It’s probably one of the most common questions that are asked by people who want to get started in real estate investing.
For good reason.
Traditionally in real estate, you need to have money in order to buy a property. With closing costs, down payments, insurance, etc. it can seem impossible to have enough funds to buy a property that you aren’t even going to live in.
You’d be surprised, but a LOT of real estate investors rarely use their own money when doing deals.
They still use their money for advertising and marketing costs, but you can assign or wholesale deals which avoids the extended holding costs that you would have in a rehab property.
Before we go any further, check with your state laws regarding assignment deals. It varies from state-to-state so checking with a local real estate attorney (which we are not) is best.
With an assignment deal, you would let the seller know that the property doesn’t meet your criteria but that you believe you can find another buyer who it would work for. You would both agree to a certain period of time that you would be able to find the buyer and have the deal closed.
Some investors will close on the property if they aren’t able to find a buyer.
Some investors have no intention of closing on the property and it needs to be made clear of your intentions to the seller!
Always be up front and honest with the seller.
You assign the contract to the buyer for a higher price than your original contract with the seller and you end up profiting on the spread between the 2 contracts.
This means that you don’t have to close on the property so you don’t have any out-of-pocket costs for the deal itself.
But… this doesn’t mean you can get started at no cost.
It takes either money or hard work to get leads which then turn into deals. In the very beginning, you might offset your marketing budget by hustling and finding deals without marketing but it can be expensive to find qualified leads by marketing sources.
To put it simply, there isn’t a specific cost to getting started in real estate investing.
It depends on how much effort you plan on putting into finding deals, how large your market is, how saturated your market is with other investors, the average price of properties, your marketing source (direct mail, online marketing, door knocking, etc.), and more.
We know investors who spend $50k on marketing a month.
Most don’t start that way… but that’s your competition!
If you have $500 to spend on postcards a month, you’re going to have to work extra hard to be noticed.
One of the benefits for those starting out is that you have the drive and the hustle to make it work.
Driving for dollars can be a cost-effective way to find properties that those big fish might not be mailing to because they aren’t on the major lists yet.
Also, having that personal touch with handwritten notes can make you stand out in the crowd. Most investors automate their direct mail as they grow and purchase lists to send to, but if you’re willing to put the extra work in, you could be the only one reaching out to a motivated seller!
This blog post obviously doesn’t provide a simple answer to the question, “How much money do I need?” but ideally it shows that there are ways to get started on limited funds and that you need to decide what the correct number is.
Consider how much money and time you have “extra” each month that you can dedicate to real estate investing.
If you have more money than time, you might be able to automate things a bit more. If you have more time than money, you’ll probably need to hustle more.
Next, consider your market.
Are you in a huge market where it could be hard to stand out or is there a smaller market that might have less competition and lower home prices?
The less competition, the better. That isn’t to say not to invest in busy cities. You just have to be more strategic as you’re starting out so you stand out.
As your business grows and you start getting profit in, always consider if your marketing budget and model needs to be updated so that you can comfortably scale your business.
Customize your budget so that you’ll be able to have leads coming in for the next 3-6 months so that you don’t spend it all in month 1 without securing a deal.