When it comes to investing in real estate, getting started is the hardest part. This has always been true, but it’s even more evident in an economic climate that puts homeownership out of reach for so many. If you can barely afford to buy your own home, how can you begin to consider saving up to invest in real estate?
Consider This...
- How much money you need to put down depends on your strategy and providers. If you’re interested, reach out and ask questions. We can’t speak for every provider, but our team is more than happy to help you understand what you need and how you can get started.
- Younger investors, consider buying investment properties before you invest in a personal residence. It may sound backward, but starting with investment properties generates much-needed passive income. You can then use that income to diversify your portfolio or achieve your homeownership dreams.
- Finding an investor-friendly lender helps you secure favorable lending and terms.
6 Tips for Saving to Buy Your First Rental Property
Tip 1: Practice financial discipline
This whole thing falls apart without discipline. You’ll have to sacrifice some instant gratification in service of your investing dreams. For the financially-minded, saying no to big and unnecessary expenses is easy. It’s much harder, though, to curb “negligible” spending. Studies show, for example, that the average American household spends around $3,500 on restaurants annually. That’s just under $300 each month.
That’s extra money that could go towards savings! Cut back on going out and meal prep instead. The same could be said for other areas of our financial life. Curb the costly but convenient choices in favor of intentional planning.
Tip 2: Set specific, data-driven goals
Do you know how much you should be saving? If not, it’s time to find out. As mentioned above, contact your desired investment provider, platform, or peers and ask about the upfront costs. Remember, if you’re buying a rental property, there’s more to it than a downpayment. Consider closing costs, taxes, insurance, and other additional fees.
Remember, too, that there’s a minimum downpayment, exceeding the minimum, and buying outright in all cash. Determine which method you’re comfortable with, accounting for the upfront costs and potential mortgage payments.
Tip 3: Make saving non-negotiable
Set up an auto-saving schedule if you haven’t. If you’re going to do this, saving money can’t be an afterthought at the end of the month. We’re not saving “if” we have something left over; we’re factoring it in as part of the budget. Most banks will let you set up recurring transfers. Set an amount you’re comfortable with (adding more as you feel able), and don’t touch those savings!
Tip 4: Live below your means
We’re not saying you must live on beans and rice for a year to save up. We are saying, though, that unnecessary expenses need to be cut. Put small luxuries aside for a while. Clip coupons. Shop more frugally. Weigh the added cost of things, from new cars to subscription services. The more you can sacrifice and reroute your money, the faster you’ll meet your goal.
Tip 5: Assess your debts
Some schools of thought say you need to eliminate all debt before focusing on investments. We don’t exactly agree – time is of the essence in investing, and eliminating debt first can result in years of lost passive income and equity growth. With that said, some debts aren’t worth keeping around. High-interest debt must go. You might need to cut up your credit cards.
Don’t let burdensome debt stifle your ability to save.
Tip 6: Reevaluate your budget
Finally, reevaluate your budget. Because so many payments are automated these days, being mindful about spending is much more challenging. Yes, you can see it all with the click of a button – but money is gone before you know it! Go over your transaction history compared to your budget. Look for:
- Any unrecognized charges.
- Discrepancies in recurring bills. Utilities may be overcharging you due to an error!
- Subscription fees. Pause or cancel where possible.
- Small transactions in large volumes. These are usually impulsive, “negligible” spending that needs to be cut.
Your actual transaction history gives you a realistic picture of spending and the budget breakdown. Use it to adjust your budget and make necessary changes!
When you're ready, REI Nation is standing by to help you become a real estate investor!
