What would you do with $20K to begin multi-family investing?

[Craig Moore]

Hi BP,

I have a question for you all: If you had $20k what would be your first move with it? I've been saving up capital since I graduated college and can't help but think how much time I am wasting. I would like to get in the game now. I've been able to save around $20k (+/-) and have been wondering if I should use that as a downpayment on a duplex or triplex or use it as a marketing budget and begin wholesaling. I'm not sure which direction to go in, but I do have a goal of buying two multi-families next year. It's been enough saving, now time to tackle some risks. Any advice?

[Jacob Pereira]

Everyone writing on here so far is VERY optimistic. 20k is not a lot of money for real estate investing, even in rural midwestern areas, let alone Boston. One thing I'll agree with is that your only option at the moment is an FHA loan. I saw some suggestions that you could get away with a total cost of 5k which would give you 15k for repairs, which is not realistic. Expect to spend every penny (or more if you can find a way to get more) and then try to scrounge around for money for repairs in the months after. Many of us have done it when we started out.

I don't know what your day job pays, but if you make a decent living, try to buy the nicest fourplex you can that's under a half million (that's the max you can afford on 20k, and even that's stretching it). If you have a job that pays less than 50k or so, you'll probably need to settle for a duplex and get some roomates. I like the AirBnB idea, although you may have to wait until current leases expire before you can do that.

As far as those people who are suggesting you invest out of town, unless you're willing to relocate, you can't afford it. Conventional loans (and you should go conventional when starting out, unless you have a great mentor who can help guide you) for non-owner-occupied properties will run you 25% down, not including closing costs, which means you'd be looking at a shack that sells for well under 100k. Even if you could flip it for a 30% profit, that's barely worth your time. Once you factor in risk, you're better off just picking up a second job or overtime hours.

Now that I've vented my negativity, allow me to get off my high horse and give you actionable advice. First thing, get in contact with a lender. Feel free to contact a few, but in my experience the rates tend to be very close, so there's less of a benefit to shopping around than most people on BP seem to think. Next, find a realtor and have them set up an automated search that fits your preferred investment criteria. Once again, there's very little difference between them, so don't spend too much time trying to find the best one. Once you see how crazy expensive your initial criteria are, adjust your expectations and have them adjust the search to a more realistic one. Also, go to REI meet ups and reach out to wholesalers. The combination of all those things should give you enough info to make an educated decision on how to proceed.

If after that you're still unsure of how to proceed, PM me and we can have a Skype or phone conversation to see what your options are. Or, if you hate my advice, reach out to someone else and have them talk you through it.