6 No-Hassle Ways to Save for Your First Rental Property Down Payment

by | BiggerPockets.com

Rental costs are rising nationwide, at a time when low interest rates are coupled with friendly lenders for home buyers. In short, it’s a prime market for first-time rental property investors to take that leap and buy their first rental property.

Many people are interested in becoming rental property investors, but they feel like they don’t have enough money for a down payment. They want to get their foot in the door, but they’re not sure where to come up with the money.

If you’re in this situation — if you’ve always wanted to start investing in rental properties, but you’re a novice and have no idea where to come up with that money — this article might help you.

The following six tips for saving money might help you save enough for a down payment on your first rental property while the market is hot. Implement these money-saving strategies, and you’ll be holding the keys to your first rental home in no time at all.

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6 No-Hassle Ways to Save for Your First Rental Property Down Payment

Create a budget.

You won’t be able to save unless you have a plan. Establishing a budget is your first step towards saving the amount you want to put down on a property and crossing that finish line of purchasing a new home.

If, for example, you hope to buy your first rental property one year from today for $200,000 with a 10 percent down payment — then saving $20,000 by February 2017 is your end goal. If you want to break your savings into even monthly payments, you’ll need to save $1,667 per month to stay on track. Keep tabs on your progress by using a digital spreadsheet or a paper trail. Having some sort of visual to keep yourself accountable will go a long way towards keeping you on track to reach your savings goal.


Open a separate savings account.

If you don’t already have a separate savings account dedicated to your down payment, now’s the time to do it. Experts encourage having a separate savings account dedicated purely to the down payment for your new home. If you have a separate savings account, you won’t have to worry about accidentally using the money for any other bills or expenses. It also makes it easier to track your progress.

Related: Buying a House: The Ultimate Guide to Purchasing Your First Property

Save everything extra.

Getting a tax refund this year? Deposit it directly into your dedicated savings account. Do you get a yearly employment or Christmas bonus? Put those funds and anything extra into your savings account as well. For the next year, anything “extra” should go directly into your down payment savings account. It may not seem like much, but all of that extra money adds up quickly.

Request gifts.

In lieu of material gifts for your birthdays, the holidays, special celebrations, or personal events such as your anniversary, ask family members to donate gift funds to your down payment instead. Almost a quarter of first-time home buyers use gifted funds to either supplement or completely pay the cost of a down payment for a home.

Pull from your paycheck.

Your paychecks are most likely your most reliable source of income. If you want to reach your savings goal faster, determine what percentage you can comfortably pull from each paycheck to put into your down payment savings account. You can even ask the accountant or HR representative to set up a split direct deposit, so you won’t even see the money being withdrawn. It would simply go directly into your savings account. Even if a split direct deposit isn’t an option, most banks offer automatic online transfers from a checking account to a savings account within the same bank.


Consider using an FHA loan.

One common way for some rental property investors to qualify for their first few rental properties is to purchase a home as their primary residence with a low-money-down FHA loan, live in that home for one year, and move out after the year is up, then turning the home into a rental property.

Related: An FHA-Financed Duplex is an Ideal First Investment Property: Here’s Why

You too might find this to be an effective strategy for buying your first rental property. If you’re willing to move into the property for at least one year, you may qualify for an FHA loan on a home with as little as a 3.5 percent down payment.

Make wise money choices.

Saving for your first rental property down payment will require that you make certain sacrifices — or at the very least, make fiscally smart decisions. Keep tabs on your everyday spending, and don’t waste your money on things that aren’t as important as your end goal.

Keep your eyes on the prize, spend and save your money diligently, and you’ll have your down payment  — and your very first rental property — before you know it.

What steps are YOU taking towards landing that first rental property?

Let me know about your experiences with a comment!

About Author

Louis Conrad

Louis Conrad is currently the Co-Owner of Surge Homes, a company that develops land, builds houses and condominiums, and offers real estate sales and marketing services for all of its communities in and around Houston, TX.


    • J P.

      From my understanding, with a conventional loan, you can put 10% down. However, that means that you will be required to pay PMI every month. Paying 20% down keeps you from having to pay the PMI. Also, not mentioned in the article, FHA requires you to pay PMI every month due to the low interest rate they have for the life of the loan. In a conventional loan, once you build up enough equity, you no longer have to pay PMI. Someone can correct me if I’m wrong. I’m a newbie so I’ve been doing my research. 🙂 Best wishes!

    • Jennifer T.

      That has been my experience also. If you will be living in the house for at least a year, you can get a down payment as low as 3.5% FHA or 5% conventional. But if it is a non-owner occupied property, a 20% down payment requirement is almost a gift. I’ve found banks in my area that only require 20%, but most require 25% or 30%.

  1. Sachin Acharya

    Thanks for the wonderful article. I’ve been saving for the last couple of months and I’m glad to share that I’m already doing most of the tips listed. Requesting for cash gift is an excellent idea which I’m gonna follow as well.
    FHA is not an option in my country. And down payment here is 35%. So it’s not easy. But hey, who wants easy stuff? I don’t.

  2. Steve Vaughan

    Thank you for this article, Louis! Saving with a plan beats the heck out of waiting for some no money deal that gets us in trouble! Sacrifice and save to change your life. I brown bag my lunch, drive a payment-less car and brew my own coffee to name a few. Cheers!

  3. Louis Conrad

    The down payment question is of interest for many people because my experience as a real estate developer in the last 27 years is that many people have the ability to meet the payments for a mortgage in order to be able to invest in a house but do not have enough for the down payment. Therefore, we’ve always tried to accommodate these buyers because most often owning a house is much better financially than renting. Not to mention the pride and the better lifestyle. Currently in Houston, and all of our developments (Surge Homes), we teamed up with Mission Mortgage (a mortgage banker) and are able to offer an FHA 3.5% down payment on new single-family homes, condominiums or townhomes. Furthermore, the closing costs in Texas are pretty high so, together with Mission Mortgage, we make a seller’s contribution varying from $7000 to $10,000 depending on the price of the home. This means that the new owner ends up having to pay just a little bit more than the 3.5% down payment at closing which is perfect for many of our homebuyers.

  4. Casey Murray

    Comparing actual expenses to your budgeted expenses can be a rude awakening. You suddenly realize how little expenses, like eating out throughout the month, add up to a big chunk of your budget. Numbers don’t lie! Great article, Louis.

  5. Charles Moore

    Lots of personal finance 101 tips listed in this article, and borrowing from a 401(k) was mentioned as well, though more complicated due to IRS monitoring and consequences if you make a mistake.

    You can combine personal finance tips with tax savvy strategies and creative/entrepreneurial money-making ideas:

    – reselling stuff from around your home on Craigslist/eBay/Amazon
    – buying stuff for cheap and reselling it (household stuff, clothes, electronics, appliances, cars, etc)
    – taking advantage of flexible spending accounts from your employer for health care copays and daycare expenses (lowers your taxable income)
    – donating to goodwill stuff that’s not worth your time selling (tax deductible) AND claiming it on tax returns. I average about $2000 worth every year.
    – if you own your primary residence, renting out some extra space on AirBnb on a nightly basis
    – renting out seldom-used things you own like ladders, power tools, and fancy clothing on specialized sites
    – if you have a large vehicle like a truck or SUV, offer to transport large items people with cars can’t transport for a fee.

    And the list goes on!

  6. Dmitriy Fomichenko

    Nice article. Using a split direct deposit is one of the most effective ways to contribute towards down payment without failure. I liked the idea of gift funds, and someone did mention using 401k plan, so that makes sense too. Thanks for sharing!

  7. Shannon Elam

    I’m surprised no one has mentioned the ride sharing services that are out now. I think that is an excellent way to stack extra money when I have free time. Just driving for the time I am WILLING to drive, I could make an extra $400 a month. People who drive a lot more than I am willing to drive make even more. I also live in a big city, so I realize this may not be an option for everyone, but its an option none-the-less.

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