I Have $10k to Invest in Real Estate. Where Do I Begin?

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:

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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.

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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.

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Selling Your Home. Can and Should You Owner Finance?

If you have a house in the Pensacola, FL or Cantonment, FL area you want to sell, there are plenty of things to consider. One of those is whether you want to owner finance. In some cases you simply won’t be allowed to do that, but there are circumstances where it may work for you.
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So let’s start with the Can You Owner Finance question. For people who have mortgages, owner financing is generally out. Even though you have the title to your house in your name, the bank still “owns” the house in the sense that they have a lien (the mortgage) on it. You can’t sell something with a lien on it without paying off that lien. This means you can’t transfer the house’s title to the new buyer without paying off your existing mortgage.

For most homeowners with mortgages, just paying off the mortgage in one lump sum isn’t practically feasible. But if you’ve lived in your home 15-30 yrs, never refinanced and don’t owe on your home then owner financing might be an option for you. If you need to get your house sold quickly, owner financing may be the way to go. When you owner finance, you’re basically the bank. You hold the mortgage on the home, and the new buyers pay you every month. There’s a written contract, just as there would be if they obtained a mortgage from a traditional lender, and you have the right to foreclose on the property if they don’t make their payments to you. While you won’t get a lump sum at the closing, you’ll get a down payment and the monthly mortgage payments. But is that really a good idea?

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Let’s know look at the Should You Owner Finance question. There are pros and cons to the owner financing option. It can certainly work for some people, and it will allow you to go ahead and get your house sold. That can be a big deal if you need to move quickly or there are other circumstances where a quick sale is very important to you. However, owner financing also has some big disadvantages that you’ll want to consider. First and probably the most important aspect for everyone, you’re not getting your money right away. Other than the down payment amount, you’ll have to wait for the rest of your cash 10, 15, 20, possibly 30 yrs – whatever the terms you and the buyer agreed upon. If you’re planning for the proceeds of your home selling to go toward another large purchase, such as buying another house somewhere else, you’ll basically be out of luck.

Another concern when you owner finance your home in Cantonment, FL or Pensacola FL areas is the chance that your buyer will stop paying at some point (non-payment actually happens everywhere, I thought this was a good spot to remind you we serve the Pensacola area). Banks have teams of people who can come in and foreclose on properties. They know what legal steps to take, and how to handle things. Unless you’re a seasoned real estate/finance veteran, chances are you don’t have the knowledge at your disposal, and foreclosing can be difficult if you’re unsure of the process. It’s even more frustrating if you’ve moved out of the area and now have to try to do everything long-distance or you must travel back and forth.

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A few other quick hits regarding owner financing…You’ll also need to make sure the property taxes get paid, and that there is proper insurance coverage on the property at all times, to protect your interests. Owner financing can be worth doing, but only if you’re knowledgeable about the process and prepared for any issues it may bring.

So, Can or Should you owner finance the sale of your home? Well my friend, that is totally up to you.
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