How much money should I save before buying my First property?

Question

21yr old college student currently working and saving my money to invest in my first property. Still learning and trying to network I’m Pennsylvania. How much money is “enough” to put down for your first property? How high should I get my credit score before closing on a loan for a property?

P.S. I’m also looking for a good mentor in my area. Willing to work and learn as much as possible

Account Closed · Answer

How much money do you need?

I will tell the story again about the 21-year old Japanese girl who ran away from Japan to the United States because her parents constantly beat her and according to her; in Japan it is common for the law to do nothing when parents beat their children.

When I met her she was already in the United States for only seven years, was single, never had a job with the exception of babysitting, never had a driver's license and never had a vehicle. She saved $7,000 and bought a co-op apartment in downtown Los Angeles for $30,000 with a friend. Her friend invested $7,000 and she invested $7,000.

One year after investing in the co-op, her friend moved back to Japan and she bought her friend out for a small amount of cash. Can't remember how much.. She saved a little more money from babysitting, took money out of the co-op and purchased her first condo in Torrance California. Torrance is a fairly high-priced area in California.

She rented the condo (more of a townhouse style) to about 12 Japanese college students. She had kids living in closets, the laundry room and the living room. She took money out of the condo and purchased a brand new 4-bedroom home in Gardena California about 1/2 mile from El Camino College and rented the home to about 12 college students.

When I met this girl she was already in the United States for only seven years, owned 15 properties including one in Las Vegas, Victorville California and I did the math and figured if she cashed out she was worth $2.3 million, at the age of only 28-years old.

I have another friend who owns more than 6,000 apartment units in the Los Angeles, Torrance and Long Beach areas. I met him 45 years ago and he was an engineer for an aerospace company. Were both buying properties, but I knew nothing and was buying single-family homes. He was buying multi-unit properties and I was working on his properties doing plumbing and construction upgrades. Today, he still purchases one large multi-unit apartment building every month. He started 45 years ago by purchasing a few buildings with his money. Since he is from Pakistan, he has a huge network of Pakistani investors and his followers throw money at him like he is a god. Today, he is a syndicator.

You don't need a lot of money to get rich in real estate. You do need qualities that very few people have e.g. the ability to understand and see a clear path that will result in reaching you projection. Most people have good projections, but they don't have one quality or skill to reach that projection Put another way. Most people don't have the qualities it takes to reach their goals because they don't have what it takes to foresee what will and what will not work properly when it comes to being business savvy.

For example, again. The Japanese girl could see what she had to do very clearly and her business she knew exactly what she had to do to make her business model work. My Pakistani friend understands the power of the numbers for multi-unit properties. When people come to me with ideas I know from the start that most people don't have a clue about managing properties, how to repair them, how to find and evict tenants, how to do simple math to know where they are going, how to do the books and after one or two insignificant problems with tenants they hate tenants with a passion and they hate the rental business.

I see a high percent of people wanting to get rich in the real estate business, but my opinion is that is the worst way to think when it comes to making money. Most people I know who made a lot of money, including myself, really don't make a lot of money because we have deep desires to be rich. We make a lot of money because we love being entrenepeurs. We love trying to figure new ways to make our businesses work better. We don't get excited when we make a lot of money. We get excited when new things we try give us better results just like some people get excited when they solve crossword puzzles that don't pay any money.

Everyone wants to be a millionaire, but I always say we can't take the money with us when we leave this world. As long as we have enough food to eat and a dry place to sleep we are okay. Ten thousand dollars in the bank or a million dollars makes no difference as long as we have the necessities to live comfortably.

I have more than enough money to retire and even gave my children about 18 houses that were paid off. I live in a commercial building with my wife and two children on concrete floor with no furniture and I love it. My Japanese friend lives in one of her condos, still has no driver's license and she has a college student living in her bedroom closet. My Pakistani friend lives in a 1200 sq ft modest house and he drives a small car that is about 25 years old. He is worth more than $100 million.

My point to all this is; stop trying to get rich with real estate and spend your energy just trying to get the knowledge and experience you need, FIRST. Anxiety is the biggest killer for both business ventures and our bodies. Anxiety, which is also in the form of the wanting to be rich, inhibits our vision to see a clear path. My Japanese friend did not become rich fast because she wanted to be rich fast. She became rich because she did not have anxiety that would have caused her to make poor judgments.

Today, my Japanese friend is worth about $30 million, is still single, still lives in a bedroom with a college student living in her closet and still has no driver's license. Many people tell me that people like her are crazy, but for people like her, my Pakistani friend and myself, we are the sane people because we are not in the business to make money and at the same time we know that with our philosophies we will make and give away more money every year than most people can make in a lifetime.

My last point. I meet many people who want to get into real estate every day to get rich and they have less than 1% of the needs to be successful. They know real estate makes some people a lot of money, but they don't have what it takes to do the math, see clearly, make good business decisions, buy the right properties, manage the properties and almost every one of these wannabe investors rely on advice from other people and brokers who don't know what they are doing and have different agenda that don't align, at all.

What is the herd doing. The herd buys properties that make negative cash flow to an annual 5% return on your money, if you are the lucky investor in the herd. You can listen to the herd, take your chances and make from losing money to a small amount, or you can keep your money in your pocket until you know what a sure-thing is and how to find the sure-thing where you can make 50% to 100% on your money, every year.

For 5% annual return, or a $200 to $300 per month cash flow property where I have to invest $50,000+ with hundreds of hours of work to purchase and manage, I will be far ahead when keeping my money in my pocket and wipe tables at Mc Donalds since minimum wage in many areas is $15 per hour and I can earn an extra $400 to $600 per week, or $20,000 to $30,000 per year vs. earning $3600 per year on a whim that came with anxiety and will put me in an early grave.

I say all this because people constantly ask how much money they need to get started in real estate and the answer is not about 'how much money you need'. You can already be a millionaire and lose a lot of money. You are not ready to start in real estate with any amount of money until you get to the point where you can tell other people the answer to the questions you ask rather than asking the question.

BOTTOM LINE: Keep your money in your pocket until you see a clear path and find your sure-thing where you are so positive it is your sure thing you will not have to ask anyone for their opinion or advice. You will be able to tell the experts what is right and wrong because you should never every trust the opinions of others or brokers because other people have their own agendas that seldom align.

.

Frank Hinck · Answer

@Dewayne Hopewell

Likely 20% down + closing costs, and have 6 months of operating expenses in reserve if what a traditional bank will want to see.   Maybe try to go 50/50 with a more experienced operator to start, they can get the Loan and put 10%, you can find the deal, manage the rehab, manage the property and put 10% down.     Starting out a little bit is better than nothing, and having a mentor involved in your deal will mean of good learning, and hopefully it all works out and they want to do more deals.

Take a year, I know it seems long but trust us real estate and “deals” will still be there albeit anything you’re looking at now won’t.  Take a year and 1- listen to a BP Show per day, 2-cut your living expenses as much as you can believe it or not you can find $1,500/month by reducing rent & car & cutting luxury expanses and in a year you will have $18,000 - this will suck but it’s an investment!!    3-Network! On BP forums, meetups, REIAs, coffees, find your local experienced operators/NOT paid gurus and see if you can help them find deals, drive for dollars, analyze deals, line up contractors - it’s your unpaid internship to soak up as much experience as you can handle - - best of luck!!

Daniel Haberkost · Answer

@Dewayne Hopewell

Hi Dewayne, to answer this question we need to know specifics. Are you planning to begin with an owner occupied house hack? If so, then you will need 3.5% down for FHA or 5% Conventional.

Let’s say you go conventional - okay then what do the houses that fit your parameters (and what are your parameters?) cost on average?

Let’s say they’re $300k - then you would need $15k for the down payment plus a couple extra thousand for closing costs/inspection/etc so let’s call it $18,000.

And of course you need extra cash on hand and the right amount depends on your personal

financial situation. How much cash are you saving each month? For example, if you only have an excess of $1000 each month I’d say you need larger cash reserve than if you’re pocketing $5k a month.

Point being, you have to be clear on what your goal is/what you’re looking to buy and take your personal financial situation into consideration when deciding how much cash you need.

Dan

Justin Carmack · Answer

I'm goin give you the typical... It depends answer.

House hacking is an excellent method of getting into our first house.  I would exercise a great deal of caution buying a house that you plan to live in and turn into a rental with zero or little money down... unless it's a duplex, triplex, or quad.

I bought my first house zero down and turned it into a rental two years later.  That was right in the middle of the housing crisis and I almost got nailed because I didn't have enough equity in the house when housing prices dropped excessively.  I was lucky and able to refinance and drop my payments so I could put a renter in and break even on the house. I dodged a bullet.

You could save up 20-25% to put down on a property. It wouldn't be a bad idea to have enough money put back to cover expenses should something to wrong.  That means 4-5 months of "reserve".

Or you could do what I did when I decided to expand my business.  I made posts every day on Craigslist, Facebook real estate groups, started a website (Lead Propeller), and hustled and found creative deals.  I would recommend owner financing deals which would allow you to put a smaller down payment, possibly no down payment.  The owner holds the note on the property and you pay them as if they were the bank.  There are all kinds of creative methods that you can acquire rental properties with very little money out of pocket, but it takes hustle and a knowledge to make it happen.  Don't get into anything you don't clearly understand.

Theresa Harris · Answer

There isn't a magic number.  How much will you need for a down payment, closing costs?  Add in money to cover the expenses for a few months if it is vacant or you have unexpected repairs.

Account Closed · Answer

It looks like you ran into a bunch of idiots. You said you purchased a condo for THE MARKET PRICE of $160k with a $1,000 deposit. It that is true, then you did not purchase the property. You only tied it up with a $1,000 deposit and if the fools your sold it to fell through you could have lost your $1,000 deposit. Unless, the seller's agent was a serious fool, which according to your story, she was.

Then, some you assigned the property to some other fool who paid you $15,000 for this property with a Market Price of $160,000 that he was going to sell to the 4th fool involved in this deal for $175,000 with an insane rate of 7% for a 30-year loan of $85,00 because he has a suitcase full of money and would rather pay double the interest rather than deal with a bank.

If the party paid you $15,000 to find the deal then he had to recover his $15,000 and I hope he was smart enough to add a little for a profit.

If you purchased the property from an experienced real estate agent, as you claim, then how much money did she earn for selling the property, or was she the owner of the condo which would make her really stupid for doing this unconventional deal.

How much did everyone really make and how much did the buyer really pay.

You made $15,000The person you assigned it to should have made as much as you = $15,000The real estate agent should have earned 5% = $8,750Closing costs $5,000Purchase Price $175,000

Total buyer paid $210,000 for a $160,000 condo + double the interest rate. That doesn't make sense. If the buyer put $90,000 he would have to finance $120,000 at 7%.

Frank Hinck · Answer

@Dewayne Hopewell

You can House Hack using a loan 3.5% down FHA and BRRRR up to a Quad plus you’ll learn how to be a landlord in a Hands-on manner.   If I was 20 I’d go back and do it that way.

Jon Q. · Answer

Save an amount that is 20% down + estimated rehab funds + emergency fund 3%.  If you plan to acquire cosmetic fixers, approximate rehab finds should be about $5k.

You can start with less, but it adds risk... so this is ideal.

Ideal credit score should be higher than 720, but it’s not something you choose.  Pay your debts, be financially responsible and if your credit isn’t sufficient for particular lender you’re working with... find another that will lend to you.

Greg Dalpe · Answer

Please do not take this post like I am bragging or ready to throw an infomercial at you. I dont have time for braggers or infomercials and I'm sure you dont either. So i'll make my point. There is no right amount of money you need to save to invest in real estate. Huh? That's a fact, my first, second and third rental units were all purchased with either no money out of my pocket (first and second property) the third one I had to give $1000 earnst money to secure the deal. Although technically I didnt actually end up owning that property. This one may sound like an impossible scenario but it worked perfectly. Before I committed to buying the property, I knew it didn't fit the kind of property i wanted to own and it was what I call GUD (Geographically Un-Desirable). What I did was contact an investor that I had met not more than 8 months earlier and asked him if he was interested in buying a condo from me and upon taking control of the asset (signed purchase agreement) I would introduce him to two other gentlemen that were looking to buy investment property together. I'll try not to lose anyone reading this but yes, there was an abundance of money that I made that day all I had to do was write a check for $1000.00 that was actually handed back to me uncashed. Here's how I put everything together. I had met (John & Tom) at a tax seminar and they told me that they both wanted to invest in real estate as partners. When we spoke I explained that I often come across unique opportunities from sellers and asked if they wanted me to keep them in mind if something special comes up. Tom said, if you find anyone doing seller financing let me know. He assured me that the only reason he liked seller financing was to avoid having to deal with traditional banking. So that's exactly what i did, i kept them in mind for a seller financed opportunity. That's where RB comes in the picture. Now I had everything I needed to make a win win situation for everyone. I bought the condo for market price $160K ($1000 check of mine for deposit), I then assigned the conrtact to RB of which he agreed to pay me a $15,000 finders fee. When he had legal control of the asset he met with John and Tom and they signed a purchase agreement. Keep in mind that RB paid cash for the property which now totaled $175K + escrow fees. RB agreed to finance the asset for $175K with $90K cash down payment with a payment amortized over 30 years, at 7% due in 5 years. RB couldnt believe the opportunity that I brought him. John and Tom couldnt believe the opportunity I brought them, $90K down and they saved a ton of money on loan origination fees and other upfront costs not to mention they never had to see a baker for a loan. The lady that sold the condo to begin with was also a career real estate agent. When she learned how that deal was made she couldnt get over it. Honestly, it really doesnt matter if your in an up market a down market, there is money to be made in real estate and you dont need a license to wholesale a deal. My Dad used to always say, most people sit and wait hoping for opportunity to arrive at their door and if it happened to show up they wouldn't know it, because they never created an opportunity so they won't be able to identify opportunity if it does show up. others are desperate for opportunity and they leave their home everyday frantically looking for someone to present the opportunity. Then theres the few, these are the ones responsible for creating opportunities for others to benefit from. Then he would ask, which of the three do you think never has to worry about having enough money every day? Indeed the Creator. Dad used to follow up by reminding me that if i focus my attention on helping other people become wealthy, then my wealth is inevitable. Dad has since passed but I can assure you that he was absolutely right. Don't make the mistake that there are limitations on the number of ways you can make money in real estate. Be a creator! If anyone has questions email me. Thanks for taking the time to read this long post I hope it helps.

Dewayne Hopewell · Answer

@Daniel Haberkost I’m interested in house hacking, but I’m more geared towards Multifamily BRRRR strategy. If you have any financial advice about that. Thank you!

How much money should I save before buying my First property?

Most Popular Reply