What’s the best way for young, slightly broke, newbies to start out in Real Estate Investing?
This probably isn’t the first time you’ve heard this, but if you’re looking to start out investing in real estate the best place for you to start would be in a small multi-family complex. When I say small, I mean like a duplex, triplex or fourplex.
Starting out investing in a small multi-family will only require a small amount of initial capital if you utilize the FHA owner occupy/first-time homebuyer loan option. You also have to be willing to live in the property for a full year to qualify for the owner occupy loan. This loan will give you the opportunity to pay as little as 3.5% down on the property. That’s a huge break the FHA gives to first-time homebuyers and is something that you can use to your advantage starting out as an investor. Imagine you want to purchase a fourplex in Phoenix, Arizona. Let’s say that you close on the property for $200k. With a conventional investor loan, you would have to put 20% down ($40k). I don’t know about you, but I don’t know anyone fresh out of college with $40k sitting in their bank account. You can now buy this property with an owner-occupied loan for only $7k down!
Now that you’re living in the property, you’ll have to figure out how to pay your mortgage, insurance and property maintenance. Look no further than the tenants living there. Living off your tenants means that you will not only be living for free, but you’ll also be paying off the mortgage and all other expenses with the rent you collect. If you do it right, you’ll have a positive cash flow and be putting passive income in your pocket every month. If you work a standard full-time job on the side, this is an even more significant benefit because you no longer have living expenses to worry about.
What’s the downside?
Well, you’re going to have a high amount of leverage because you put such a low down-payment. You’ll have a lot of mortgage left to pay, however, this is combated with your now high level of cash reserves (which you should have…).
If you’re wondering what the next step would be after you have purchased your first property, follow along with our blog posts and well talk about how to refinance your property and utilize a 1031 exchange.