How Much Money Do You Need To Invest In Real Estate?

Many people have already listened to podcasts and read about real estate investing. They become interested in the opportunities present, but often have one question in mind- How much money do I need to buy real estate?

Read on to know the answer. You can also watch my video on the topic if you haven’t yet:

That answer depends on two things: what kind of property you’re buying and how much down payment you’d need based on the type of loan you get.

Luckily, the banks know that real estate loans are secured by a real asset, so there are different kinds of loans available for the real estate investor.

Types of Loans Per Property Type

Commercial Loans – 25-35% Down Payment

These are the loans used for buying commercial buildings or apartment complexes. You’d need to make a down payment of 25-35%. So for a $10M purchase price, that’s between $2.5-3.5M that you’d have to put down. This doesn’t even include the closing costs.

Multifamily Properties – 25% Down Payment

Whether you’re buying a duplex, triplex, or 4-plex, a 25% down payment is required. A typical purchase price of $300,000 for a 4-plex means you need to make a down payment of $75,000.

Single-Family Properties – 20% Down Payment

Single-family homes are a good starting point for the new investor. You can find an out-of-state property priced at $100,000. With a 20% down payment, that means you’d need to put down $20,000.

Owner-occupied Properties – 3.5-10% Down Payment

Another option is to buy a single-family home and then rent the rooms at the back or house hack. Or you could buy a duplex, triplex, or 4-plex, live in one unit then rent out the other units.

The down payment for FHA loans for owner-occupied properties can be as low as 3.5-10%. With extra costs of only $200 per month for mortgage insurance, these types of loans can be valuable for the first-time homebuyer.

But take note that you have to live in that property for over a year. Otherwise, you could be charged with a federal crime as it would be considered fraud.

VA Loans – 0% Down Payment

This is the best type of loan for an owner-occupied property in terms of having the lowest down payment. VA loans do not require any down payment at all. That’s right, with zero money down, you can buy a house.

There are, of course, some restrictions. Only veterans who have been in the military for over a year can qualify. You can only have 1 active VA loan at a time. It cannot be used as an investment loan. And the loan has a limit of $765,600.

But you can use a VA loan to buy a 4-plex. By increasing the number of units of the property, you can also increase the limit to $1.472M.

Other Things To Consider

Aside from the down payment, real estate investors also have to cover closing costs such as closing fees, notary fees, and loan fees. Closing costs are typically 2% of the purchase price.

Another thing to take note of. Some banks have a minimum loan amount. That minimum is around $50,000-60,000. What that means is that you won’t be able to get a loan for a $20,000 property as the banks don’t see that as a worthwhile investment for their efforts.

Sometimes traditional lenders might decline from funding your deal if the property is uninhabitable or needs a lot of work to make it ready. Now, you might find hard money lenders who could fund your deals and require only a 10% down payment. But be aware that they will charge more in interest and other fees.

Well, that’s it. If you want to buy your first property, I suggest saving up between $30,000-40,000 for that purchase. Make sure you have the funds needed to pay the down payment and closing costs. Banks also want to see 6 months in reserve to cover principal, interest, taxes, and insurance. This acts as a safeguard to prevent you from defaulting on your loan.