115: How much Money do you Need to Invest in Real Estate?

One of the biggest roadblocks to investing in real estate is getting the money to buy houses. I get a lot of questions about finding money to invest with, but the first question you should ask is how much money will you need. Once you know exactly how much money you need, getting that money and actually buying a house becomes much easier. You will also need varying amounts of money depending on what kind of real estate investing you do.

Flipping, renting, and wholesaling will all take different amounts of money, and the type of property you buy will also make a difference. On this episode of the InvestFourMore Real Estate Podcast, I talk about how much money you will need to invest in different types of real estate using different strategies.

How much money do you need to buy a rental property?

I started this blog back in 2013 to talk about rental properties and why they are such an awesome investment. I still love rentals, even though I have not been buying nearly as many as I would like. Prices have increased in Colorado, making it tough to cash flow. When prices are higher, you also need much more money to invest. Here is the monetary breakdown of my past rental purchases:

• Purchase price: $100,000
• Down Payment: $20,000
• Closing costs: $3,000
• Rehab costs: $10,000
• Carrying costs: $2,000

I would need about $35,000 to buy a rental property that I bought for $100,000 and did some work on. $35,000 seems like a lot of money, but I would expect the house to be worth $140,000 or more when I was done fixing it up. That would leave me with $60,000 in equity in the property, and I would make money every month. Here is how much money I would need with higher prices:

• Purchase price:  $200,000
• Down payment:  $40,000
• Closing costs:      $5,000
• Rehab costs:        $15,000
• Carrying costs:    $3,000

I would need over $60,000 to buy the same rental property in my area now! That house would be worth about $250,000 once it was fixed up, leaving me with $90,000 in equity but much more cash invested and worse cash flow every month. The amount of money you will need varies greatly based on the price of the properties you are buying.

How much money do you need to flip houses?

Flipping houses also takes a lot of money. I use a mix of hard, private, bank, and my own money to buy and repair flips. When I use a bank to finance my flips, I have to put 20 percent down and pay for all the repairs and carrying costs. The costs might look like this:

• Purchase price:  $100,000
• Down payment: $20,000
• Rehab:                 $30,000
• Carrying costs:   $5,000

The total cash I would need to flip this house would be about $55,000 using bank financing. I could use hard money, which would have the following costs:

• Purchase price: $100,000
• Down payment: $10,000
• Rehab:                 $0
• Carrying costs:   $10,000

The total cash needed on hard money is much less because many lenders will require a smaller down payment and will finance the repairs. However, the hard-money lender will charge much higher interest and more fees. You also will need some cash to pay for the repairs until the hard-money lender reimburses you. While it looks like you only need $20,000 to flip a house with hard money, you will most likely need at least $25,000 to $30,000. When I use private money with the deal I have, the costs are similar because I can finance the entire purchase price but none of the repairs. How you structure private money can vary on each deal and with each investor. If you want to put the least amount of money down when flipping, you will need a partner or a private-money lender.

How much money do you need to wholesale houses?

Wholesaling is taught as a way to invest in real estate without much money. However, you still need money and a lot of time. Wholesaling involves an investor finding a great deal and then selling it to another investor. Wholesalers will assign contracts or use a double-close to complete the deal. You still need money to wholesale because you have to find houses that are great deals. You can find houses with direct marketing, driving for dollars, or networking, but they all take some money. A great direct marketing campaign can costs thousands of dollars per month. Wholesaling is the way to start investing in real estate with the least amount of money, but it is not easy. Finding deals and investors who will buy them takes a lot of time.

Most of the time, it takes money to make money in real estate. There are ways to get started with less, like buying as an owner occupant. If you want to buy a lot of houses, you will need to save money that you can invest in the business.