Rick is keen to start his real-estate investment career and is worried about two main subjects – I would say THE two main subjects 🙂 – Time and Money.
I answered Rick’s ‘time’ question here, but now he asks the key question about ‘money’:
What is the minimum practical amount of capitol to start real-estate investing?
The answer is $0.
That’s right …. ZERO: the world of No Money Down is not dead, and is not even a dirty word (or, phrase to be precise).
No Money Down has lived and died a thousand times and will continue to do so; to prove it, here is the best book that I have found on the subject – and, it was written in 2001 by two of the best-credentialed real-estate investors that I could find: Richard Powelson and Albert Lowry, who purport to have used these techniques since the 60’s or 70’s.
But, that is the ‘minimum’ as asked by Rick – and the book reference is to prove that it also meets Rick’s ‘practical’ requirement (not that I’m so sure that the bond strategy that Richard Powelson gets so worked up about in the latter parts of his book count as ‘practical’).
Now, if Rick had asked what I ‘recommend’ that might be a little different:
While it’s true that No-Money-Down probably provides the best Return on Investment (and Internal rate of Return, as well), I would rather avoid asking the seller to carry a note (the number one ‘no money down’ technique) and screw them down to a better price in the current market …
… equally, I would like to avoid taking on a partner (the number two ‘no money down’ technique).
Therefore, what I would recommend instead is that you look to the type of property and market that you want to invest in (I usually recommend finding the neighborhood next to the new ‘hip’ neighborhood, and buying a property in the median-to-just-under-median price range for that area … with some potential for easy cosmetic fix-up) and having enough money under your belt to:
1. Put up a 15% to 20% deposit, and
2. Pay the likely closing costs (nothing wrong with financing these, if the lender will let you), and
3. Hold at least 25% of the first year’s expected rents as a contingency against vacancies, repairs & maintenance, and other costs that might come up just when the property is vacant.
That could mean $10,000 or $100,000 depending upon the area and property type …
… if you can’t afford that, time to dust off the old Formulas For Wealth book, after all 😉
… but, if you don’t want to practice any of the creative funding techniques recommended in this older (but, still excellent) book, you want to target properties in the median-to-just-below-median price range in your target area and have 15% for your first deposit + enough for closing costs + 25% of the expected value of your first years rent as a buffer (minimum).