It seems like the number one question on the BiggerPockets forums lately has been:
“How do I get started investing in real estate with no money?”
Not surprising at all. I don’t think there was another real estate deal I was more excited about than the one before.
Although it was like drinking from a firehose. I didn’t really know much about real estate at the time, but I knew the best way to start was with a two-by-four-unit property. That way, if I ever lose my job, I won’t lose my home.
The first deal was expensive for me at that time. I started right after college. It was $245,000 for the purchase of two homes on one lot. Every dollar I had saved so far was to put towards a down payment, closing costs and light rehab work around the house.
Fast forward eight years, and as a licensed agent and full-time real estate investor, I love working with the person I just described – someone who is brand new and wants to start off right. This is a huge advantage of working with an agent who has investment experience.
Connected: Should You Become a Real Estate Agent?
And the best part? It’s “free” for you. That’s right, for most real estate transactions the seller pays both the buyer’s and the seller’s agent commissions.
Finding Deals in Unexpected Places
I was working with a friend of mine from high school, and he expressed interest in buying a house hack for his first property. We looked at a few deals with no luck.
Then, she said her grandmother has a house she wants to sell so she can move into a condo. I didn’t know it was a duplex…
Connected: How single, work-at-home mom Maria bought her first duplex
When I found out, I said, “Why don’t you buy your grandma’s duplex?”
He said it needed some work, and he wanted a bigger yard. But then I showed them the different loan programs you can use as an owner-occupied buyer.
how to finance a house hack
It is well known and recommended on BiggerPockets that the best way to start is with a multifamily house hack with as little as 3.5 percent down on an FHA mortgage. And the Holy Grail is using a 203k loan, which is the same 3.5 percent as an FHA mortgage, except you’re allowed to repossession the property, as well, with just one closing.
I like the program, but it’s too easy to get into your mind. For example, if you get caught by surprise and blow away your contingency money, guess who’s going to foot that bill?
And if you don’t have the means to do that, it becomes very scary. I only recommend it when we have a good FHA consultant, great contractors we’ve vetted and worked with before, and the buyer is comfortable with the risk or has construction experience.
but I digress.
Here’s how my friend, the duplex buyer, got 100 percent financing (pretty close to 100 percent) on his first deal.
As we all know, saving the bulk of money for your first deal is difficult. It may take years of savings and some sacrifice. But its totally worth it.
You can ask for a closing cost credit in the contract, and it usually goes like this: “Seller credits buyer $6,000 for pre-paid plus closing costs.”
Since his grandmother is a family member, we went a step further. We asked her to “gift equity” to her grandson. That’s right, we covered the closing costs and down payment for her first deal. The deposit was also $100 dollars.
All in all, it had to bring in some money to make ends meet—but it wasn’t much.
deal with numbers
- Purchase Price: $135,000
- Rehab Amount: $75,916.53
- Construction Contingency (10%): $7,591.65
- Evaluation: $222,000
- Equity Created: $11,083.47
how cool is that? If you buy right and rehab on time and on budget, you can build up immediate equity on your first deal.
And don’t forget to be creative! This is the main takeaway here. You should ask yourself: “How can I afford this?”
Then, let you creative juices flow. You may not have a relative with a duplex, but another family member may be able to gift you equity in the purchase of real estate as well.
Have you considered buying a property from a family member? Would you do it if the opportunity presented itself? why or why not?
comment below.
Note by BiggerPockets: These are the views expressed by the author and do not necessarily represent the views of BigPockets.
