$40,000. The lowest reasonable amount of cash you need in L.A. to buy an apartment building is $40,000.
Now, you’re not going to get a “nice” apartment building in a “great” neighborhood, but you can buy a cash-flowing building in a soon-to-be up-and-coming neighborhood. We’re talking Boyle Heights and Lincoln Heights – the areas just outside of downtown that haven’t quite felt gentrification yet, but are destined to.
Here’s the math:
$400,000 contract price (average 4-plex in those areas)
3.5% down = $14,000
Closing costs = $4,000
Tenant Relocation = $10,000
Renovations = $10,000
Reserves = $2,000
TOTAL = $40,000
Now, there are 2 catches:
1) The reason you can put just 3.5% down is because this is a FHA loan. The FHA insures risky mortgages (down payments below 20%) so you have the opportunity to own your first home – not income property. Home. That means they expect this to be your primary residence for at least two years. The good news is you can buy up to 4 units. And you have the right to move into one of the units with certain restrictions (I’ll post about this later).
2) You have to prove that you made an average income of about $5,500 per month for the past two years. This varies, depending on the property, but that’s about the bottom line for Los Angeles.
I’m in this boat and I have hope. So can you.