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Originally Posted by 4-Star General
- Minumum "bankroll" required?
That's a hard question to answer and will depend on a lot of things:
- Where you are investing
- The types of property you're investing in
- What your financial situation is (how easy would it be for you to borrow)
- Do you have access to friends/family with money
- What is your level of risk
While paying cash is the easiest way to do things (obviously), the returns tend to be smaller (higher ROI with leverage in many cases) and obviously most people don't have cash to buy and sell houses. But, if you wanted to go the all-cash route, look at what houses in your area are selling for, and that's about how much you need.
If you have friends/family/professional acquaintances with money to lend/invest, you may be able to go the opposite extreme and invest with absolutely none of your own money. This is what a lot of experienced investors do. In fact, I haven't used my own cash for investing in quite a while -- I pay 10-12% interest to my lenders, and everyone wins.
Generally speaking though, you'll be looking at getting secured loans (using the property as collateral) and will be required/expected to put in 20% of the total cost yourself. So, if you want to buy a house for $100K and put in $50K in rehab, you'll be looking at having to come up with $30K yourself, with the other $120K borrowed from a private lender (someone you know), hard money lender (the equivalent of a loan shark in the real estate world), or small, local bank that lends to investors. Btw, while I call the hard money lenders "loan sharks," in reality, they offer a great service to new investors and if you can find great deals, they are often the place to start.
Lastly, one of my favorite options is partnering with an experienced investor. If you can find a great deal, there are lots of investors who would be happy to put in the money and do the work -- they'll keep a substantial portion of the profits (50-80%) and you'll get a percentage of the profits (20-50%) for finding the deal. This is often a great way to get mentored as well -- I've mentored a couple people who have brought me deals. Again, it's a win/win all around.
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- (related to the first one) if you were starting out, what kind of property you would looking for?
I'm a fan of lower-end houses in solid blue collar areas. I'm talking about areas where your neighbors have owned their houses for 50 years, take pride in their neighborhoods, everyone knows one another and everyone keeps up their house/yard pretty well.
The benefits of these types of neighborhoods:
- Prices are towards the bottom of the cost scale
- These are the areas where a lot of first-time homebuyers will be looking, so when you go to sell, you'll have a good buyer market
- Neighbors tend to be very protective of their neighborhood and will "keep an eye" on your house for you (I like to introduce myself to all the neighbors and give them my business card when we first buy the house)
- Yards tend to be nice, so you less fewer concerns about curb appeal
- Generally no HOA
I would never recommend starting in areas where you have to worry about tools or materials being stolen (there's already enough stress in this business) and on the other end, I wouldn't go into HOA neighborhoods at first, as dealing with HOAs can be a major headache and this isn't the type of micro-managing you want on your first or second rehab (though after that, there are some advantages to HOA neighborhoods).