How to Start Investing in Real Estate with $25,000 or Less (Rookie Reply)
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What's the best way to invest $25,000 and scale your portfolio? It's a question many new investors face, but what's really the best move in today's market? And once you figure out your strategy on how to invest that $25,000, how do you pick the right market? For instance, investing out of state can be a little tricky when you can't just drive to the property or meet tenants face-to-face. We'll tackle these real-world investment dilemmas and give you actionable advice you can implement today.

My name's Ashley Kerr. And I'm Tony J. Robinson. And welcome to the Real Estate Rookie Podcast. Okay, so today for our first question, we pulled it from the BiggerPockets forums. You can head over to biggerpockets.com and hop into the forums to ask your question or to actually answer some. So this question says, I am trying to figure out how many markets I should focus on at once. From

From what I see, there are people who invest in different real estate markets all over the country. I don't want to focus on one market and not be able to score the right property for who knows how long and then end up missing out on other locations. It seems just being a long-distance landlord is very popular as well.

What if I was to focus on properties in somewhere between two to five markets? Seems like I contacted somewhere between one to three real estate agents in each market. I could end up finding something good for sure. So basically, this person is asking...

They don't think they should focus on one market and they should focus on more to increase their chances of getting a deal. Is that how you're reading it too, Tony? Yeah, it seems like it. Like what's kind of the sweet spot for the number of cities and markets to focus on to find the deal? Yeah, so I'm still, I'm going to say that I'm still a firm believer in one market. I would say in that market, look at one to three neighborhoods.

But I'm still staying focused in one market as a new investor. I think for me, it probably depends on a few factors. I think part of it is, well, how many opportunities are there for you to analyze and make offers that fit your buy box in that market?

You know, if you say that your buy box is super tight, like we've interviewed people who only focus on condos. We've interviewed people that only want to buy properties that they can restructure the layout to turn a three bedroom into an eight bedroom and do co-living. We have people who only focus on starter homes, right? Three bedrooms, you know, one to two bathrooms under 2000 square feet. So I think the title of your buy box is tight.

maybe the more difficult it'll be to find a high enough volume of deals in your market to actually analyze and submit offers. So I think working into it, like working at it from the other way, I think the first question is how quickly do you want to get your first deal? And if you're fine with it taking 12 months, whatever, because there's just not a lot of volume in your market, then yeah, stick with that one market. If you want to get your first deal in the next 90 days, then maybe we need to increase the volume. But if you need to, you know,

submit 100 offers to actually close in that first deal where you got to ask yourself, how many offers can I submit in this in this market? And if you can only do one offer a week, you know, it's going to take you two years to find your first deal if you got to make 100 offers. So I would probably back into it that way and say, OK, how many offers do I want to get out on a on a weekly basis? And can I actually do that with one market? OK, if not, can I do it with two? OK, if not, can I do it with three?

Anything above like three to five is probably a little bit overkill, but I would think that's maybe a sweet spot if your buy box is tight enough. Now, if there's just a lot of options in your market, then yeah, I agree with Ashley. I think there's a lot of value in going just super deep. And when I first started, not only was I looking at one

city, but I was really looking at like one zip code within that city, but it was a big enough city. There were enough properties for sale where I could just focus on that one super tight niche market and get good at it. But today inventory is a little bit more constrained. Um, I think there's a little less supply to look at. So maybe opening that, that,

search parameter a little bit could be beneficial for you. Okay, so Tony, I actually just pulled up the BiggerPockets market finder. And in here, you can enter a city. So I put it in Buffalo, New York. But within the city of Buffalo, not even including the suburbs, there's different neighborhoods with different zip codes. So

So you can actually narrow down by zip code in an actual city to get more specific detail on that neighborhood and kind of go through the numbers there. So maybe instead of looking at property type first or, you know, what your strategy is, maybe looking at the numbers on the actual market to see if maybe there's a way to make a

a neighborhood more attractive than the other, that it's worth focusing on those three neighborhoods within a market instead of having to go and analyze, you know,

Cleveland, Buffalo, Columbus, Ohio, and figuring out, you know, trying to look through all those. You're having three different agents. You're having to build basically three different teams. So maybe instead niching down and really focusing on those neighborhoods. But you can go to biggerpockets.com slash marketfinder.com.

You can use this tool to actually get all the data you need to successfully analyze a market and to really narrow it down by zip code instead of just the city as a whole. Because even just looking at the map right now, I can tell you that some of this data

you're looking at the city as a whole. But if you niche down in some of these areas, these numbers actually turn out to be way better than what they're showing here. And in some areas, the affordability is way worse than what it's showing here too. Yeah, obviously I love using the tools that BP's built out to kind of help with this. I think the point that I really want to drive home here is that as the volume in a market goes up or goes down, it's going to force you to either be more or less flexible with your strategy and with your buy box. Like for example,

Ashley can look in her market because she can tackle different deals of different types. She can do a single family flip. She can do small multifamily. She can do a burr. She can do just a turnkey rental. She bought a liquor store. Like she's kind of dabbled in a lot of different strategies. Whereas me, when I was first starting, I was really just looking for three bedroom, two bath, you know, 1100 square foot single family homes. So I wanted to make sure that I had a really, really tight buy box. And that's all that I was looking for.

So as the volume goes up or down, more volume means you can be a little bit more strict with your buy box. Less volume means you either have to open up and be a little bit more flexible or go to other potential markets. So either way, I think there's no right or wrong answer here. It's just what makes you more comfortable as a rookie investor.

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Welcome back from our short break. Tony, what is our second question today from the BiggerPockets forums? All right. So second question here says, I'm looking for the smartest way to invest $25,000 to generate the best returns and scale my portfolio as quickly as possible. My goal is to make the most strategic move that maximizes profit while managing risk effectively.

Just pausing on the question here, I would say that's almost everybody's goal, right, is to get the best returns while reducing risk. But going back to the question here, it says, if you had $25,000 to invest, what would be the best option? Would you put it toward a down payment on a long-term rental, BRRRR, house hacking partnerships, or another strategy?

What type of real estate would you target? Single family, multifamily, commercial, etc. Any key factors to consider or lessons learned when trying to scale efficiently? Appreciate any and all insights. A lot to unpack here. Yeah, I think the first thing we have to bring up is if you have $25,000 to invest, does that include your reserves? So is that $25,000?

That's all you have or is the $25,000 you want to use to invest, but you have a separate amount of money as reserves. That should be, I think, the first clarification is that you need to have reserves in place. Couldn't agree with you more. You definitely don't want to go into your first deal thinking,

and have nothing left over uh you know because it'll it'll be your luck that the day after you close you need a new roof you know or the hvac goes out um so i i think a couple things here right i mean we don't know all the the nuances of this person's like personal life or kind of where they're at or or what they're comfortable with but i'd say for or or even what market they're in um but i'd say in my mind

With this level of capital in, say, a median priced market, right? So somewhere around, I think the median home price is like somewhere around $400,000 right now, right? So if we talk median home price market, 400 grand for a typical home, typical property, I would probably go the route of house hacking, right? Because at that purchase price, $400,000, 3.5% down, what is that? $13,000, $14,000, somewhere in that ballpark. You could still cover your down payment.

cover your closing costs and have a little bit of money left over. And if you could buy a property where either it's a large, you know, maybe it's a five bedroom, you're living in one room and renting out the other five, or maybe you get a small multifamily, you live in one unit, rent out the others and rent out the room that's in your unit. In my mind, that is the best way to reduce your living expenses, generate cashflow,

reduce your cost of acquisition. So a lot of what you're talking about here, scale, maximizing profit, reducing risk, you're checking all those boxes by going into a house hack first. That's my thought. What do you think, Ash? Yeah, I mean, I'm glad they put house hacking as an option of something they were to consider because

That is always my go-to is the number one thing. If you can do a house hack, that is one of the greatest ways, in my opinion, to get started because you're covering your, you know, you're lowering your cost of living. If you're going to buy a house anyways, you're kind of mixing your primary residence with an investment property. So you have, you know, instead of making the decision of, do I buy myself a primary home or do I, you know, buy a rental property?

property, you're able to kind of merge those two paths together. So I always like the idea of house hacking because you're able to get the best financing usually, unless you are getting creative with your financing and using help seller financing or something like that, where you can maybe get a 2% interest rate, but, um,

As far as going through a bank, this is the best lending option you will get if it's your primary residence. But I do encourage people when they're building out their buy box and they are going to do house hacking, look at types of properties that are available in your area when

when you're building out that buy box. So are ADUs something that are popular in your area where you can actually live in the main house and rent out the ADU? Or vice versa, you live in the smaller unit and rent out the bigger house. Are there basements where you could convert the basement into another property, put it in the kitchen, put it in a bathroom?

Can you rent by the room? Is there a small cabin on the property that you could rent out? So try to get creative and not just strict to the confines of the traditional house hacking where you're

buying a rental and renting out the room or you're buying a small multifamily and renting out another unit, what are the other options that are available? And one of the things too, without, you know, are there other ways to bring income to your property without actually renting to a tenant too? So this could be,

buying land and you could, you know, take that $25,000, buy a lot, a wooded lot. You could take the timber value from that lot. You could sell some of the timber, recoup some of your startup costs, and then you could also sell the lot as a vacant lot for somebody to come in and build a home on. So the

think about things like that. Is there a garage? Is there a barn? Is there a shed that you can charge people to store their boats, their RVs, things like that. So not, it's not always specific to renting to a tenant when we talk house hacking, but think about other ways you can generate income off of a property and using that 25,000 to invest. Yeah. You make so many great points, Ashley, is that there, you know, we should be thinking creatively. I, but I, you know, just going back to this part about like managing the risk,

I think different strategies carry different levels of risk for different people. And what is a potentially risky strategy for me could be the easiest strategy for Ashley and vice versa. So I think as you explore these different options, you have to look at yourself. You have to look at your own skills, your own abilities, your own tendencies, your

And ask yourself, where am I best suited or what strategy is best suited for who I am as a person? And if you're someone who is terrible with project management, if you're someone who doesn't do well with kind of

You know, navigating conflict with contractors, if you're someone who, you know, can't keep a budget, whatever it may be, right, then maybe don't go into the strategies that focus on those things, right? Don't go brr, right? Because you're going to set yourself up for failure there. And maybe you need to go buy a turnkey property.

So I think doing a little bit of self-assessment is really important to also help reduce that risk because you are uniquely qualified to do something. And I think you've got to identify what that is. You know, Tony always talks about the NACA loan, but there's also the USDA loan too. And this is for rural areas to get people to purchase property in rural areas. And they do 0% down. So-

With that 0% down, you'll still have closing costs and your reserves, things like that. So that still will eat up your $25,000 in a sense, but it does give you more that you can buy because you're not having to do a down payment too. So that's also an option, but it does have to be your primary home. So it would have to be a property that you house hack.

And I think I'm not positive on this. And you can go to USDA.gov to look for sure at kind of what the rules are on it. But I think it has to be a single family home. So this would be a scenario where you're renting out by the room or, you know, you're charging for storage or, you know, you're going to create a hobby farm and sell things.

goat milk and make goat cheese and soaps and stuff like that off of it and get the agricultural exemption to lower your property taxes. But that's another product to look at, too, is the USDA loans, too. Is that a common hobby farm where you're at, Ashley? Is goat milk and, what did you say, goat cheeses?

I initially first thought of the goat soap, like soap made from goat milk, but I couldn't form the words and I was like goat cheese, which I don't even know if goat cheese, does that actually come from goat's milk? I honestly don't even know. I did not know that goat soap even existed. So you just educated me on something new. Yeah. Yeah.

Yeah. So there are several people that do sell that in our area. Okay. We're going to take our final ad break. And while we're doing that, if you are not already subscribed to our YouTube channel, it would mean a lot to us. You can go to youtube.com slash at real estate rookie and subscribe. We have new video releases every Monday, Tuesday, Wednesday, and Friday.

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Okay, let's jump back in with our last questions day. So this question is about co-signers for a lease. Do you have to have co-signers do the full background check slash application process as the people who will be living in the property?

We're considering some younger folks moving to our town from out of state and they would need to establish jobs once they arrive. So we want to ask them to have some co-signers for more payment security. But I've never done that before and would love some tips and thoughts from people who have. Thanks. Okay, well, Tony, I'm going to assume you don't know a ton about this process. I do not. So you are the perfect person to answer this question. I think just before you jump in, Ashley, if you can...

Just like even defined for maybe some of our rookies who are unfamiliar with how this relationship works. But like, why would anyone even consider maybe forcing a tenant to have a cosigner? Yeah. So first of all, cosigner is somebody who is pledging themselves to be responsible for your loan if you don't pay.

So, for example, if someone goes and buys a car and they don't have credit that is good enough, their income isn't high enough, they can have somebody co-sign for them and they get their little old grandma to come into the dealership with them and sign a piece of paper saying that if you don't pay, your grandma will be responsible for making the payment. She's signing along with you to be financially responsible.

So in this situation, you definitely, if you are ever co-signing for someone, you should be very, very, very cautious when doing this because you will be financially liable.

In the situation of renting an apartment, this person said because they didn't have jobs yet since they were relocating to the area. But this can also be if someone doesn't have a great credit score, if they don't have super high income, if they can show a cosigner can fulfill that other screening requirement.

to get them approved for the application. So, you know, if somebody is younger, they're just starting out in life, they've never had a credit card before, they, you know, lived in a college dorm, they don't really have housing history, they may not qualify just only because they haven't had these life experiences yet, they haven't taken on any debt

So honestly, I think that's a good thing when there's no credit score because they haven't taken on any debt yet and that's kind of becoming a rare thing. But this, you can have them bring on a co-signer such as their parent, family member, whoever,

I do have the cosigner to go through the full application process. So they're filling out the application, we're doing the screening on them because we want to make sure that they bring to the table what the other person is missing. So you'll have them do the background check, the credit check,

I would say since they're not living in the property and that's something also to clarify during the application process is this cosigner living in the property or not and most often times they're labeled a cosigner because they're not living in the property they're just financially responsible that the rent is going to be paid

So go through the whole application process with this person also. For my units, we do it for anybody that is living there that is 18 and over has to go through the application process.

Plus, if there is a cosigner, they go through it too. You'll also want to get, you know, verify the information they're giving. So if, you know, your actual tenant doesn't make enough income, you'll want the cosigner to bring proof of income. You'll want to verify their income. And, you know, a lot of property management software actually has that integrated where they'll do the income verification for you through the person's employer. But when you cosign, make sure you get information

Think about if this person didn't pay, what would happen? You would take them to court to evict them and then you would place a judgment on them for the amount that was owed.

So you want to have the information. So I usually get a copy of the driver's license of each tenant along with the co-signers so that if you do end up going to court, your attorney is filing papers, filing the judgment in the names of the tenants and also the co-signer because they signed on the lease that they'd be financially responsible. The more people who are financially responsible, the more likely you will get paid. So I had this situation where

There was somebody that I was running to do. She was in her 20s or 30s, but it was her first time living on her own. And her mom kind of helped her through the application process, and they had seen the apartment together. And the mom was co-signing because the daughter didn't have a ton of income, and she didn't really have any credit history, so the mom co-signed. So things went fine, and then the daughter stopped paying. And so I contacted the mom, and I said,

We have not received payment this month. And so the mom talked to the daughter, whatever happens, we receive payment. Well, it happened again. And so we start the eviction process. So I call the mom and I say, just so you know, we haven't received payment. Now we're going on to the second month, haven't received payment. We've started the eviction process. But

But what I'm willing to do, and this is called cash for keys, I'm willing to give you, I don't remember the amount, let's just say $400. I'm willing to give you $400 if your daughter moves out by this date. And, you know, just kindly reminding, you know, you're on the lease too. The eviction papers have you listed on this list.

but I will meet you at this date and this time, and if your daughter is all moved out and you can hand me the keys, I will give you $400. And that is what we did. That cosigner helped me get that person out of the apartment, and I handed $400 to the mom the day that the daughter got out of the apartment and I was handed the

So there are benefits to having multiple people that can, you know, maybe somebody else, there's one person on the lease, that's the problem. The other person or people could actually persuade them to actually move out of the property or to pay their rent because they don't want to end up in a position where they have a judgment against them.

Actually, let me ask, is the paperwork different for the cosigner than it is for the actual applicant? No, we do the same process. There's just at the top of the application. So ours is all done through property management software, the screening process. So like the application, they would just select...

And we're able to link their application. So when that person that's going to live there fills out their application, they actually send a unique link to the person they want to be the cosigner. The cosigner clicks on that and it takes them to the application process and it will automatically link their accounts together and say this person said they're the applicant, this person said they're the cosigner.

I don't know if you even have this data, but like, do you know like what percentage of your tenants right now have co-signers? Like if you were to ballpark guess. Very, very low. Is that what Ricky should maybe strive for? Like if, you know, aside from, hey, young,

college town, a bunch of kids doing this for the first time, but say you're just in a normal middle income type city in the United States, is it almost a red flag if a lot of your tenants are coming to you and they need that cosigner? I don't think it's a red flag if a lot of them are coming to you. I think that says more about what class your property is. And I guess it's why they're not

qualifying and why they need a cosigner. So if it's debt to income or like income to rent ratio, so like say you've set your standard that they need to make five times what the rental income is, probably a lot of people are going to need cosigners because they're

you're requiring them to have a really high income compared to what the actual rent is. So in that situation, you probably are going to get a lot of people that bring a cosigner because you have that high expectation. And I'm not saying to change it.

But if you're getting into the scenario where a lot of people have just a ton of debt, their credit score is not great, and they're all bringing co-signers, then you're probably more likely in a C class or D class area where it's lower income people coming into those areas anyways. And that's kind of the standard, the norm in those classes of area. So I guess it's hard to directly...

your question that way because I think it tells you more about what type of property you're actually renting out and what your requirements are. But I think you also made a good point. It's like, you know, don't just, if someone doesn't get approved for your unit, don't just jump into, hey, go get a cosigner. I think part of it is like understanding why they didn't get approved in the first place and

and just keeping track of that. And if it is what we said, where it's just a lot of younger, you know, new working professionals that haven't built up that history, that's one thing. But if it's someone who's, you know, in their 50s and they've lived enough life to kind of be in that position, but they've, you know, filed bankruptcy seven times, then maybe that's something to be more concerned about. So I think it's just helpful for rookies to kind of hear it through that thought process. One thing too that we do list in like our, because like we have our screening criteria available on our website. And one of the things is that, um,

we do a manual review for medical debt and student loan debt. So like really heavy on the medical debt that we don't take that into an account. So like especially if people have judgments against them for medical debt, we do not factor that in. We just kind of like especially if everything else is great, we just assume they're just not paying that medical debt because there's not really a way to collect it. So...

Okay, you guys, well, thank you so much for joining us today for this episode of Rookie Reply. If you have questions, you can send them into our DMs at biggerpocketsrookie on Instagram, or you can go to the BiggerPockets forums and pop your question into there. I'm Ashley, and he's Tony.

We have started a new newsletter, if you guys haven't heard, and you can go to biggerpockets.com slash newsletter and put a little check mark next to Rookie Newsletter, submit your email, and hit subscribe, and you can get subscribed to our new email. Our primary goal for this newsletter is to have some fun with you guys, but also to give you actionable items and resources that you're able to use as a rookie investor, along with keeping you up

to date what's going on in the news and different interesting stories happening across the world that relate to real estate investing. So make sure you guys check that out. That's biggerpockets.com slash newsletter. Thank you so much for joining us and we'll see you guys next time.

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