What would you do if you only had $2,000 to spend?

Question

Hi everyone,

Long story short I lost most of my net worth in the stock market(please save your story about how stupid I was because I already know). I took about a year off of life to move back in with my parents and figure out what I really wanted to do. Real estate has always fascinated me but like most people I just never really took the leap. Over the past few months, I devoured any information I could on real estate investing and decided that this is what I want to partake in.

I pretty much have nothing in the bank to invest right now. However, I was able to find a full-time job and will be able to net about $1,000 per month after all expenses to invest. So after 2 months I will have about $2,000 saved up. I'm wondering if there are any strategies to put this money to work? I know $2,000 isn't much but it's something.

I live in San Jose, CA so $2,000 isn't even enough to cover closing costs let alone down payments. I'm thinking to look at cheaper markets like Ohio or Georgia and do deals virtually. I can maybe buy a distressed property for $20,000 and put $2,000 down using a hard money lender, fix it up, then sell it for maybe $40k-$50k. I know I will need to cough up more money for repairs but I'm hoping I can bake into the loan.

This is the best thing I can think of besides saving up money for decades in order to afford a down payment in San Jose. If anybody has any better ideas, I'd love to hear it.

Thanks and best of luck to all your endeavors.

JD Martin · Answer

Well, I guess I'm going to be the dream killer here 😄 . What you are suggesting is a good way to lose your $2k, the HML's $18k, and whoever is fronting the money to fix the property, for at least the following reasons (and this is not an exhaustive list):

1. You are in San Jose and are suggesting trying to do this with no experience from 3k miles away;

2. A $20k property *anywhere* is either totally destroyed or in a war zone (yes, I'm using the term) that no one would touch with a 10 foot pole;

3. You have no money for rehabilitation even if you could find such a property, much less the ability to either pay someone else to do the work or do it yourself (since you are 3k miles away);

4. No reasonable HML is going to lend you money on such a deal;

5. The likelihood of even finding a $20k property in today's RE market is laughable;

6. Even if you could get 1 through 5 figured out, by the time you sold this thing for $40-50k you would be left with virtually nothing after paying taxes, the RE agency, and your interest costs.

Honestly, your idea is a good way to lose the rest of your life's savings. I do have a better idea, though - take that $1k/month and use it to pay for an excellent education at a local college, get a much higher paying job, and start banking serious money to have something to invest with. If the only money you are making is $1k/month, you are either working for minimum wage or you are only working a few hours a week, both of which are conditions you have to fix first. At your age, if you *really* want to do this with RE investing, living at home with no responsibilities, you should be killing it 50+ hours per week making money, minimum, living on mom's homemade cooking and ramen noodles and banking every dollar for a year or two. Then take that money and use it as a down payment on a duplex/triplex/quadplex, and you will start to be on your way.

Remington Lyman · Answer

Since you do not have a lot of money I would recommend you start cold calling in Ohio. If you find a good deal then you can partner with someone. You bring the deal and they bring the money.

Doug Spence · Answer

Can you move to a less expensive market than San Jose? Or keep that job and telework, living somewhere cheaper? You could get an FHA loan for little/no money down and do a househack while you continue to save, like @Ryan Talmadge said.

House-hacking is a powerful strategy for folks just getting started!

Phu Le · Answer

@Chad Hale Hi Chad, that's a great idea. Thanks!

Phu Le · Answer

@Ryan Talmadge Thanks for your input. I definitely looked into house hacking via FHA loans. I've never been a military type of guy but this is an option. I will join some local REIA's - hopefully they won't laugh at the kid with $0.00 and no experience haha.

@Douglas Spence Thanks for your input. I'd prefer to stay in San Jose if I can as most of my friends and family are here. It would be fun to move somewhere new but just not at the moment.

@JD Martin Ouch, ouch, and ouch, dream killer indeed haha. True words though. Thanks for the wake-up call. Time to bust my chops to make this dream a reality.

Yang Lu · Answer

You can't really get in contract without the funding in the first place. i.e. you'll need to find the deals, convince investors of the ROI, obtain funding, then get in contract.

When you make an offer, you pretty much have to show that you can actually buy the property (e.g. you have the down payment, you have a preapproval from the bank, etc.).

I think the best thing for you to do right now while you are saving up is to understand the process -- how do you find deals? how do you model the ROI and cash flow (analysis part)? How do you plan to scale this? All these questions will be useful when you talk to future investors. Build a foundation first before jumping in with your hard earned money.

Phu Le · Answer

@Yang Lu Hi Yang, thanks for the advice. This is what I figured, that I'd need to find some sort of funding first before going into contract. However, my issue is that by the time I negotiate price, then pitch it to an investor, then wait for them to accept, the deal would've been contracted to somebody else. I guess the game I have to play is to do this hundreds of times until everything lines up and I can get a deal closed with a partner.

Yea I'm definitely continuing to read and watch videos on how to do this correctly.

Best of luck to you.

Phu Le · Answer

@Remington Lyman Thanks for the advice! What would you say is the best way to go about finding leads from another state? I've been looking at FSBO listings on Redfin/Zillow/Craigslist and calling those owners asking about the property conditions to get my feet wet but haven't made an offer yet. I would first have to get the property under contract then I can find a buyer/partner on biggerpockets or elsewhere then maybe split the profits 50/50 right?

Phu Le · Answer

@Nicole W. Thanks for the inspiration Nicole! Congrats on your property! I hope you have continued success.

Account Closed Yea you hit the nail on the head there. The fast money mentality is what caused me to lose so much in the stock market. I'm beginning to switch gears and mindset to something that is more conducive to growing slowly. Best of luck to you.

Account Closed · Answer

This kid has a lot of drive but he’s itching for the fast money. He needs to pump the brakes. If he can save $1,000 a month than that’s the obvious answer to his problem. $1,000 a month means he can buy a single family rental in the Midwest in about 2 years. He knows what he needs to do but he’s thinking “there has to be a faster way.” There isn’t. Getting rich is just like losing losing weight. There’s only one thing that works, and it sucks.

What would you do if you only had $2,000 to spend?

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