What is a good rule of thumb for how much to have saved up?

25 Replies

I'm ready to move beyond analysis and actually acquire my first property. If I'm setting my goal for a property that's 100k or less would the ideal amount to have saved up be 36l? I figure that would handle 25% down and any and all closing items.

@Tracy Schultz Why do you want to buy a house? What's the motivation? In most cases a primary residence is a liability. It's not an asset. Using $36k for a down payment, closing costs, and minor repairs doesn't move the needle towards long term wealth. I started with almost exactly the same amount of cash. 

I'd take that money and make it work for you. Use that $36k effectively and add value. REI is all about getting creative and making sacrifices when you start out. Aim for a live-in flip or cash-flow rental. Those are a true assets.

@Jaron Walling Agree on principle but in reality not able to do that, while my wife supports my plan to get into real estate she's steadfastly against doing fix and flip and moving around. I'm currently looking toward having to take the option of doing this as acquiring a second property to get started. Were I single it'd be a different ballgame. Cash flow rentals would be a great idea and I'll check into that.

Originally posted by @Tracy Schultz :

@Bruce Woodruff Doesn't have to be fully turn key but I was trying to figure in closing cost so I ensure I have the full costs covered. 

You'll be fine then, as long as there's not too much fixin' to do...

Or you can get the place, move in and fix up as you go.....

@Wale Lawal that's where I'm looking. Currently my wife and I live on 242. As I've stated, ideally yes I'd like to use our current home but that's out of the question due to the wife's objection. With that constraint I'm looking to ensure I've got sufficient funds set aside so close on a second property to be our first rental.

@Tracy Schultz if you have 36k liquid there's no reason why you can't start now, we help investors like yourself in these exact scenarios. Just talking rough numbers here with a 100k purchase price, 30k rehab (fairly extensive for a rental), 165k ARV, the estimated cash to close is under 20k with us

Moderators note: If you are a real estate agent please refrain from "I can help" and "message me to talk" type of posts. This is considered self promotion and is prohibited in the forums. He is asking for advice on saving money, not soliciting for real estate agents. 

Personal opinion: Saving up $36K for a $100K house purchase is reasonable. Working within your wife's comfort level is important. My wife and I never lived in a property we rented. We have added properties one at a time, saving up down payments. I know it is a boring and slow investment strategy, but it worked for us. Taking action is the key to successful investing. Good for you!

@Tracy Schultz $36k should be more than enough. It should even be enough to cover some of the renovations if it isn’t turn key. My husband and I save and then buy one at a time and have never lived in our rentals. We have 4 doors now and hoping for a total of 10 but the Florida market is too hot right now although we did get lucky and closed on one this January 2021. Now it’s worth $70k more than we paid.

Put some effort into looking for owner financing. A current owner will likely accept less than 20% down, and there would be much lower closing costs. Expect a balloon payment in 4 to 6 years, as the current owner probably won't want to wait 30 years to get all the money. That would give you several years to continue to invest, save, get some cash flow from the property, before going to the bank for conventional financing. Then you would be going as the owner, not a buyer, which should allow you to roll the bank's fees into the loan.

@Joe Splitrock & @Onika Washington thank you for the responses. That is exactly the info I'm looking for. I'm aware it's going to be slow just needed an idea on a good goal amount. Makes working towards it easier and at least I can quantify it say when I get to this point I know I'll be in a good position to proceed!

I purchased my first property for 20% down with $33k - long term rental. Do you own a primary home currently? If so, another strategy you might look into is to get a HELOC on your primary home. That way you can use the equity you have built up in it without having to move around. We did this to acquire our second property!

@Tracy Schultz I bought two duplexes this year with 20% down each. First one in Feb for $112k and 3.375% (with points), got the rents to $650/each in 5 months, did no work and kept the long term tenants in place. Total closing cost was $30.3k with cash flow of $269/month and 10.2% CoC. Rents could be higher but the tenants are great and have been there for 9 and 18 yrs respectively. Second one just closed this month for $126.25k, with $34.9k total closing and 3.5% rate (with points). Rents will be going up to $700/each starting Nov 1st. Will raise again in the spring to $750 in case they decide to vacate I'll be able to re-rent in warmer weather. Nov 1st I'll see $382/month cash flow with a 13.1% CoC. Springtime $458 cash flow and 15.7% CoC. I bought these out of state and have a property manager who handles these uncomfortable rent raises and I'm very hands off. He's one in a million as far as PM's IMO.

I say all this because it sounds very doable in your situation with $36k to put down. It depends on your market, but $100-$150k duplexes are out there and some lenders will do 20% down on investment properties. Highly recommend you find yourself a duplex in a smaller midwest market where cheaper, cash-flowing small multifamilies still exist. If you're looking for massive appreciation then I'd say save up 2-3x more and buy in a primary market, but if monthly cash flow, mortgage paydown, and slow/boring equity accumulation is what you want...the midwest is where it's at.

@Tracy Schultz

I've been there man. Investing in real estate with a spouse can be intimidating for them.  I have had the same issues in convincing my wife that it was a good idea.  I had to sit down with her and write out the numbers on a sheet of paper for her to understand its a good idea to invest in rentals.  It's different for me because I've been around the investing game for a long time but I just got started not to long ago.  She is finally on board with the investing FINALLY.  It takes time but I would advise you to make it fun for her and start figuring deals on the fly with her.  One day she might tell you to buy one. 

Have a good one man. 

@Tracy Schultz

If you feel like you have spent enough time analyzing and studying/getting to know the market you are in, start writing offers on places.

We invest in the Oregon/Idaho markets and lenders do 20% down for investment properties all the time.

We have done several deals where we get through the inspection contingency, into finance contingency and submit an addendum to raise the purchase price the amount of the closing costs.

That is a great option to preserve cash and use that to keep as reserves or use it for rehab.

If you are self employed,

We use a lender that offers:

80%LTV

7 year ARM

4% fixed for 7 years

2 points

1-4 units

Real estate can be done long distances it ultimately is a local game.

Market conditions are different

Purchase and Sale agreements are written differently

Lenders have different underwriting criteria, etc

If you have cash saved, next step is to build your team in the market you want to be in:

Realtor

Mortgage Lender

Insurance Broker

Contractor/subs if you are not doing your own rehab

As long as they are good, those people will be invaluable to you and ultimately make you money.

RE is a long term strategy if you want to build wealth.

I have respect, but Fix n Flipping is not investing, it is a business/job. It triggers dealer status and the income will be taxed at normal income tax rates.

If your not in a position to buy a single family, renovate it, live in it for a year or more then buy another on (house hack), A good option may be buy a single family that needs a little work/cosmetic improvements, rent it, and refinance it BRRR method.

The first option allows you to get a better interest rate.

Originally posted by @Jillian Dior :

@Joe Splitrock

Good afternoon

What advice do you have for someone who wants to make their first real estate investment ?

 Spend some time getting educated on investing and during that time save up money. The advice may be different if I had some more details on your personal situation.