WHEN do I get started buying my first property?

[Matthew Russell]

I am in my late 20's and have spent much of my life flipping and maintaining properties with my dad. Because of that I really enjoy home management, and have dreamed of flipping homes / setting up rentals. One thing I haven't seen people talking about is when to start. I currently have about $6,000-$7,000 available to me to buy a home, with about $3,000-$4,200 each year to put a down payment on a property. 

My problem is that most people are willing to leverage high debt to buy property, and I am not. I am comfortable getting a 15 year mortgage on a property and making those payments, but I do not want to then turn around and get more debt by "leveraging debt". This just seems reckless to me. I say this because I understand that this will mean that my growth will be slower than someone else who is more comfortable than me with debt. 

All that said, at what point should I take the cash that I have to buy my first property? I dont feel like now is the best option, especially since we just moved our family into our new home a year ago. But should I wait until I have the 20%, or do 10% and accept PMI, etc ...

Thanks!

[James Dainard]

Hey Matthew,

This really boils down to what you're comfortable with. It sounds like you've got the experience and the handle on the numbers in order to be able to navigate this stuff pretty smoothly.

If you're uncomfortable with the leverage positions you're likely going to want to wait until 25% down. That'll allow you to skip out on any PMI/MIP fees associated with a loan. A lot of our clients will opt for 5-10% down depending on the project/payment if they are planning to live in the home.

If you're looking to do more flips you should chat with a hard money lender to see if they'll fund some of your projects!

[Chris Davidson]

@Matthew Russell depending on your price point you may never reach your goals with your current comfort level without drastic change. That isn't a fun pill to swallow but it is reality. In 5 years at your current rate you will have saved up less than 30k. Which for your comfort level may not be enough at what houses likely will cost by then. 

You might want to look into partnering with someone who is ok with leverage and has money but not skills on management and maintaining. Or increase your income. Investing without leverage or with little leverage is possible and will allow you to sleep really well at night but it will be a very slow process. I would address the beliefs about debt and how to manage it properly if you want to be an investor instead of a hobby owner. However there is nothing wrong with little to no debt or being a hobby owner do what you feel is right for you and your family!

[Account Closed]

I'd get as much debt as possible when rates come down, although I don't know about the whole 3.5% thing in the near future. Leveraging debt doesn't have to be risky if you are using leverage to buy non volatile (relatively), stable assets in good and proven markets. I'd put down 3% on your house. 97% leverage. Home equity is dead - It doesn't earn you anything. Take that other 17% that you would've put down and go invest in an asset that will generate a return and make that spread. In my opinion, the goal with a primary residence is just to fix your cost of living so you aren't prone to rent raises. At 3% down, I can get a place and set my monthly cost of living for 30 years no matter what inflation does, what rates do, what the value of the home does. I'll take that money I didn't spend on a 20% down payment and go put it to work. I personally can't justify putting down 20% on a primary. 

There is a negative connotation with leverage and risk and blowing up a fund/portfolio/life but that doesn't have to be the case. Debt, in the right hands, is one of the most valuable things we can get. If every real estate investor got 15 year mortgages and didn't want debt, the world would look a lot different than it does today. 

To me, it's all about controlling an asset with relatively little of your own money. Why make a $2,000 / month payment, for example, on a 15 year loan when you can make a $1,000 payment on a 30 year loan and go put that other $1,000 to work every month. The math is powerful there. Over a lifetime, that extra cash invested in even an index like SPY amounts to millions of dollars.

[Nathan Gesner]

Quote from @Matthew Russell:

Welcome to BiggerPockets!

There are a lot of people cashing out equity to get started. I think that's a risky move in a peak market that is trending down. Many of them may lose money on their investment and lose equity in their primary home as the market corrects, leaving them underwater.

Some of us have always been more conservative. I work hard, save money, and then invest. 25% down financed for 30 years, healthy reserve to ensure I can cover major vacancies or repairs. As Dylan points out, leverage is what makes real estate such a great investment. There is risk, as with any investment, but it's calculated. Slow and steady will produce incredible income over time.

If your lifestyle allows, you can get started with a fourplex. Live in one, rent the other units out. Maybe even rent out your spare bedroom. After 1-2 years, you should have enough saved up to do it again. And again. After just 2-3 properties, you should have enough cashflow to pay for a primary home so you can live "free" for the rest of your life. You'll also be experienced and educated enough by then that you'll be ready to step it up.