What is going on everybody?
In today's video, I'm going to be going over the exact cost to investing in real estate.
How much do you actually need to buy different investment properties?
And currently I own 17 units and about $4 million worth of property in the Washington
DC market, so I have a little bit of experience with this.
Because the thing with real estate investing, if you haven't noticed, is that there's a
lot of hype out there.
There's a lot of people that say you need millions of dollars to invest in real estate
or other people that say you don't need any money at all.
So in this video, I'm just going to cut straight to the chase and tell you exactly how much
you need to invest in these different types of properties.
So the very first cost with real estate investing is what's called your earnest money deposit.
And that's basically, you put that down with the title company once you go under contract.
So if it's an off market deal where there's no real estate agents involved, I typically
like to go for the least amount possible when it comes to my earnest money deposit.
So I think the smallest amount I've ever done is like $500.
I usually just try to do about $1,000 for my earnest money deposit.
And you put that down with the title company once the seller accepts your offer.
And usually you have to do it within like three days, five days, seven days, each contract
is going to be a little bit different.
It's good to do it sooner than later just so you can like officially lock that contract
in.
The thing to know with the earnest money deposit, if it's like a really savvy type of seller,
they might require more than 500 or $1,000.
They might say, hey, can you put 10,000 or 5,000 or maybe 20,000, depending on the purchase
price of the property.
And then if you're making an offer with a property that's actually listed on the MLS
with a real estate agent, they're typically going to make you put like two to 3% down
is pretty much the standard for your earnest money deposit.
And that goes towards closing costs and down payment and that type of thing.
So it's not like you lose that money.
You would only potentially lose that money if you were to default on the contract, and
then that's why I like putting as little down as possible.
Now I've never defaulted on a contract before, but it's always good to put as little down
as, as you can.
However, sometimes if there's like multiple offers, it's a high price property, you want
to show the seller that you're as serious as possible.
So I've seen people do like 5% down for the earnest money.
I've seen even people put down like 100K for the earnest money deposit, just to show the
seller that they're set on this property.
They're not messing around.
They're not going to back out of the deal.
Now, the next cost for an investment property is going to be the down payment.
Now this is going to vary drastically depending on the type of loan, type of property, type
of situation.
And we'll just go cover a few of them.
So if you're house hacking and you're doing like an FHA loan, which I'd highly recommend,
and house hacking is basically where you purchase a property to live in one of the units and
then maybe you run out some bedrooms or rent out some spare units.
And with FHA, you can go up to four units and only have to put down 3.5% for your down
payment.
So if it's like your first property, definitely check out FHA.
And the great thing about FHA, even if you own other properties and you haven't used
your FHA loan, you can still use that loan.
As long as you haven't used it up yet it's still available.
So I would try to look for like two to four unit properties and do FHA because it's only
3.5% down.
And then not only that, but you can actually get that 3.5% as a gift from like a friend,
family member, whoever it is.
Always talk with your lender to let them know that it might be coming in the form of a gift,
but you can essentially do like 0% down sometimes if you were to have your friend or family
member basically loan you the money for that initial down payment.
So, before we get to the next point, if you're looking for a one-on-one real estate investing
mentorship, I do some one-on-one mentorships with different investors from across the country.
So definitely reach out to me, one of the links below or on social media, and I'd love
to have just a quick chat and see if it would be a good fit.
Another good option for basically like 0% down or very low down payment, our VA loans.
So you obviously have to be a veteran and talk to your lender, but VA loans are actually
0% down, they do have a funding fee of about 2%.
So always talk with your lender about that.
But that's another scenario where you might be able to get a gift from a friend or even
maybe you pay a little bit more for the purchase price and then have the seller give you some
type of seller credit that can go towards your closing costs.
Now, if you're looking at a property strictly as an investment to purchase it as a rental
property, let's say, the bank is typically going to require 20 to 25% equity in the deal,
which usually means a 20 to 25% down payment.
However, if you find a great deal and maybe there's already a ton of equity built into
it and the bank appraises it and agrees with you on that, then you could potentially bring
a lot less to the table.
If you find a super high equity deal, they already have that equity built into there,
then you don't have to bring as much.
And that's one reason why I love off market deals because there's less competition, you
can get super high equity deals and you don't have to bring as much to the table.
And I have some videos below on basically how I find these off market deals.
But PropStream is a highly recommended resource.
Then we have the down payment for fix and flip properties, and I've done quite a bit
of these, and this can just vary so drastically.
So usually if you're doing a fix and flip deal, whether it's off market, on the market,
usually you go through a hard money lender or private money lender.
Now the hard money lender, if it's a really, really good deal, always wants some skin in
the game and they're typically going to make you put down about 10% of the purchase price
from your own cash as far as the down payment goes.
And that's if the property is a really good deal.
Now, if you ask around, if you ask different hard money lenders, there are some that actually
have like 0% down but then you're going to have to pay way more in interest.
And each lender's going to have like different scenarios.
So it is something where you should shop around different, hard money lenders and try to find
the best, most flexible.
Because sometimes these hard money lenders might just be like a guy who has a lot of
cash and he might be looking for a deal.
He or she might be looking for a deal and they might say, okay, you know what?
For this one, we'll just give you this money and maybe you don't have to bring 10%.So they
can be flexible depending on the company and type of hard money lender.
It is.
Now, if you're doing a fix and flip with a private money lender, that's when it can get
more interesting.
I've had several deals that I've purchased where I purchased the property through a private
money lender and in some cases I basically only have to bring closing costs.
In other words, I don't have to even bring a down payment because the deal is so good.
The private money lender realizes that and they'll work with you know, so long as you've
kind of built up a track record or maybe you can just show that it's an amazing deal, maybe
you haven't worked with them before but you can show you're a responsible borrower and
that it's a really good deal.
A lot of times what I'll do with those deals is I'll purchase them with private money and
there's already a lot of equity built in.
I'll tell my private money lender, I'll say, look, over the next three to four months I'm
going to do some minor repairs and then I'm just going to refinance into a conventional
longer term loan.
And all I need is really good credit and the property to appraise at the market value,
and because there's so much equity, I don't have to necessarily bring too much to the
table.
The next cost for investment properties are the marketing costs to actually find a deal.
Now, there's some investors that are super successful that don't spend any money whatsoever
on marketing.
They just have a lot of agents, a lot of investors.
They just have a big name and people just bring them deals, believe it or not.
They've just built up their network where people just bring them deals, or maybe they
just look on the MLS for deals.
Although the MLS is competitive if you know what you're looking for, maybe you search
by keywords like handyman special, fixer-upper or TLC, that type of thing, you can still
find good deals out there.
And I found with the MLS, especially with like the multi-family deals, you can find
much better deals with multi-family because there's not as much competition.
Most people are just looking for the fix and flips.
So you could look at like small multifamily, maybe two to four units, something that you
can manage.
And there's a lot of opportunities there.
Much, much less once you get into like the bigger like 10, 20, 30, 50 unit range.
But anyways, back to the actual cost for finding these deals.
So, some of the top investors in every market, they might spend easily $50,000 a month on
marketing.
And they're spending it on like direct mail, maybe TV ads, maybe bus stop ads, bandit signs,
online marketing.
They might spend a fortune on different various channels and also cold calling.
They might have cold callers, whether it's overseas or here that they pay basically on
a full time basis to call different sellers.
You absolutely don't need to spend anywhere near that amount to find deals, I think the
most I've ever spent in a month is maybe 10,000.
But if you have a budget of even 500 or 1,000, you can definitely dig up some leads.
You can make your own cold calls, you don't need to pay someone to do that or text blasting.
Myself personally, I like to do a lot of direct mail and then I try to network with a lot
of different agents and a lot of different wholesalers to bring me these off market opportunities.
And you really have to think of it like on a long term scale.
So, as a real estate investor, your only expenses are pretty much like your marketing.
You can just work from home, right?
So sometimes if you were to buy a franchise, it might cost you like 100 grand to buy the
franchise, right?
With marketing, it's crazy investors like I don't want to spend $500.
I don't want to spend $1,000.
It's like you got to spend something to make money a lot of times.
The investor that's spending $50,000 a month on marketing, if they just get one deal, a
deal is probably worth easily 50,000 to them.
And you need to find out what a deal is worth to you and then kind of work your numbers
backwards.
I'm perfectly fine spending 5, $10,000 a month because I know I'll probably get 50, 100,
maybe 200 leads.
And out of that many leads, I'm almost guaranteed to purchase at least one deal.
And the biggest takeaway I would give you from this, whether you're spending money on
marketing or maybe you're just doing networking and doing your own activities to find deals,
is you just need to be selective.
Make sure you evaluate at least like 25 or 50 potential deals before you purchase one.
You really want like the low hanging fruit.
You don't want to be like me, the first deal I ever bought was like a studio condo overlooking
a parking lot.
And I looked at like two properties and then I just bought that one and I even bought it
at the right time at like 2009, 2010 timeframe.
I didn't even like make money on it because I wasn't selective, I just bought the first
thing that I saw.
I should have bought something with more bedrooms or more potential.
The next cost with investment properties is your closing costs.
That's in addition to the down payment.
So if you're doing like, let's say, FHA.
That's going to be 3.5% down, if you're doing a conventional loan as a rental property,
maybe 20% down, 25% down, and then closing costs are going to be an additional 2 to 3%.
And most title companies you can easily find out where your closing costs are going to
be, just go on their website in the bottom right hand side of their website they typically
have like a closing cost calculator.
So you can just type in the property, type in the type alone you're going to get and
then you can get a pretty good estimate of what your closing costs are going to be.
Closing costs include things like, I'm just going to read off a recent deal that I just
did, might be an appraisal fee, flood determination fee, tax service fee, homeowner's insurance,
property taxes for the first part of the year, recordation taxes and then title fee taxes.
So typically the title company is going to charge like a fee to do the title work, there's
going to be title insurance, various like make sure there's no liens, that type of thing.
So all in all you can plan on about 3%.
I would add one thing to the fees.
If you're working with a hard money lender, they will charge you a fee for everything.
Every time they come out to look at the property, that's going to be a fee.
They're going to charge you like some appraisal fees, acceptance fees, there's going to be
a lot of fees with hard money lenders.
So make sure the hard money lender you're working with has really good reviews, because
even the ones with really good reviews are still going to charge you fees.
So it's just something you need to be aware of.
It doesn't necessarily mean they're trying to scam you or anything like that, there's
just a lot of fees associated with it.
It's called hard money for a reason, it's not easy money.
Okay, bad joke.
The next fee for investment properties is junk removal fees.
So when I say junk removal fees, I'm not talking about junk lender fees.
I'm talking about actually moving junk out of your investment property.
So a lot of times you can get a great deal, whether it's on the market or off the market.
If you just tell the seller, say, look, I'm going to close quickly, you can leave whatever
you want at the house I'm going to buy the property as is.
Obviously your purchase price is going to be a lot lower so that it still makes sense
for you as an investor.
But if you make it as simple and easy as possible for the seller, you can oftentimes get a great
deal.
However, when you go to remove that junk, it could cost a little bit more than you're
expecting.
Look, yeah, you could do it for free.
You could just remove all the junk yourself, but I'd highly recommend just paying a junk
removal company.
And myself personally, I've paid anywhere from like as little as like 3,000 upwards
of like 25,000 for like a hoarder house to basically remove junk out of a house.
And so it's something you have to factor in, but definitely try to get a professional company
to do it because you can just get it removed in like a day.
You don't have to think about it.
You don't have to deal with anything.
It's like moving, like yeah, you can move all your stuff yourself to a new house or
you can just pay a mover and wouldn't have to worry about a thing.
Another cost with some investment properties are eviction fees.
So sometimes you can get a great deal, but you might have to inherit a bad tenant.
However, you can just kind of factor your numbers backwards and then if it might cost
you let's say $5,000 in attorney fees to evict a tenant and maybe let's say six months of
lost rent.
Well then maybe you multiply that times three or four and say, okay, we'll factor in 30K,
40K for the eviction and headache costs and a little bit of margin of safety in there.
You can work your numbers backwards and make an offer like that.
But eviction fees, sometimes it can be 5,000 plus six months of lost rent.
So it all depends on your area.
Washington DC for example, I'm evicting someone right now and it's a tougher city, so you
have to factor in a good amount more than if it was like Virginia for example, where
it's significantly easier to get somebody out.
The next cost with your investment property are the renovation costs.
So sometimes you might buy an investment property that just needs a little bit of work, sometimes
it might need a ton of work.
The best way to really kind of come up with an estimate, you're never going to be a hundred
percent with your estimate.
So just get that off the table.
Right?
But you don't want to be like significantly off, you want to be in the ballpark.
And the best way to do that is like make a label or make a list of the big ticket items
like roof, kitchen, bathrooms, finishing a basement, landscaping, windows, that type
of thing.
Make a list of like the top 10, 15 big ticket items and then go on websites like HomeAdvisor
great to get like a rough ballpark estimate of what it might cost.
Go inside Facebook groups, a lot of Facebook groups that will say like, hey, what is it
going right for a renovated master bathroom in Washington DC and a lot of times you can
get some good numbers to get a ballpark, and then maybe use the median number.
And then you can also just ask contractors or ask investor friends of yours, hey, what
does it cost to renovate a kitchen?
What does a new roof cost for a single family house?
And you'll start to get a very general idea.
And then you can use like media numbers for all of those, come up with a list of like
the top 10 or 15 things you're going to do to the property and then add about 15%.
Because there's always going to be things that they might have not factored in.
There's always things that you're going to find, especially if it's like a really older
house you should factor in almost like 20% extra than what you're planning on spending.
The next costs are when you actually go to sell the property.
If it's a fixed and flip and you're going to sell it, you absolutely need to pay for
a stager.
Staging can cost anywhere, if it's a really small property probably starts at about like
2 or $3,000.
And if it's like a 5,000 square foot, million dollar house, you might be paying $20,000
for staging.
I would say the average cost for staging is obviously much less than 20,000, but expect
to pay like a minimum of $3,000 for like a really, really good stager.
You also want to get professional photography, which costs another between 500 and $1,000.
And if you just do those two things, professional photography and a stager your house, regardless
of how good the renovation is, will look amazing.
And then you have to pay a real estate agent to list the property.
And a lot of times a real estate agent will include staging and professional photography
in their services.
However, this is a place where you don't want to get a discount agent to just take photos
on their cell phone and put a flower pot up and call it staging.
You really want to have this done professionally.
Better yet what you can do is if you get a professionally staged, professional photography,
you should get your real estate license and just list the property yourself.
I know it sounds bad, but it's really not that hard to be a real estate agent if it's
your own deal.
Because then you can price it to sell and like I'm an agent, I can list my own deals.
I can save 10, 20, $30,000 on every single deal now.
And because I've shopped around hard money lenders and private money lenders, I'm also
saving another $10,000 right there.
So, just by kind of doing those two things I'm saving.
It's almost a deal in itself.
In addition to the profit that I would make on a normal real estate transaction.
I can buy more properties now because deals that previously weren't deals, because I wasn't
making that additional 10, 20, $30,000, are now suddenly deals.
So you're going to open yourself up to more potential deal opportunities.
If you're looking for an investor friendly brokerage to join and you want to work with
me one on one, definitely reach out to me whether on social media or in one of the links
blow and I'd love to have a quick chat and see if it would make sense.
So thanks for watching this video and I will see you in the next one.
Bye.