June 13, 2024

Real estate investing can be an effective way to build wealth. 
Insider has interviewed dozens of investors who have achieved financial independence thanks to their real estate portfolios.
Successful investors agree that it isn’t necessarily easy. Buying property requires time, dedication, and tenacity. But, “it’s pretty straight-forward,” said Seattle-based investor Todd Baldwin, who earned more than $1.5 million from real estate in 2021. “If you just buy real estate and you hang on to it for 20 years, you’re going to sell it for a lot more than what you paid for it.”
A big hurdle for prospective buyers is the upfront cash required to make a down payment and cover closing costs. 
Here are four strategies that Baldwin and other investors who are now financially independent used to afford their first properties.  
There’s a misconception that you absolutely have to put down 20% and save up tens of thousands of dollars in cash in order to purchase a property, said investor Ludomir Wanot, who bought his first property with less than $10,000: “That’s not the case whatsoever. You can get your foot in the door without too much upfront cash by using an FHA loan.”
FHA loans are government-backed mortgages that give people the opportunity to buy a home with lower credit scores and down payments as low as 3.5%. 
Wanot ended up using what’s called an FHA 203(k) loan to afford his first property: a single-family, fixer-upper that he bought with his brother 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 renovations, which ended up costing $30,000. But since they rolled the remodeling costs into the loan balance and put down 3.5%, “we were in for no more than $10,000,” he explained.
If you have previously served in the armed forces, are an active-duty service member, or are a surviving spouse of a veteran, you may be eligible for a VA loan, added Wanot. This is a type of mortgage loan guaranteed by the U.S. Department of Veterans Affairs that requires no down payment, no private mortgage insurance (PMI), and offers the lowest average fixed mortgage rates.
Understand the resources available to you. You may qualify for down payment assistance, which could allow you to purchase a property with little to no money out of pocket, as long as you can provide proof of a good credit score.
“What I’ve realized over the years with buying properties is that cash is king,” said Wanot, who owns 13 units throughout central and western Washington and runs a real estate wholesaling business. “The less cash I can come into a property with, the more properties I can continue to buy.”
“House hacking” is a strategy that involves renting out a portion of your home and using the income to cover some (or all) of your housing costs. It’s how Baldwin and other investors got their start.
When Baldwin was renting an apartment in his early 20s, he realized that he could actually save a ton of money if he bought a place and found roommates. 
He found a 6-bed, 4-bath home in a suburb outside of Seattle, Washington for $506,000. He put 3.5% down, meaning he paid about $19,000 upfront, he said: “Admittedly, I was incredibly lucky to have a lucrative sales job that paid well over $100,000, so that certainly helped me buy my first property.”
Baldwin and his girlfriend (now wife) at the time moved into the master bedroom, kept the smallest room as an office, and rented out the other four rooms. The rental income more than covered the monthly mortgage payment, meaning they went from paying $700 in rent to living for free and bringing in a profit, he said.
House hacking means finding compatible roommates and having significantly less space, but it can be an effective way to save on housing costs and free up more cash to put toward a second property. That’s exactly what Baldwin did: He continued buying rental properties over the next two years, and by age 25, his net worth crossed $1 million, mostly thanks to rental income, he said.
Sean Allen, who used real estate investing to pay off $81,000 in debt and build a $1 million net worth, got started with $8,000 in savings. It wasn’t enough to buy a place on his own, so he went in on his first property with a friend.
Combined, they had about $16,000 in cash. They worked backwards and figured they could afford something around $60,000. That purchase price would allow them to put 20% down ($12,000) and have $4,000 left over to go towards closing costs.
They were both living in southern California and figured they probably weren’t going to come by 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 real estate agent, looked at properties, and found one they could afford: a 2-bed, 2-bath short sale property they got for $53,000. They put 20% down (about $10,600) and did a few minor home-improvement projects, like cleaning the carpet and adding fresh paint to the walls. 
After finding tenants, they started profiting about $220 a month. It all went into an account earmarked for future real estate investments. Today, Allen owns six properties, is debt-free, and financially independent thanks to his real estate portfolio. 
Becoming a property investor all started with a conversation back in 2013 with Shea. 
“It’s very important to facilitate conversations about what you’re interested in with as many people as you can. 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 shy away from talking about money, debt, and investments because they’re personal. But one of the things I’ve learned is you can learn from other people’s lessons and mistakes before you make the same ones. It will save you money, time, and stress.”
Dion McNeeley lived paycheck-to-paycheck for years before he could afford to invest in real estate. 
“I made it to 40 without ever having $1,000 in the bank,” the 51-year-old told Insider. 
Inspired by his brother who was able to retire in his 50s thanks to smart real estate investing, McNeeley decided to start saving up for an investment property in 2011. At the time, he was making $17 an hour working at a commercial truck driving school and supporting his three kids.
For the following two years, McNeeley focused on saving up for a down payment towards a property. He put in overtime hours at the truck driving school and earned an additional $350 each month playing multiplayer online games like Ultima Online and World of Warcraft.
“In games like these, some items are hard to get or take a lot of time to acquire. I would gather the resources to get the items,” he explained. “In Ultima Online, it was virtual real estate — players could own houses — so I would take the time to create the house, any size from a small cottage up to a castle, and sell them. Each game has its own economy and learning that economy made it possible to consistently make several hundred in profit a month.”
By 2013, he had managed to set aside $20,000 in savings, which ended up being enough money to put down for the purchase of his first investment property: a $300,000 duplex. He financed it with a conventional loan and put 5% down, or about $15,000. 
McNeeley moved into one unit of the duplex and rented out the other. This is where he really improved his situation and was able to save significantly on housing costs. He went from paying $1,500 per month in rent to paying just $300 to live in his own home, since rental income from the other half of the duplex nearly covered his entire mortgage. 
“I was instantly able to add $1,200 a month to my savings rate,” said McNeeley. He was already thinking about his next property and proceeded to expand to 16 units and achieve financial freedom over the next decade. 
He still has multiple revenue streams today: He earns rental income from his portfolio of properties. Plus, he still earns a salary from his day job at the truck driving school, where he’s worked his way up to president of the company. He also does expert testimony and makes money from his YouTube channel. 
Think beyond your day job, he encouraged: “I make way more money spending two hours a month on real estate and one to two hours a month providing expert testimony than I make running a truck driving school. The mistake a lot of people make is selling their lives one hour at a time and not realizing that you make a lot more money when you get paid on the value you produce.”
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