How Much Money Do You Need to Invest in Real Estate?

Dec 9, 20220 comments

Are you looking to get started investing in real estate? You may have asked yourself or others, “How much money do you need to invest in real estate” without getting a straight answer.

The truth is that you don’t need that much money if you want to be a real estate investor. In fact, you may not be required to put any money down depending on your loan program.

Continue reading to find out how much money you need to invest in real estate and other considerations you must take before buying your first home.

Down payments

To find how much money you need to invest in real estate, you’ll need to figure out if you’re required to have a down payment and, if so, you need to know the percentage of down payment required for your loan program.

Speaking of loan programs, there are four main options that investors and homeowners have to choose from, including:

  • Conventional
  • Federal Housing Administration (FHA)
  • Veterans Administration (VA)
  • United States Department of Agriculture (USDA)

Unless you or your spouse served in the military, you won’t be able to qualify for a VA loan. Additionally, USDA loans are meant for properties located in rural areas, which means only a select few will be eligible.

This leaves you with Conventional and FHA loans to choose from. If you plan on living at the property, you can get a Conventional loan for as low as 3 percent down or an FHA loan for as low as 3.5 percent down.

However, real estate investors buying an investment property will not be able to qualify for an FHA loan and typically must put down 20 percent of the purchase price as a down payment with a Conventional loan.

How much do you need to invest in real estate?

Now that you know the down payment requirements, you may still be wondering how much money you actually need to invest in real estate.

Let’s take the Conventional mortgage example and a property worth $250,000 that will be your primary residence. At 3 percent down, you only need to bring a down payment of $7,500 with your Conventional loan.

For the same $250,000 home with an FHA loan, you only need $8,750 as your down payment to purchase the home.

However, for a Conventional loan that is an investment property, the same $250,000 home requires a down payment of $50,000–much higher than for those who plan on living at the property as their primary residence.

Mortgage insurance

Although you can buy a home with a Conventional or FHA loan for as little as 3 percent down, this doesn’t mean it’s wise to do so.

One reason for this is because of mortgage insurance. Mortgage insurance is a type of insurance required for borrowers who make a low down payment to insure the lender in case of default.

The bottom line

Investing and owning real estate is easier than you might think with the low down payment requirements of FHA and Conventional loans. You can get started investing in your first property with less than $10,000 in many areas in the United States.

Visit our website or contact us for more information about property management and how to get started investing in real estate today.

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