How much cash do you need to buy your first apartment building?

Not much, especially if you don’t already own real estate.

The federal government has a program called the FHA which provides banks with insurance in case a borrower defaults on his mortgage. Because of this insurance, banks are willing to loan up to 96.5% of the cost of a 2-4 unit building, as long as the borrower will actually live at the property.

In Los Angeles in 2012, FHA borrowers can borrow up to $934,000 for a duplex, $1,129,250 for a triplex and $1,403,400 for a fourplex. That means a borrower could put down as little as $51,000 and buy a $1.4MM fouplex.

Now, these loans come with strings attached. You need to have reasonable credit, a stable work history, and verifiable income. You also need to pay what’s called “private mortgage insurance”, which is an additional monthly fee that helps the government insure against borrowers with less than 20% equity in their properties defaulting.

Also, because of the way the numbers work, you need to make sure that you’re actually making a good deal. It’s no good to buy what you think is a cashflowing asset and then find out that it sucks money out of your pocket. This is where having an experienced agent helps.

But all that aside, I can tell you without a doubt that being able to buy an apartment building in this depressed market using 3.5% or 5% down with a fixed, 30 year mortgage is an amazing, amazing opportunity. I have a buyer I’m working with now who is in the process of buying an incredible duplex in Echo Park by putting down around $35,000.

What does that $35,000 get the buyer? A great place to live for the present with out of pocket expenses substantially less than what he would pay to rent the same unit, then, when he moves out, a cashflowing asset that will ensure that he retires with a sizeable nest egg, whatever else happens.

Do you have a stable job? Do you have reasonable credit? Do you have, or can you get access to $25,000-35,000? That, plus the willingness to take the leap is all you need to buy your first Los Angeles apartment building.

[Edit: Are you interested in getting started? Read this next post about how to proceed.]