Starting Capital for Real Estate Investment

[Daniel Afonso]

What would you say is the starting capital needed to sustainably invest in real estate? I feel like thats the first thing I need to know in my planning. What was your experience with this? Is it wise to use loans to start? Please let this newbie know as much as you think is important!

[John Mason]

Make sure you have cash reserves for 6 months , steady w2 job if things go south and do not plan unnecessary big ticket items until you stabilize

I have known people start with 40 k and used it to fund flips and work their way up and get Business Line Of Credit for 200 K in 2 years and after that of course it is very easy

[John Mason]

Here is some more info  https://www.biggerpockets.com/forums/12/topics/1193367-i-am-...

[Chris Seveney]

Quote from @Daniel Afonso:

What would you say is the starting capital needed to sustainably invest in real estate? I feel like thats the first thing I need to know in my planning. What was your experience with this? Is it wise to use loans to start? Please let this newbie know as much as you think is important!

 What type of real estate investing are you getting into? Tax Liens, Notes, Short Term rentals, single family long term rentals, commercial, mobile homes, oil and gas? 

It depends on which strategy you wish to go into. If you are doing single family rentals, I would suggest 30-50% of the acquisition price so you have enough for down payment, closing and some reserves. 

[Jonathan Greene]

Most people are looking for a save to number when they ask this question. Just as a general number, I think 50k in funds that you can tap without emptying your whole account or jeopardizing your family's future plans, is viable. That would include downpayment, reserves, and honestly that would be very light, maybe for a property 300k or under. If you are house hacking or low money down owner-occupancy, that helps.

I also agree with @Chris Seveney, it depends what you want to invest in. If you want to flip land (you need to learn first) you don't need a ton of reserves. If you are buying a house of any kind with mechanicals and roofs, you need reserves.

[Daniel Afonso]

Hey @Chris Seveney! I'm thinking of a short term vacation rental (that'll just be about patching up a family property that happens to be in a heavily touristic area) and then in the future... I'm not sure? I tend to go for stable income, so I suppose a single family LTR? But I'm also curious about what has worked best for each of you and why!

But yes, 30-50% acquisition price, that makes sense and its an easy way to plan. Would you think in the same way for a short term rental? So, for instance, re: my family property that needs patching up, would you advise saving 50% of the cost of the renewal before looking into loans and such?

In an ideal world, I think I'd definitely "graduate" to commercial, I get a feeling there's a real upside there (but I assume you need quite a hefty starting capital).

@John Mason I'm good on both of those preliminaries. Will look through the thread you sent for inspo!

[Daniel Afonso]

Quote from @Jonathan Greene:

Most people are looking for a save to number when they ask this question. Just as a general number, I think 50k in funds that you can tap without emptying your whole account or jeopardizing your family's future plans, is viable. That would include downpayment, reserves, and honestly that would be very light, maybe for a property 300k or under. If you are house hacking or low money down owner-occupancy, that helps.

I also agree with @Chris Seveney, it depends what you want to invest in. If you want to flip land (you need to learn first) you don't need a ton of reserves. If you are buying a house of any kind with mechanicals and roofs, you need reserves.

Sorry Jonathan, I hadn't seen your answer when I sent out the last reply! Yes, I did start out looking for a "number" though answers such as Chris' are just as good to me.

Is flipping land complicated? Do you have any 101 resources you can point me to? I'm here to learn tbh, as I said above, I'm usually inclined to stuff that's not very volatile, but I'm open to other possibilities. I like the possibility of not having to do renovations on a property. I suppose the "trick" is having a good understanding of when and why land appreciates?

[Jonathan Greene]

Quote from @Daniel Afonso:

Quote from @Jonathan Greene:

Most people are looking for a save to number when they ask this question. Just as a general number, I think 50k in funds that you can tap without emptying your whole account or jeopardizing your family's future plans, is viable. That would include downpayment, reserves, and honestly that would be very light, maybe for a property 300k or under. If you are house hacking or low money down owner-occupancy, that helps.

I also agree with @Chris Seveney, it depends what you want to invest in. If you want to flip land (you need to learn first) you don't need a ton of reserves. If you are buying a house of any kind with mechanicals and roofs, you need reserves.

Sorry Jonathan, I hadn't seen your answer when I sent out the last reply! Yes, I did start out looking for a "number" though answers such as Chris' are just as good to me.

Is flipping land complicated? Do you have any 101 resources you can point me to? I'm here to learn tbh, as I said above, I'm usually inclined to stuff that's not very volatile, but I'm open to other possibilities. I like the possibility of not having to do renovations on a property. I suppose the "trick" is having a good understanding of when and why land appreciates?

To flip land, you do need to take a course or have a mentor. The buy in can be very cheap, but you need to know what to do to turn the investment the right way. It's not really a new person thing IMO, but something that requires less capital expenditure. I have had several land flippers on my podcast and every time it sounds like something anyone could do and do well, but you have to know the system to doing it.

[Chris Seveney]

Quote from @Daniel Afonso:

Hey @Chris Seveney! I'm thinking of a short term vacation rental (that'll just be about patching up a family property that happens to be in a heavily touristic area) and then in the future... I'm not sure? I tend to go for stable income, so I suppose a single family LTR? But I'm also curious about what has worked best for each of you and why!

But yes, 30-50% acquisition price, that makes sense and its an easy way to plan. Would you think in the same way for a short term rental? So, for instance, re: my family property that needs patching up, would you advise saving 50% of the cost of the renewal before looking into loans and such?

In an ideal world, I think I'd definitely "graduate" to commercial, I get a feeling there's a real upside there (but I assume you need quite a hefty starting capital).

@John Mason I'm good on both of those preliminaries. Will look through the thread you sent for inspo!

I am not a STR guy, there many on here who do that. So they could give a better idea of costs for repairs as well as new furnishings etc. that may be required. For this topic it is outside of my realm of expertise.

[Scott Allen]

@Daniel Afonso 

You can buy properties with as little as 3.5-5% down of the purchase price if you are planning to owner occupy the property. If you were in the military, you can use a VA loan and put 0% down. If the property needs quite a bit of work though, FHA and VA will most likely not work. If you're buying it as purely an investment property - project for a 20-25% down payment.

 Consider factors of what the property will need though if needs work (account for that, do an inspection, have contractors give you a bid on what all could or needs to be done). What will the monthly payment look like? Does it cashflow with what you're putting down, barely break even, or is it cashflow negative? I would recommend budgeting at least 4-6 months of working capital for the property.

[Bob Stevens]

Quote from @Daniel Afonso:

What would you say is the starting capital needed to sustainably invest in real estate? I feel like thats the first thing I need to know in my planning. What was your experience with this? Is it wise to use loans to start? Please let this newbie know as much as you think is important!

 Impossible to answer. What market, flips or buy and holds?  

[Carlos Valencia]

Hello Daniel, 

For someone new who is looking to begin their real estate investing journey the best and most conservative option is to start with a house hack strategy. House Hack is when you purchase the property as a primary and lease out the rest of the rooms or if you buy a 2-4 unit you can rent out the other units and live in one unit. Great thing about this is that you can bring in as little as 3-5% down of the purchase price. This way you don't need too much capital, well depending what market your in. In order to get started just make sure you have high enough W2 or self employed income that you can qualify for the monthly mortgage plus savings for the down payment and closing cost. Make sure your credit is also in the 700's or higher to take advantage of better pricing. Then your off to the races with your first investment property. Then you rinse and repeat this process. 

@Albert Bui @Matthew Kwan

[Gino Barbaro]

@Daniel Afonso

That is a difficult question to answer. Depends upon if you're going it alone, what type of deals are you targeting, do you have someone who can qualify for debt, are you going to keep your job while investing in real estate, how long can you go before taking a paycheck from the business.

These are just some of the questions you need to answer. If you DM me, I'll send you a book we wrote to answer your question more in depth

Gino

[Wale Lawal]

@Daniel Afonso

Starting in real estate investing involves understanding different strategies like house hacking, buy-and-hold, BRRRR, and flipping, which require different capital amounts depending on the market and property type. Starting capital depends on the market, with lower-cost markets typically needing less than $100,000. Loans can be a smart way to leverage capital, but come with risks. Having 3-6 months of expenses saved is essential. Education, networking, market research, and a good exit strategy are crucial for success.

Good luck!

[Shiloh Lundahl]

Depending on the market and depending on your experience, I would say $20,000-$40,000 is sufficient to start.

[Mike H.]

I started back in 08/09 with a heloc of 43k and that was about right. I pulled every penny out of the heloc and stuck it in my bank to show I had the reserves most lenders wanted.

But I think there is a different sense of what investing is these days.  When I started, my goal was always to be able to find a deal where I was all in at 70% or better on the ltv so I could pull all my money back out and keep going.  

I used a hard money lender that would finance 100% of the purchase and rehab so as to not eat up bit a couple grand of that 43k.  And then I'd refi into a long term loan when I was done.

To me, you need to find deals.  If you really want to get ahead, its about finding properties well below market.  It helps you preseve your capital and gives you multiple exit strategies. 

These people buying str's today make me shake my head a bit.  The numbers are still ok sometimes when you look at all the ways real estate makes you money.  But, my gosh, they're paying retail. That seems crazy to me. 

I think if you had 40k and could find deals, and then you used a hard money lender for your acquisition loans to cover purchase and rehab, you can make that capital last a long time. But the hard money lender isn't going to give you 100% financing unless you really are finding deals below market (typically 70 or sometimes 75% ltv).