Is there a standard starting amount?

Question

Hello,

I wanted to advise on getting my feet wet in real estate. I have 10K to invest at the moment. Can I realistically acquire a property with this amount or would it be wise to wait until I have more? Is there even a "magical" number that one would suggest as a good starting amount? Any help or guidance to get me started would be much appreciated.

Thanks,

Alan Pederson · Answer

You'll need enough for the 20% down, closing costs, repairs, plus reserves. You never know when a major repair is going to happen so having plenty of reserves is crucial. We just had an AC system go out in one house and it cost us $5k to replace. In the past 2 weeks, we paid out $500 to have my truck fixed, $350 to have my wife's car fixed, $5,000 for AC system for rent house, and $2,000 to have our shower remodeled (I did the work). We planned on the shower expense, the rest was a surprise.

Randy E. · Answer

Closing costs vary.  Sometimes, the buyer can negotiate it so the seller pays all the buyer's closing costs. Sometimes, the buyer pays a small portion of the closing costs.  Sometimes, the buyer pays all of the buyer's closing cost.  Further, closing costs can vary.  I'm closing on a house soon and my closing costs as the buyer will total $750.  I've done less, but it can also definitely be more.

I would hate to be almost ready to close on my first investment property and discover the only thing holding me back was $1000 more in closing costs.  I'd be a mad-driving Uber guy for a week, or do whatever it took to get that $1000 before the closing date.

Brian Hopkins · Answer

Thank you for your quick response! I get that you could negotiate down to where the $10k down payment would be feasible. I guess I still have to learn more about closing costs because that seems to be tripping me up.

Randy E. · Answer

First, I was going with the assumption that 11K is close enough to 10K that the OP could make up the difference relative quickly.  Second, I would (perhaps falsely) assume that with a list price of $315K, perhaps there was enough negotiation room to get the price down to where $10K would equal the necessary downpayment.  Third, I was not using 7% in my calculations.  Fourth, I am unconcerned about the renovations, as long as they are not so bad as to prevent the possibility of an FHA loan.  I may have misread between the lines, but I thought maybe the OP is looking for the quickest, least expensive way to get into REI in his local area.  My idea of that is to buy a property first regardless of the condition as long as it is minimally habitable, live in it as is and repair it along the was as quickly as the OP can afford, and eventually have a property worth much more than was paid for it.

Some investors might disagree with that and wish to have a property that is in a more upgraded appearance.  If that is the case here and the OP wishes to remain/invest in the DC area, then the OP will need to save more money.

Kyle Johnston · Answer

Hi Colin,

Welcome to BP! As others have said, there are many programs where you can get a very low down payment as an owner occupant, some as low as 0% down in the case of VA and USDA if you (VA) or the property (USDA) can qualify. As far as an investment property (@Amanda Felton this might answer your question too) most traditional lenders will require around 20% down, although, I work for a semi-traditional lender and have options for investment property as low as 15% down. This isn't as good as 0% obviously, but it does get you that much closer and shows that some lenders are a little more flexible, the trick is finding them.

I'd be happy to answer any more questions you have as far a lending requirements. Good luck!

Randy E. · Answer

@Steve Vaughan, hit on something important.  We shouldn't assume @Colin Brown will be purchasing the property as an investment property.  He could by buying it as a primary and house hacking, or buying a duplex.  If so, he could qualify for a loan that requires only a  3% downpayment.

A 3-minute search revealed this:

duplex in Greenway for $315K

I won't speak to the desirability of the neighborhood and such, because I am not a Washingtonian.  But the fact is, that duplex is available and Colin could possibly get into it with his $10K and an FHA loan.

Colin, I think you are both closer than you think, but still a bit away.  Financially, you're closing in.  Mentally, you need to learn more, ask yourself some questions (what location is Colin willing to buy in? what finishes or lack thereof is Colin willing to accept to get into the REI game? How much risk is Colin willing to take regarding financial reserves? and more.)

Good luck

Ozzy Sirimsi · Answer

The thing is it is not just about how much money you have.

Investing in RE doesn't mean you have to buy a house right this minute anyway.

You look for a deal, get educated, learn your market, meet people, find people who can help you etc...

The goal is not buying a house, it  is to find a good deal. If you find a house that makes sense, and you cannot buy it, come back here, give the specifics, you will find somebody who wants to work with you or at least would give you money to buy that deal.

If you are insisting on buying a house with 10K,  don't buy as an investor buy  as your primary residence, house hack for a year, then rent it.

Good Luck!!!

Steve Vaughan · Answer

I sold 2 starter rental homes last year where $10k was enough, DP and lender-required reserves. They occupied the homes as their primary residence, both sold for $145k each and both qualified for 3% down conventional mortgages.

I've purchased mobiles in parks for $10k.  Some $7500, some $14k.  Depended on location and condition. Whether 10 is enough will completely depend on what you are buying and whether you will be occupying it or not. Most have more.

Congrats on saving $10k so far. Welcome to BP!

Ned Carey · Answer

There is no magical number. There are many ways to get started. Some require little money like finding a partner.

Trying to buy to hold in DC by yourself with only $10K to start is not realistic. Just up the road in Baltimore you may get somewhere with $10K.

I see this is your first post so welcome to BP. Keep reading here and check out the many free resources and yiou will get more ideas how to start.

Is there a standard starting amount?

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