How do I begin investing in real estate?

Question

I've been listening/reading on BiggerPockets for a while now, as well as a few books on real estate investing. I really want to get into this and make it a full-time career someday. The issue that I'm running into is that I have no money to start. All of the information (at least that I've seen) in regards to starting with "no money down" talks about finding someone you know to lend you the money. My issue is that I don't know anyone who would invest that much money into someone who "doesn't know what they're doing" in their eyes. I have no experience or track record to make them think that investing in me would be a good idea. Which leaves me stumped as to how to begin. Any advice would be much appreciated!

Craig Curelop · Answer

@Nicholas L. - Getting started is the hardest part. Real estate investing is like a train, it takes a lot of effort to get going, but once you get it moving, it's almost impossible to stop!

If you don't have money to start, I would recommend listening to the BP Money Podcast and figure out ways to make more money, spend less, so that in 12-24 months, you can start investing yourself. Maybe purchase your first house hack?

If you don't want to wait that long, you will need to go to friends and family. You say you don't know anyone with any money,  but how many people have you asked? Most people don't disclose their financial situation and you never know... maybe someone you know would be willing to take a risk on you.

Nick Longstreet · Answer

@George Blower this is very helpful information. Thank you!!

Cameron McNulty · Answer

I'm in the same spot as you are Nick, I have the desire to start, but having trouble getting started. I've heard several times that the hardest part is getting started, but once you get going, like @Craig Curelop said, it becomes unstoppable, can't wait for that feeling!

Charles Cockerell · Answer

@Nicholas L. would seem some have attempted to crowdfund, using reg A+. As far as I am aware you are able to do general solicitation without worrying about blue sky laws. But yes, suddenly having that many LPs could be an nightmare for investor relations, but I know some people are essentially making eREITs this way. Check out these guys to see what I mean

https://www.manhattanstreetcap...

Nicholas L. · Answer

@Charles Cockerell by "crowdfunded" do you mean by investing in crowdfunding sites, or are you referring to private money (friends, family, your dentist?)  If the latter the answer is yes, the former seems like a terrible idea.

Charles Cockerell · Answer

Has anyone every successfully crowdfunded the start of a RE portfolio?

George Blower · Answer

@Nick Longstreet

Here are the general considerations regarding 401k loans.

401k Participant Loans

• If your 401k plan allows for 401k participant loans, the maximum loan amount is equal to 50% of the balance up to $50k. The repayment terms for a 401k participant loan are equal monthly/quarterly payments of principal and interest (typically prime plus 1%) over a 5 year term (longer if used to acquire your principal residence).
• Please note that if you take a full $50,000 and then pay back the loan, you can't take another $50,000 until 12 months after the first loan was fully paid back.
• Per the loan offset rules that went into effect with the 2018 Tax and Job Act: if you leave your job and the loan is current at the time you leave your job but then the loan goes into default because you left your job, you will have until your tax return deadline (including any timely filed extension) to make the loan current by depositing the outstanding balance into an IRA (and thereby avoid the taxes and penalties that would otherwise apply).

Please keep in mind the multiple loan rules:Under those rules, the sum of the balances of a participant's outstanding 401k loans under a single 401k plan (using the highest outstanding balance of each loan over the last 12 months) can't exceed 50% or $50,000 whichever is less. Thus, if you took a $50,000 loan and paid it back within 6 months, you would need to wait another 6 months before you could take another $50,000 loan.

Nick Longstreet · Answer

@Jeremy Aiello yea I'm saving as much as possible with the income I'm making now, but even then, It'll be another few years before I'd have a decent down payment for a house in my area. And I want to get started sooner than that. I've thought about borrowing on my 401k as well but it would really have to be a property that I was certain was going to cash flow well. Thanks for the thoughts and I will continue to look into these options.

Jeremy A. · Answer

Everyone has to start somewhere! Since you already own a house, you could certainly look into borrowing money against it. In regards to "using someone else's money" I found "my guy" while getting my hair cut. One day I was talking to my barber about real estate and the next day he was cutting me a check. Be forewarned though, Federally backed loans will not allow an unsecured loan such as this to purchase a property. This also goes for "gifts". Call me conservative but I would tell you to dial in your spending and save, save save. I borrowed a 401k loan for my first duplex. I made sure it was a home run though because I was nervous about losing money at first.

Good luck!

Kiera Underwood · Answer

@Nick Longstreet understood! Just wanted to make sure it was on your radar.

How do I begin investing in real estate?

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