One of the more common questions I see or hear. “I don’t have a lot of money and by that I mean, I have approx. $10k and I want to invest in Real Estate. Where do I begin?” Some people will tell you to wait until you have more money, $100k even. I’m not that patient and I see how our net worth has exponentially grown since purchasing our first buy and hold property. So what do you do?
First…You give it all to me! Bwhahahaha, BWhahahahAA, BWHAHAHAHA <- my attempt at an evil laugh (think Dr. Evil / Austin Powers).
Seriously, first, you have to decide what type of investor you want to be. There are many ways to invest in real estate (flipping, wholesaling, buy & hold, notes, etc.). For the sake of this post, we’re going to focus on Buy & Hold, because, quite simply, I focus on buy & hold :). Here are a few options to get started in Buy & Hold REI if you have just $10k to invest:
Option 1 : FHA a Small MFR
Find a small multi-family (2-4 units) and get approved for a FHA loan. At the time this article originally published, down payment requirements are 3.5%, as long as you meet the criteria (i.e. you have to live in one of the units for a certain period of time). At 3.5% down payment you can purchase a $100,000 property and still have money to pay all closing costs. This is also known as House Hacking.
Option 2 : Buy an Inexpensive SFR
To obtain a conventional loan for an investment property typically requires 20-25% down payment. With only $10k to invest you will target a $50k single family residence, however, banks typically won’t provide a mortgage for less than $50k. With a $10k down payment, loan would be for $40k and if you find a lender willing to do this, please send me their contact info (I’m at jay@helmsREI.com). But if you can convince the seller to owner finance 10% on a 2nd position mortgage (or seller carry back), then your $10k is now 10% of the down payment, meaning your now looking at properties with a price of $100k. Which leads me to Option 3…
Option 3 – Buy a Property with Owner Financing
One of the best strategies to leverage your money! In this scenario the seller becomes the bank or provides part of your down payment by what’s called a seller carry back. Best case scenario is the seller owns the property outright and y’all come to terms. No silver bullet here in deal structure, just up to you and the seller to create a win-win scenario using whatever terms y’all agree to. Always have a lawyer review these terms and represent you at closing.
Option 4 – Partnership
Partnerships are great and here again there is no silver bullet to structure them. Find a deal that meets all of your criteria and find a partner or partners to make it happen.
We did this when we Purchased Our First Apartment Complex. We had $25k to invest and needed THREE HUNDRED THIRTY THOUSAND to close. Partnerships made it happen.
Speaking of, Option 4B is partner with someone on a larger multi-family. When we were raising money for our apartment complex, we had a minimum investment of $25k. But if you and 4 of your buddies each had $10k to invest, bringing $50k of capital to the table, I would certainly take a hard look at it.
So if you want to invest and you think “I don’t have that much money”, there are options. You just have to be creative. Happy to talk through any of these with you. I’m at jay@helmsREI.com or 850-610-0966.