I only have $10K, but I want to get started in real estate investing. What can I do?

First and foremost congratulations on saving $10K.  Most people don't have the discipline or aren't willing to make the sacrifices it takes to save $10K.  Knowing what I know now, I would buy a multifamily property (2-4 units) with an FHA loan.  I would live in that property for a couple years (rent free) then refinance so I can buy another property using the FHA loan again.  This strategy is called house hacking and many successful investors have done it to begin their careers.  Here are a few of the immediate questions I get when I tell someone to do this.

How much house can I get with $10K? 

You can buy a house up to $300K.  An FHA loan allows you to put a down payment of 3.5% of the purchase price.  3.5% of $300K is $10,500 (borrow the last $500 if you need to).

What about closing costs? 

FHA allows you to put most of the closing costs into the loan.  We have a "Quick Tip" at the end of this article that helps with closing costs.

What does my credit score have to be? 

Your credit score must be above 580 to get the 3.5% down loan.  If your credit is between 500-579 they will ask you put down 10%.  If your credit is less than 500, use some of that $10K to fix your credit and get your score above 580.

Why not buy a property larger than 4 units? 

FHA loan guidelines will not allow you to buy a property more than 4 units.

Should I buy a property that needs to be renovated? 

This depends on you and the resources you have.  If you have the ability, patience and contacts to do a renovation I would suggest to do it but not to bite off more than you can chew.  Doing a renovation is advantageous for a few reasons but here are the 2 most important.  Once you're done with the renovation and fully occupied you will have definitely added equity to the property.  You can use an FHA 203K loan which allows you to put the same 3.5% down of the purchase price and FHA will give you the funds to purchase and renovate the property.  If you're not comfortable or you don't have the time or resources to manage the renovation then buy a turn-key property (needs no work and has tenants).

What if I don't want to manage tenants? 

You can hire a property manager even if you live in the property, we manage properties where the owner lives in one of the units.  BUT, I suggest you manage your first property for at least 3 to 6 months to get an understanding of all the moving parts to managing property.  I suggest this for 2 reasons, 1-there are a lot of bad property managers out there and will take advantage of newbies.  2-You will appreciate your property manager when they are doing a good job because you will understand how much they are doing and how much time you've given back to yourself. 

QUICK TIP - Always close on your property within the first 5 days of the month.  You will receive the security deposits and the pro-rated rent for that month.  This will help with closing costs and in some cases we've even received money back at the closing table.

When you get tired of house hacking then you can move on to the BRRRR Strategy using hard money to close quickly.  That post is on its way.