How much is needed to start investing....

Question

I'm looking for a way to ease into real estate investing. I've only got about 20k to work with. Is this enough to even consider making some sort of investment or do I need to keep building my equity to have a serious chance? I'm considering Tax sales but need to understand the possible pitfalls. Thanks for the help.

Alex Brookbank · Answer

Jason Yahner

Interesting. Option 1 is an investment property. You probably are short about 10k. Let's say in my area I buy a 110K triplex in a b- neighborhood that needs 12k of work. It's a good deal, but you'll need 25% down (my mortgage broker says it's possible to swing 20% down instead of 25% with an ARM or a commercial loan with a 25 amortization but the lender will need to love the deal).

25% of 110k is $27,500.00. You'll also need an additional 2-3k for cash reserves (required by lender). In that scenario you would fix the property over time, as you're out of cash.

Then again, you could buy an investment property - single family home - for 70k and put 20% down ... which would be 14k. So in that situation you would have enough MULA$$. Just depends on your strategy and goals.

Option 2 is you buy a duplex, triplex, or quad and live in one of the units (owner occupy). The advantage of this is that with an FHA loan you'll only need 3.5% to acquire the property, and I believe it's possible to wrap in construction costs if needed. The downside of this method is that you'll pay additional insurance, BUT, there's really lots of advantages. First, you can buy a nicer duplex in a better area, say 'b' or b+' for instance. At the same time, you're not going to burn through all of your 20k if you make a mistake or use 100% of the 20k on the downpayment. And you''ll learn the basics of landlording and how to accurately estimate expenses and rehab costs.

I wouldn't focus on timing the market. If you want to start, you need to start at some point. Try focusing on what your cashflow/gross rent will be in comparison to the property's expenses. If you're making at least a little money every month, and you're in a stable neighborhood that always will attract tenants - you'll be OKAY if it's at the top of the market. Once you have the first house, you'll learn quickly.

If you aren't interested in the whole live in the building type of thing. Learn about single family investment strategies. You can get into these with 20% down. And you're really not that far off from having enough $ to start.

Jose Garcia · Answer

Jason Yahner That 20k can quickly disappear just like a dollar bill if you don't do your research. There are so many different methods of REI that you can make it worth your while but patience and knowledge is a MUST!!!!! Why not look into Duplex/Tri-plex/Quad-plex properties and use that 20k as a down payment and have some type of return or JV with partners and do a few flips? Just my 2 cents...good luck

Odie Ayaga · Answer

I would suggest listening to Podcast#108 if you have not yet. As he recounts, while Grant already had millions before going into his first deal he still didn't feel he had enough money to do what he wanted to get started. By contrast listen to Dale in Podcast#179 who didn't have much when he started but most importantly didn't have fear and was comfortable learning as he went along. In short, the answer to your question is you need how much you believe you need financially, but don't discount how much you need in terms of confidence, knowledge, connections and even some luck to start. Good luck!

Jason Yahner · Answer

@Jose Garcia I appreciate the response. I think like most I'm not really sure how to start the research process in my local market. My biggest concern is finding a good deal with room for me to make mistakes and not get eaten alive. I'm not really sure how to gauge the price of my market. In other words am I buying at the right time or should I wait. I've been told my market is overpriced from a person I believe, but I have no idea how to put prices in historical context to know where I sit in a market for myself.

Anastasia Jordan · Answer

I started with tax sales.  In the beginning I was not looking to become an investor. I just needed a place to live. I acquired my first SFH for $648 & moved in. Saved the money I would have been spending on rent and bought more & wholesaled some too.

Ronald Rohde · Answer

Problem is that if you spend all $20k on a SFR, how long until the next deal? I would get at least a duplex that will allow you to move-out and liquidate your equity to put into the second deal within 6-12 months instead of a year plus hold on SFR.

Cecil Russell · Answer

20k is more than enough "money" but what you really need is KNOWLEDGE and knowledge is free if you look in the right places, which you did being on biggerpockets. Here is a good article to start with.

https://www.biggerpockets.com/blogs/5560/42108-how...

You need a good VA  (virtual assistant) who can seperate the prospects from suspects for you. Run you a couple hundred a month. Also a mentor. Read Bigger Pockets Ultimate Guide to Beginning Real Estate Investing.

How much is needed to start investing....

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