How to raise the initial 20 - 25% deposit

[Martin Evans]

I've been looking into how much of a percentage is initially needed when starting out to get a buy to let property and seeing 20 - 25% got me questioning. How do people raise that amount of money. Of course I realize the old fashioned save save save and for me this is not a problem. I am dedicated enough to be able to do this but it could take up to 5 years. Again not a problem but what I'm thinking is if I'm just putting 500 a month away into savings then yes I get compound interest but is there another way? 500 into shares a month? How does everyone else do it?

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[Account Closed]

What my daughter did to raise a downpayment for her first house, is she changed her tax deductions to something like 8.  If you change it to 9 (dependents), the IRS is supposedly flagged.  What this means, is that a good portion of your FICA taxes are then not taken out of your paycheck, say 20% more income to you.

When you do your taxes the following year, you will owe the IRS.  Then you just make a payment plan with the IRS.  My daughter figured this worked out to a loan of about 4% interest, if I remember correctly.  As long as you make your payments to the IRS, you're fine, and nothing shows as a debt on your credit report, and nothing shows as any type of judgment or anything.  It's basically a debt that is not reported to the credit bureaus.

This was the only way she figured she could get into the market when the prices became affordable.  It worked out fine for her, and she's paid off her debt to the IRS.

The IRS will tell your employer that you must file the correct amount of deductions the following year, but there are no penalties or anything to the employer, as long as they comply.  They're otherwise not required to counsel you or monitor you regarding your tax withholding.

It's not illegal.  People do this all the time, say around Christmas, so they can afford presents, then just change the deductions back.  At any rate, it was a creative way for her to get her downpayment money.  Don't forget, you "borrowed" your downpayment, and will have to also pay it back along with your mortgage.  But, she couldn't see any other way to save enough money up front.

My other friends who are now landlords themselves, bought their second home doing this same technique, which we shared with them.  They bought their new big home, and now rent out their first home.  They also paid the IRS back with payments and are in good standing.

Now, if you are someone you definitely don't want the IRS looking at in any way, you won't want to do this.   But, neither my daughter nor my friends were afraid of the IRS auditing them, and both said the IRS were great to work with.  My friends also wanted to buy a short sale while the market was so low (both my daughter and friends bought in the SF Bay Area when the market crashed), and it was the only way they could get enough downpayment money together, too.