43. How Much Money You Actually Need to Buy a Rental Property

How much money do you actually need to buy a rental property? This episode breaks down the real upfront cash needed to buy a rental property, and why social media examples like “buying a house for $10,000” can be misleading. Violeta and Lindsay compare house hacking versus straight investment purchases, then walk through down payments, closing costs, inspection costs, reserves, and repair buffers.In this episode, they also share practical ways to lower your out-of-pocket costs through negotiation, seller credits, and choosing the right deal in the right market. The goal is simple: help new investors set realistic expectations so they can plan, save, and buy with confidence.

Key topics

• Challenging the “$10,000 property” social media myth
• The amount needed depends heavily on strategy, loan type, and whether you are a beginner or experienced investor.
• For owner-occupied purchases, they explain that down payments can be as low as 3.5% with FHA
• For straight investment properties, they explain that lenders often want 20% to 25% down, and sometimes more, especially for inexperienced investors.
• They break down the typical costs beyond the down payment: closing costs, inspection, appraisal, reserves, and repair money.
• Violeta and LinDoesInvesting compare a house hack example versus a pure investment example on a $200,000 property and show how the total cash needed changes dramatically.
• In the house hack example, the estimated cash needed is about $28,000.
• In the investment property example, the estimated cash needed is about $55,200.
• LinDoesInvesting shares negotiation tactics, including targeting properties with higher days on market, asking for seller credits, and using inspection findings to reduce out-of-pocket costs.
• Violeta adds that understanding local rent prices, vacancy, and property history is key before making offers.

Read more on the blog!

https://moneychisme.com/how-much-money-do-you-need-for-a-rental-property/

Transcript

The $10,000 Property Myth

Violeta 0:00

You may see on social media of someone buying a property for ten thousand dollars. And although it's possible, it's a little bit of a clickbait because the reality is definitely going to be different, especially since some of these properties are most of the time like distressed, they need some work. So there's going to be more money that you might need on top of that $10,000. So when you see that on social media and you're like, oh, I want to go buy a property, and then you go out there, then you realize that the norm is actually very different, and then you get frustrated. And so you're wondering how much money do I actually need to buy a property? And that's what we're going to talk about today. What goes into like closing costs, how much down payment you may need. And we got some examples and some tips on how to lower that cost and try to get the seller to pay it. Um, before we get into it, if you want to get into a rental property investing, I do have a free starter kit. It is linked down below. We also have a free community for Latinas who are investing in real estate or want to learn about real estate investing. It is a free community in school that will be linked down below as well. So make sure you join.

Lindsay 1:18

So if you're a beginner and you don't know much about real estate or properties or constructions or repairs or anything, then you're gonna be looking at a property that's probably ready to be rented, right? Because you're like testing your toes, you're like, what is this real estate portfolio? What is this like what I can do and get money from, right? Like rental income. How can I get there? And it is possible to do deals with $10,000 out of pocket, zero dollars out of pocket, but this is like an expert level strategy. So whatever strategy you're looking at, make sure that you have the correct data about that strategy. How much money actually do you need to get into the deal? So many of us feel like that. We did like the whole thing. Like we got the degree, we got the job, we got the savings account, we took care of a credit score, and now we're looking like what do we do with this money that we were able to save? And when it comes to real estate, it gives it it still can feel like a risky thing to do as an investment, right? Because you may think, oh, I might need like $100,000 to buy a property. And that's not necessarily

Realistic Down Payment Ranges

Lindsay 2:26

the case. So depending on what loan product that you do, whichever bank that you use, you're gonna need about 8% to 50% of the purchase price. So it depends on what market you are. I think the national average of a house right now is about $400,000. So 8 to 15% can feel a little bit on the higher size. So that would be something around like $40,000, right? Like $8 to $15,000. For a normal homeowner occupy, if you're planning to occupy that residence, so you can get away with having a lower down payment. Like we talked about in previous episodes, there are products like FHA, conventional, traditional. And so if you are in purely in an investment arena and you're gonna buy a house for purely rental purposes, then you need to be aware that your down payment would be around 20 to 25%, sometimes 35% of the investment as a down payment. Why? Because lenders are gonna look at you like the person that you are, an inexperienced investor. So you need to be able to save that for the down payment, the closing cost, the setup for expenses and reserves. And this might feel overwhelming already. But hold on, let's just run through what you need. When you're starting, you probably need to pick the right strategy. What do you have that is something that you can use for this deal? Like, do you have family construction? Do you have electricians, plumbers? Like, if you are going to do a deal that needs a little bit more work, then you probably are gonna be able to need less money out of pocket, right? Because you're gonna make up for that.

Violeta 4:06

As far as figuring out how much you need, Fannie Mae's 2026 eligibility matrix can give you an idea. For a single family home, you're going to look at a loan to value uh percentage of 85%, which means that you're going to need at least 15 down. If you're looking at a multifamily, they like to go as low as 75% LTB, which means you're gonna need 25 down. Now, depending on the lender, you might get be able to get down to 20% depending on the type of loan, but typically it's you know 25%. I know most of my properties, actually, all three of my multifamilies in Milwaukee was I had to put 25% down. So just keep that in mind, which is of course on the higher side, uh, especially now with the properties going a little bit higher.

Why House Hacking Gets You In Faster

Violeta 5:01

So if you want to go owner-occupied, meaning your house hacking, that again, house hacking is living in the property, renting out a room. Maybe you find a duplex and you live on one side and rent out the other, it's your primary uh residence. So then you're gonna be able to qualify for other products out there. For example, you might be eligible for down payment assistance, you're eligible for like FHA loans, which require, you know, as little as 3.5% down. VA home loans, if you're military or a veteran, then you can even have 0% down. But like it really depends. But because you are living in the property, you're househacking it, now it opens up more loan options out there that can require even less than a typical just straight out investment property. So, for example, Bank of America, I know has some home grant programs, and then FA also has some down payment grants. So they're they're out there, it really depends on the state. So make sure you research that and and verify what all the terms are and eligibility for that. But house hacking is a great way for new real estate investors to get into a property easier with a lower cost and faster.

Closing Costs Explained

Lindsay 6:21

Like know the cost of what it's going to get you to get into a house. Your closing cost, either you house hacking or straight buying an investment property, it's it's approximately three to five percent of that loan. Right? That's a normal, that's a normal closing cost that includes title, appraisal, prepaid taxes, and insurances.

Inspection and Appraisal Costs

Lindsay 6:42

You have due diligence costs, which is part of escrow. So when you're going to escrow, you're gonna pay for things like an inspection, a home inspection. That depends on when you are, how much that's gonna cost, but we always recommend to get an inspection. Some parts of the country you get additional inspections like sewage inspections. If it recommends to have foundation inspections as an additional inspection, so be prepared for that. Uh,

Why Lenders Want Reserves

Lindsay 7:06

and some lenders are gonna require to have some reserves, and that means you may think like, well, that's a lot of money. No, the lender's just trying to make sure that after you close, you you have your dumb payment, your closing costs, you still have money to pay for that mortgage for the it can be for three, two to six months. It really depends on the lender because they don't want you to deploy all of your cash and have a hard time renting out the property, and then you don't have the mortgage payments, right? Like that is just a safety measure. Other costs that you may want to know for the property. For example, if you are buying a property with a water heater that's foldy, or you buying a property with like electrical wiring that needs to be rerouted, then you have to have a function for those emergencies. Or other things, right? If you're buying a multifamily and then you're gonna be, even though it's rented already, you're gonna have to have money for utilities, right? Because they're not completely spit split. That's just a case-to-case basis. So we have two

House Hack Down Payment Example

Lindsay 8:06

examples. The first one is your house hacking. You have a property, you add the price is two hundred thousand dollars, and your estimated mortgage, meaning P A T I, right? Because you're using uh FHA product, it's gonna be about $1,400, right? For your down payment, how much do you need? You need 3.5%. That's about $7,000. So $3.5 out of $200,000. Your closing cost, the closing cost you're preparing for, is about 5% of the purchase price. So that's about $10,000. So $7,000 and $10,000. So it's adding up $17,000. Your property inspection that you have to pay out of pocket is you have that $500. It really depends on the area that you are. Your appraisal is another five hundred dollars. That I would say it's pretty typical. You don't have any reserves, so you're putting reserves zero dollars, but you do see that the house needs some reverse, some updates, some things are not working. So you have in the bank about $10,000 just to make sure that you have things for when things break, right? You have cash for when things break. So you estimated cash in your in your pocket and your savings account in order to obtain this $200,000 house is about $28,000.

Investment Property Example Cash Breakdown

Violeta 9:21

Now, if you go straight into it as an investment property, go out and get a conventional loan. Remember, you can put as little as 15% down. So that's going to be $30,000. For closing costs, it's going to be the same, $10,000, and everything else is pretty much the same. Property inspection appraisal each is $500. For your reserves, because it is an investment property, a lender is going to ask for reserves, which can be as little as like three months. So let's just go with that. They want you to have three-month reserves of the mortgage payments. So let's say that's $4,200. And then again, it needs some repairs. You estimate about $10,000. So overall, your estimated cash is $55,200. And you can see the big difference of having $28,000 if you house hack and $55,000 if you go straight into investment property, which is why, again, house hacking is a great way to get started into real estate, reduces your own housing costs. Most of these loans want you to stay a minimum of one year. And then after that, you could either go do it again or just then you made enough cash flow or money saved up enough to buy just a straight-up investment home. So yeah, you could see the big difference, and you can see how yes, you don't need a hundred thousand dollars to invest. It's still more achievable than what you may think. Uh, but again, it really depends on your strategy, what you want to go for. Because there's a whole bunch of different ways that you can lower those costs, which I'm gonna pass it to Lynn that she could share, you know, how to lower those costs.

Tips to Negotiate Better Deals

Lindsay 11:06

So, what do you do in order to lower the amount you need upfront? So I'm an expert at this, I think. Okay. First, it might seem like a lot of money. Here's some tips that can help you, right? The whole transaction is a negotiation. And I'm gonna give away all my secrets here. Okay. So when you are looking for properties, in my experience, you have a number that's gonna work out for you. So you have your rental income and you have your purchase price, right? That whatever the difference is, is how much room you have to negotiate. So it definitely right now, we're talking about August 2026. It is a buyer's market, so there's a lot of room for negotiation right there. Houses are staying longer in the market. But some another thing you're gonna have to understand is days on markets, D-O-M. Days on markets. So that means how like for your area, you're in San Antonio, Texas, you're in Los Angeles, California, you're like Northwestern Indiana. What is the average data market, right? So you that just can look it up. It will tell you Redfin will tell you, Realtor will tell you, Silla will tell you. The average days on market for my, let's say Los Angeles, let's say it's about 30 days right now. So what does that mean? That means like a house goes on the market in MLS and it stays about 30 days before it gets sold. Okay. So now, biggest thing to do to filter for something that you're gonna go into get into the investment property, you don't want to hit or try to negotiate the purchase price of a house that's been on the market for like seven days. Because now you know that like that seller or that realtor is gonna wait at least a month for them to be like, oh, maybe we need to lower the price of the house, or maybe we need to do some incentives to get this house out and going, right? So I would look at days of market. So that would be my number one thing first. You're not looking for the house that just came out on the market unless it's a screaming deal, right? Like the purchase price that you saw is like, wow, why is this so low or so decreased? But if you're looking at your market consistently, you already know, like, okay, well, I'm gonna be starting to look at houses that maybe have been on the market for 60 days, right? If on my average market day is 30 days, why? Because the seller may be motivated to move the house because the expected timeline they had in mind is no longer met, right? Like they're like kind of like, what's going on? Why my house is not selling? Is it how house housing conditions right now? Is the property messed up? Are the interest rates too high? Is lowering the demand? Whatever it is, you need to look at that. So this is the negotiating part. You have to negotiate at every level. When you open escrow, you have a few contingencies.

Negotiating Costs Example

Lindsay 13:52

So let's say you're the property that you have $200,000, they accept it, the purchase price of $200,000. Your numbers work with $200,000, but you have an inspection period, meaning like you are going to make sure that an inspector comes and deems the house livable or livable to your standards, right? Maybe you do want to repair some things or update some things, but livable to your standards. Usually, usually, something has always filed during the inspection. I don't know. The AC unit is too old, there's some cracking and some settling and the house. Those those things are normal, but usually you're always gonna find something during the inspection. And this is my next negotiation point. So after the inspection, you're gonna have to say basically, I take the house as this, or I need the seller to repair these things, or I need credits for the repairs, right? One of those three three things. So, oh no, one more. Or I walk away. Like maybe you found something significantly, like a foundation problem, a termite problem, whatever you found, like a roof problem that you're not ready to take on, you can say after an inspection, I'm gonna walk away from this. So those are all things the negotiation are. So for me, I like to negotiate right after an inspection. You're always gonna find something at every level. Rather that gives me a credit, I prefer to have a credit on my closing costs because that means less money out of pocket. So that is number two for me. Number three, another thing that you can negotiate is closing costs. So when you're buying an investment property, and then we already told you closing costs is just usually two to five percent of the estimated loan product. So what you could do either your house hacking or you're buying an investment property is ask the lend, the seller to pay for your closing costs. That means that they will give you a credit at closing. So you need to come up less out of pocket on your investment property. So let me give you an example. When I bought my first investment property, it was a house in Northwestern Indiana. I think we negotiated the price down to $135,000. Single family, three bedroom, two bad. Okay, $135,000. Because I was a new investor, I had to put 25% down from that property. That was around $33,750, right? So new investor, new lender, they're like, you need to put 25% down. Okay, now my closing costs on that property were about like $7,000 or something like that. But because there were some things that came up on inspection, I asked the seller to either fix the things or give me a credit. Give me a credit, meaning you pay my closing costs. And they did, they paid my closing costs. So the only thing that I needed to come out of pocket was that $33,000, $750. So that already significantly decreased the things that I needed to come out of pocket for, right? For a $135,000 house. So don't forget, you can always ask to get the lender to play your closing costs. There are people that, for example, do this. So maybe let me know in the comments if this makes sense to you, if it doesn't make sense to you. But let's say you're buying a $200,000 house, right? Your numbers work at $200,000 and you agree on that price. But you want, you know, to come up less out of pocket. So you offer on that house $210,000 purchase price, given that you think the price of can come up according to what you're calculating for the house. You offer $200,000, $210,000, but you offer is contingent on the seller paying the closing costs. So sometimes this is possible and this is doable. If this works out, that means you can only get away from giving the down payment and not the closing costs. So if that doesn't make sense to you, please let me know so I can pick it up in another video because it is a strategy that a lot of people do use, do use, especially in higher, higher markets like Arizona or California.

Violeta 17:58

I think the only thing I would add also is to know like your market because let me tell you, like you these houses are going to be priced at the top dollar, what they think they can get. For example, this one that I'm looking at, they are it's going to be listed for $227, right? But they came to me. So I already, so the ball is already in my court, right? Because they came to me with this offer. And then I looked up uh the property, which is another one. Make sure you look up the history of the property. They've tried to sell this property last year for around this a little, actually, like at $250, I think it was. Didn't sell, it was listed for like a year, it didn't sell. And the reason why is because that price point is not realistic with what the current rental market is. So make sure you're understanding your rental market as well, because you could use that to negotiate. So when I go and send them these offers, I'm gonna explain to them like why I'm going at this amount because they want $227. And mind you, they did send me like a little breakdown of like the cash flow or whatever, but they're not including, you know, vacancies, property management, you know, repairs and maintenance and all that that we talk about when you're calculating in cash flow. If you're not familiar with calculating cash flow, we did make an episode on that that will I'll link below. So definitely understand how cash flow works because when they did that, right? Cash flow, the cash flow that they calculated looks fine. So they in their mind they think they could justify 227. But when I did my numbers, plus the the rental market is slowing down over here, so vacancy is about 8%. And and these are one bedroom, one baths, which are kind of like hard already to get. People typically want at least two bedrooms for the most part. So those just take longer already, and you know, the the rent is coming down. So that's one thing that I'm going to use. Also with the seller finance, that's where I'm going to try to go for the ten thousand dollar down payment. But again, this is kind of like a little bit more strategy that needs a little bit more experience, or get yourself a realtor that is investor-friendly and is really good at negotiating like this,

Final Takeaway

Violeta 20:13

right? But really, again, the the yes, it's doable to do to buy a property with ten thousand dollars down, but we want to be realistic and set y'all up for success and not get frustrated because then you're gonna go out there, try, try to go look for a property for ten thousand dollars down or whatever, and you're gonna get so frustrated and you're going to feel defeated and and just give up. Here is a better realistic version of what to expect when you go out there to buy a rental property so that way you are prepared and you can start saving and you know a starting point. And again, remember we do have our school community. You could join for free, you could ask, we could ask us questions, and and right there we're gonna be sharing like more tips and all that, and that's where you can really kind of like get some some support as well. So don't forget about that. But other than that, let us know what other questions that you have in regards to you know how much money you need, then we can make a another video on that and definitely look check out uh look out for the negotiation one. I think that will will be fun and interesting as well. The things that we learned along the way on how to negotiate. Yeah, we'll see you guys in the next episode. Don't forget to sign up. Oh Well, Lynn's camera has already told her that she has to go. We'll see you in the next episode. Bye. Gotta remove my camera.