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.
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.
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.
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!