How much money do you need when starting out?

Question

In my experience, I would say as much as possible. When I started I had $100,000, however I didn't think that was nearly enough so I decided to wholesale properties vs keeping them. What I found out quickly that hard money lenders didn't want to loan to you if you didn't have experience. And the ones that did wanted you to put down so much money that it didn't make much sense to let go so much capital to make a down payment on a property. I know this conversation will go both ways on which way is best. I decided to wholesale vs buy and holding to raise capital in get myself in a better position later on to have better options. In 12 months I profited $225,000 from my wholesaling and flipping. Some properties where straight out wholesales whereas others were prehabs where I fixed the property up just enough to resale it to another investor. This came easy for me being in construction and real estate because I knew what the typical end investor was looking for. Most new investors don't want to take on a lot of heavy lifting because it scares them away. So I took that pressure away from them. This money I made gave me options and that's what you want being a new investor in this business.

Sincerely,

Stephanie J Ford AKA Shevestor

Sincerely,

Stephanie J Ford AKA Shevestor

Zach Oehlman · Answer

You need to consider more than money. We call it your Currency and it is equal to your 1) Time 2) Money 3) Knowlege 4) Relationships.

Each one of these has a value and that value is different for every person you meet. We say take what you need and give what you have.

The idea is everyone has a value and it is up to you to find that value.

For example, you could be an expert marketer and have zero experience / knowledge in real estate but can add value to someone like me.

Your value as a marketor would be finding qualified leads and I would be willing to pay you for that on a performance basis.

On the other hand you could be horrible at technology but an expert builder and have all of your GC licenses.

That has a value to someone like me that is great at finding deals and money but doesn't have the time to manage a project.

In this case you could manage the project for a percentage of the deal and literally Learn While You Earn.

You could be someone with a large 401K and be the "money" to a deal.

If the "money" is the "value" you are bringing it will depend on the type of deal you are doing.

We have people in our Community getting started on their first deal for less than $5,000.

This is becuase they choose a strategy that didn't require a lot of money.

My suggestion to you is find your "value" and find a strategy to leverage that skillset.

Always here if you have any other questions.

Will Barnard · Answer

These types of questions posted to the board inevitably get many different opinions and that is exactly what they are, opinions. There is no set dollar figure that provides an answer to this question. @Zach Oehlman above gave a very good answer in that the specific investor's time, knowledge, relationships, and money come into play and all should be addressed. No matter what $ figure you come up with, it is almost always going to be less than what you need. The more money you have, the more money you will want.

Matt I. · Answer

I say it depends heavily on your market. I was living in Central NJ before I bought my first buy and hold live-in rehab. Home prices and property taxes were way too high for what my salary was at the time. I switched my target market to Philadelphia and purchased something for $160k. With my 3.5% owner occupied down payment + closing costs (don't underestimate closing costs) all I really came out of pocket was around $20k to purchase.

This was in 2018. I lived there for two years while doing light cosmetic upgrades. Rented the spare bedroom to some friends in college to help with the mortgage (and to fund the projects). Now its a healthy cash flowing rental and I have a ton of forced equity.

Moral of the story is, I could have sat in my market of Central NJ for a while and not made any moves, since I couldn't afford anything. In most of those markets, I would have needed perhaps double of what I spent in Philly- not only for the purchase price, but also my monthly expenses. If you're in a pricy market, and willing to relocate and change your lifestyle, the $$$ you need to start can be flexible!

Mike Klarman · Answer

Wow.  Congrats on that nice run there.  225k profit in 12 months.  That's a nice score.

If you have no experience we will work with you, but you have to understand no experience doesn't afford you the best of the best of what a fix n flip product has to offer.  You'll have to lay out 20% of purchase price and be capped on the max at like 70% ARV, so sometimes a small portion of the rehab funds is left on your plate as well.  That's the cost of entry for a 0 exp in the bank's eyes.  To do a deal where the as-is value is 100k - which is the floor for most lenders - you'll need 20% to put down (20k), plus fees (2 points plus hard closing costs (4k) and then you need to show 9 payments - nothing comes out at closing but the bank wants you to show that you could carry the loan 9 months if things should not go as planned.  The interest rate on your first deal will be 11.5% - 12.5%.  It costs you more because the bank is unsure if you know what you are doing.  And if you are a 0 exp you need to come with that 680+ credit score.  As far as funds you're gonna need 24k in transactional money and then maybe need to show another 6k for the payments so around 30k.  For most new investors that's either more than they have or about all they can scrape together.  But if you can get that first one done, then they get easier from there.  Just keep selling and banking that 20k - 30k on these small properties.  Do your due diligence on the properties.  Make sure your ARVs are right and you know your avg. days on market and the price per square foot numbers for comps.  Especially for that first deal, because you are really not flexible on price.  You need something right at that 100k number to stay around that 30k mark.  For deals 1, 2, and 3 you'll need to put up 20% of purchase, but the rate will fall with each one you do.  Once you have three in the bag, on the fourth you get 90% of purchase and by this time you should have banked 60k and have that original 30k so around 90k, let's say 75k cause you pulled money out.  So now getting 90% you can buy something worth 300k and easily float 30k plus fees and be able to show 9 payments.  You borrow 75k to put into the property that is in a nicer area than a 100k property and now in for 375k and ARV 450k+.

Your fourth deal can be worth 75k profit if someone can scrape together the money for the first one.

Stephanie Ford · Answer

@Will Barnard Very true

John Morgan · Answer

At least 30k.

Stephanie Ford · Answer

@Matt I. You definitely said something there!  Market dictates everything!  I had a lender tell me recently that I had to purchase a multifamily for 50k per unit as is.  In Birmingham that's turnkey!

Stephanie Ford · Answer

@Mike Klarman true.  I think the hardest part is letting go...lol.  In my opinion things are different for the self employed vs the employed pulling money out of a 401k or savings acct to fund risk investments.   Employees still have something to fall back on vs self employed is sink or swim.  Being self employed for almost 20 yrs I've always been careful with my investments however I've always landed on top.  Even with the riskier ones.

How much money do you need when starting out?

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