Starting out with no money....rental or rehab?

[Mj Mckinley]

Hello Bigger Pockets people! I am new to real estate investment and I am having trouble figuring out where to start. My goals are to create passive income and invest more in rental properties; however, I do not have the money to do so. I cannot get enough private money for a down payment through a regular bank, and my debt ratio is too high for an FHA loan. Therefore I was thinking perhaps it would be better to get into rehabs using hard money loans to start. Is this a good idea? Or are there alternate ways to invest in passive income properties that I do not know about? Thanks in advance!

[Mindy Jensen]

@Mj Mckinley , Hard Money costs are high - think 12-14% interest PLUS 3-6 points. A point is 1% of the loan. (6 points on a $100,000 loan is $6,000)

If you don't have the money to buy the property, how are you going to pay for the rehab on a flip? How are you going to pay for repairs in a rental? If the furnace goes out in the middle of winter, that's $2000-$4000. Water issues? Plumbers charge $99 just to knock on your door. 

I agree with @Account Closed . Live like a pauper. Increase your income by taking on a second job, side hustle - anything you can do to bring in cash. Save it up like crazy.

Another idea is to connect with a local investor and help them with anything they need - anything. Grunt work sucks, but you learn so much by doing it.