How to invest in real estate, start with little money upfront

  • Buying a property can be more feasible than you might think.
  • Insider spoke with four real estate investors who started out without a lot of money in sight.
  • They used strategies like buying with an FHA loan and partnering with someone else to share the costs.

Buying a property can be more feasible than you might think.

“There’s a misconception that you absolutely have to invest 20% and save tens of thousands of dollars in cash to buy a property,” Seattle-based investor Ludomir Wanot told Insider. “That’s not the case.”

He got his foot in the door with just $5,000 of his own savings.

Wanot isn’t the only successful real estate investor Insider has spoken to who started out short. See how four investors, including Wanot, bought their first properties with less than $10,000 upfront.

Insider verified each individual’s property and income claims.

Natia and Jervais Seegars used an FHA grant and loan to purchase a $191,000 home with a $2,000 down payment

Natia Jervais

Natia and Jervais Seegars are financially independent thanks to their real estate portfolio, which consists of properties in North Carolina, California and Georgia.

Courtesy of Jim Resonable Photography

Before Natia and Jervais Seegars could buy their first home, they got a lot of “no’s” from lenders, said the couple, who now own five properties that bring in $30,000 a month in revenue. After three years of building their credit and paying down debt, however, they finally qualified for a mortgage.

They foreclosed on a $191,000 home in North Carolina, where they were living at the time, in September 2006 and spent just $2,000 upfront.

That’s in part because they financed it with an FHA loan, which is a government-backed mortgage that gives people the opportunity to buy a home with down payments as low as 3.5%. (Note that a requirement to use an FHA loan is that you must purchase a primary residence and live in it for at least a year, which is important to know if you plan on renting it out.)

A 3.5% down payment on a $191,000 home, however, would come to around $5,700 – and that number doesn’t include closing costs, which typically end up being 2% to 5% of the cost of the loan. The couple were able to close with just $2,000 of their own savings, thanks to a grant they were eligible for at the time: the Genesis Program, which provides entry assistance to low- and middle-income homebuyers using an FHA loan.

They encourage first-time buyers to understand the features that may be available to them. You may qualify for down payment assistance, which can allow you to purchase a property with little or no cash out of pocket, as long as you can provide proof of a good credit score.

Ludomir Wanot bought it with his brother, split the initial costs and used an FHA 203(k) loan

ludomir wanot

Ludomir Wanot lives with his girlfriend in Tacoma, Washington.

Courtesy of Ludomir Wanot

When Wanot decided he wanted to buy real estate, he didn’t have a steady income to show creditors or a lot of savings. However, he managed to get his foot in the door in partnership with his older brother Jan.

Jan, who had been with Boeing for about two years, qualified for a loan, and the brothers began looking at properties in the Seattle area in 2016. Jan would be listed as the buyer, but they agreed to split expenses and profits equally.

The brothers ended up using what’s called an FHA 203(k) loan to pay down their first property: a single-family home they purchased for $138,000.

This type of FHA loan finances the purchase and renovation of a home. Without it, they wouldn’t have been able to afford the renovations, which ended up costing $30,000. But since they rolled the renovation costs into the loan balance and reduced it by 3.5%, “we wouldn’t get more than $10,000,” he explained.

They split the start-up costs, which means they each paid less than $5,000.

“What I’ve realized over the years with property buying is that cash is king,” said Wanot, who now owns more than 10 units in central and western Washington and runs a wholesale real estate business. “The less money I can get into a property, the more properties I can continue to buy.”

Dominic Kosteris bought a modest starter home, although he could have afforded more

dominic kosteris

Real estate investor Dominic Kosteris and his family.

Courtesy of Dominic Kosteris

Chicago real estate investor Dominic Kosteris bought his first home in 1996 after working two jobs for a few years and living with his parents to save as much of those two incomes as possible.

It was a $53,000 two-bedroom home that he financed with a three-year Adjustable Rate Mortgage (ARM) and 10% down payment.

“I could have bought a bigger house, but I thought it would be more expensive,” the high school history teacher tells Insider. With a $53,000 starter home, however, “I’ll have less money to save.” He invested $5,300, plus paid a few thousand dollars in closing costs.

It’s a simple strategy – buy less house (or a smaller house) than you can afford – but it works. The less expensive the property, the less money you’ll have to pay upfront.

Today, he owns 64 single-family homes and is financially independent thanks to the rent they bring. He still works full-time as a teacher and is a modest spender, he said: “To this day, I can honestly say I’ve never paid more than $70 for a pair of gym shoes. that’s why.

Sean Allen bought out of state in a more affordable market and invested with a friend

sean allen

Los Angeles real estate investor Sean Allen and his fiancée.

Courtesy of Sean Allen

Sean Allen, who used real estate investments to pay off $81,000 in debt and build a net worth of $1 million, started with $8,000 in savings. He couldn’t afford to buy a house on his own, mainly because he lived in an expensive market (Los Angeles), so he bought his first property with a friend.

Together, they had about $16,000 in cash. They worked backwards and realized they could pay as little as $60,000. That purchase price would allow them to cut 20% ($12,000) and leave $4,000 to cover closing costs.

They both lived in Southern California and figured they probably couldn’t get a $60,000 property in that market. So they started looking in Greensboro, North Carolina, where Allen went to college.

They flew to Greensboro to meet with a realtor, looked for properties, and found one they could afford: a 2-bedroom, 2-bathroom short sale property they purchased for $53,000 in December 2013. They put it 20% under ( about $10,600) and did a few small home improvement projects like cleaning the carpet and adding fresh paint to the walls.

Becoming a real estate investor started with a conversation with his friend in 2013.

“It’s really important to facilitate conversations about your interests with as many people as possible. If you’re interested in real estate, you might find a business partner, a loan officer, another investor, a mentor, a tenant, or a roommate ” said Allen. “We often avoid talking about money, debt and investments because they are personal. But one of the things I’ve learned is that you can learn from other people’s lessons and mistakes before you make your own. It will save you money, time and stress. “

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