I’m new to RE investing and one of the things that is holding me up is knowing how much should I save before investing in real estate. Any advice is appreciated.
Thanks
There’s no magic number for saving before you invest! In fact, to the contrary, many people (including myself) got into REI to start generating more income so we could set aside money into savings, paying off debts, etc. Don’t put off your investing career because you think you need a certain dollar amount in the bank, just get going!
Although I generally agree with Jake’s comment, I would caution that certain investment strategies do require cash on hand (or at least a way to get cash) to support the property you purchase while you are waiting for your exit stategy to happen.
If you don’t have a job and no credit, then you can not afford to own investment property. Your investment strategy will be limited to those techniques that don’t ever require cash or credit.
Dave- I completely agree with you comments. There are certain techniques that require some capital to get started on, on the other hand, there are also techniques such as wholesaleing and birddogging that require little to no monetary capital to start up with. Just some knowledge spent by reading, networking, and getting out there and doing it, all activities that require little to no money to participate in.
i think it depends on where you live in the country.
Tony, the investment strategy you choose will determine the amount of cash required. For example, options and lease options will require very little out of pocket money on your part.
On the other hand, if you decide you want to get into rehabbing, you’ll need substantially more cash to pursue this approach.
Thanks AJ that’s exactly what I was looking for! I’m looking to do lease/options. It seems to be profitable within every aspect plus its little money down. I feel its a great way to get started and profit.
In a lease option strategy, you are a renter. You will need to give your landlord the first month’s rent and a security deposit when you sign the agreement. The option agreement will also require some amount of consideration – how much depends upon your negotiating skills.
Additionally, as the renter, you are guaranteeing the rents each month even when you have a vacancy. You will need a capital reserve to carry your properties (rent, maintenance, upkeep) while you are looking for sub-tenants and filling your vacancies. Successful landlords are lowering their rents and experiencing longer vacancies in this real estate market.
With a tenant/buyer in place, everything will be fine until they quit paying rent. Eviction can cost you money and the rental loss can quickly exceed the option consideration you have collected (hopefully you did not spend the option consideration you received)
Lease option strategies can be done with no cash or credit more easily in a strong real esate market. But in this market, it is unrealistic to expect to do it successfully with no cash in reserve and no outside source of income.
Ideally you will get some extra money from the lender that you can use as reserves. Estimate vacancy rates, maintenance and worst case scenarios. Make sure you are covered for all worst case scenarios. I like to have at least 5K per property to cover any vacancies or unexpected maintenance. Some investors have more, some less and it definitely depends on the type of property and value. Most importantly a surprise should not ruin the deal and your finances. You should be comfortable and able to sleep at night then focus on more profitable deals.
One hundred thousand dollars ($100,000.00) is a good number, how long will it take to save that much? Our friends here are going to tell you that you can invest without money, and it is so true, but you can’t do it yourself because you do not have the knowledge. So spend the first $10,000 in your saving process to buy all the courses offered on line and at motels. Lose about $15,000 on bad deals, go to rent court about 20 times, take some more courses, pay a mentor $20,000……and that’s about it. You are now well on your way. When you get the money saved up, write a book about your exciting experiences and make it into a seminar and CD packages and go around the country to REIC’s and sell the program. See you don’t need real estate, just a few books and someone to pay you money to learn how you did (or all your failures while trying to do it). :silly
Charles Parrish