Managing Rental Properties

    - The Book on Flipping Houses

    - The Book on Estimating Rehab Costs

    and I am planning on reading these next:

    - Buy, Rehab, Rent, Refinance, Repeat

    - The Book on Negotiating Real Estate

    All of these books have been incredible tools, as well as the various BP podcasts and bloggers. I’d also recommend mixing in some motivational/business books such as:

    - Rich Dad Poor Dad

    - Cashflow Quadrant

    - Think and Grow Rich

    - How to Win Friends and Influence People

    - The 4-Hour Work Week

    - The Richest Man in Babylon

    Once you've read a lot of these books, listened to the podcasts, browsed blog posts, posted on the forums, attended local REI clubs, talked to other investors, analyzed several properties, etc. you should feel a lot more confident with your knowledge. Also, it's awesome that you are looking to become an agent. The pre-licensing course really helped me learn some of the underlying principles as well.

    Really hope this helped! I’d love to stay connected going forward!

    1Reply
  • Katalina Mendoza
    Banker · Charlotte, NC · Member since 2020 · 23 posts · 9 votes
    6y

    @Ben Morand THANK YOU! I have lots of summer reading to do to catch up! Thank you so much for the recommendations, especially the business motivational reads as many of them look familiar which others have suggested reading. 

    Please keep in touch and I only wish you the best for all your future endeavors in real estate. 

    Best,

    Katalina Mendoza 

    1Reply
  • Jason Taliaferro
    Real Estate Agent · Baltimore, MD · Member since 2014 · 113 posts · 71 votes
    6y

    @Ben Morand Tons of good information already posted. House hacking may be your best bet. HML can be brutal and BRRRs do come with risk mostly around the refinance. If your exit strategy does not work then things will fall apart really quickly. If you house hack the barrier to entry is low and a 30-year mortgage is very forgiving. Best of luck and the biggest risk is not starting at all as you will learn so much by doing that will carry over to new deals.

    2Reply
  • Ben Morand
    OP
    Property Manager · Central Florida · Member since 2020 · 236 posts · 128 votes
    6y

    @Jason Taliaferro I appreciate that Jason! House hacking seems to be a common suggestion so I will 100% go for it. Thanks for the advice!

    0Reply
  • Frank MongielloBusiness Member
    Real Estate Agent · West Palm Beach · Member since 2020 · 41 posts · 38 votes
    6y

    Hi Ben,

    I graduated college in 2018 and just moved down to West Palm Beach from New York a few months ago pre-covid(rough timing). I am very passionate about real estate as well and was planning out my first move by analyzing many different sub-markets and what investment strategy I liked best.(I also feel like BRRR is the best for my situation).

    I quickly realized that if I were to buy a property for someone else to live in, not only is there huge amounts of risk because I am new to the market, but all my capital to buy my own place is now gone. Not to mention I'm stuck paying rent which could be going to paying down principal. 

    Unless you plan on living at your parents place for a long time or renting for multiple years after graduation, like everyone said house hacking is the way to go and what I am in the process of getting into. Like Orlando, multi families are not very common here and the ones you find aren't in the best neighborhoods or are very overpriced. My plan is to rent out rooms to my friends and I am sure you could do the same if you offer them a great monthly rate(100-200 dollars cheaper than they would have payed). 

    Would love to connect. It seems we are both starting to look in markets that are relatively close and I am sure we could bounce ideas off each other. 

    1Reply
  • Ben Morand
    OP
    Property Manager · Central Florida · Member since 2020 · 236 posts · 128 votes
    6y

    @Frank Mongiello For sure! Our situations do seem pretty similar. I agree that house hacking is probably the best option. I might’ve been a bit ambitious, thinking that I have 2 years left in college so why not rent to someone else. But quite frankly, now is as good a time as ever to cut my rent expenses out of the picture! I’m sure you feel the same way. I haven’t looked much into the WPB market myself, but I’ve heard that rents have been growing like crazy so that’s never a bad thing to hear haha! I’d love to connect and keep in touch going forward!

    0Reply
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