Real estate investing a great and exciting way to make money in the medium-to-long term. However, in order to invest in real estate, you need to already have some money.
Income properties – just like homes – are expensive and require a sizeable initial down payment. Thus, one of the toughest questions in real estate investing is: How do you save money in order to invest in real estate?
Related: 8 Steps to Becoming a Landlord
As a future real estate investor, you can find solutions to the problem of saving money to invest in real estate in two directions: either you have to raise your income or you have to cut down your expenses, or actually you need to work on both fronts.
How do you increase your income to save money to invest in real estate?
1. Ask for a raise.
If you are working as a waged employee for someone else, start putting extra efforts into the execution of your daily tasks. Start going to work earlier and leaving later. Take the initiative. In other words, show your boss how valuable you are to the company, and once you’ve conveyed this impression, ask for a raise. That’s one of the most straightforward ways to allow you the opportunity to save money to invest in real estate.
2. Change your career.
If, on the other hand, you think you might be overqualified for the kind of job you are working or you’ve reached a ceiling in your current career path, do not be afraid to think about and try out a change. There could be hundreds of other, better paying jobs out there that you are fully capable of doing and would enjoy more than your present job. If you are planning to jump into something as complex as real estate investing, you cannot possibly be afraid of changing your job.
3. Start a business.
Once you are ready to buy your first rental property, this will be the beginning of your own business. However, why now start a business in order to make the money to invest in real estate? This option is less risky than changing your career altogether as you can just start something small on the side, as a part-time job, while retaining your full-time day job.
4. Go for more education.
Whether you are trying to get a raise in your current job or to start a new career or to establish your own business, some more education will be of great help. You can either go for training courses or enroll at university as a part-time student. Of course, education costs money, but it is one sort of investment that always pays off for itself at the end.
Related: Buying Investment Properties With No Money
How do you decrease your expenses to save money to invest in real estate?
1. Be determined.
If you are absolutely sure that you want to invest in real estate and don’t have the extra cash to buy a rental property immediately, you will have to be very serious and determined in order to be able to save up the needed money. Saving something like $30,000-$40,000 for a down payment (since you will need to go for a mortgage) and the initial repairs and maintenance work sounds daunting, but it is doable. It just requires discipline and determination.
2. Make a budget.
If you are thinking about joining the world of real estate investing, you better get into the habit of making budgets sooner rather than later. You can start practicing with your personal expenses. Write down all your income and all your expenses in order to set your spending limits. Also, listing all your expenses will allow you to decide which ones are really needed (like mortgage payments, utility bills, food, etc.) and which ones can be easily reduced or even eliminated (eating out, buying brand clothes, etc.). If you are not particularly good at finance, you can try out one of the many smart phone apps for budgets.
3. Cut down unneeded expenses.
Believe it or not, there are so many daily expenses that you easily forego without feeling a drop in your life standards. Maybe you can start packing your lunch instead of ordering food each time you are in the office. Or you can replace your ridiculously expensive Grande Macchiato with a much cheaper espresso or cappuccino. You can use public transportation instead of getting a cab on your way to and back from work. It might sound like just a couple of bucks a day, but if you multiply this by 30, imagine how much you can be saving every month. And these are just a few examples. There are definitely many more expenses you can eliminate if you seriously want to invest in real estate. Once you’ve become a successful real estate investor, you will be able to go back to all these fancy options.
4. Automatically set aside money each month.
Make it a habit that every time you get paid – whether weekly or monthly – you set aside a certain proportion of your income. You can start with 10% and try to go up to 15% or even 20% once you’ve been able to identify ways to make more and spend less in order to save to invest n real estate. But make this a routine. Don’t postpone the movement of this 10% of 15% of your salary into your savings account. Do it on pay day because otherwise you run the risk of forgetting or getting tempted to spend the money on something else which you need less than an income property.
5. Open a savings bank account.
Regards of how low interest rates might look, it’s still better to keep your money in a bank so that it can make more money for you than keeping it at home or somewhere else. Check out banks in your area and see which one offers the best terms. You can plan to leave your money in the bank for a few years as you will most probably not be able to save up enough to invest in real estate in the next couple of months.
6. Postpone buying a home.
In most cases, repaying a mortgage is more expensive than paying rent, on monthly basis. Thus, if you are planning to invest in real estate, you should refrain from buying your own home for now in order to be able to save any extra cash for buying your first rental property. While it is important to own a home, there is one major difference between a home and an investment property – your income property will generate money for you (rental income), while your home will not.
Related: How to Buy a Rental Property Using Mashvisor
No one ever said that saving money to invest in real estate is easy. It requires hard work and some sacrifices, but once you’ve become a successful real estate investor, you will realize that it was all worth it. When you are ready to search for your first rental property, check out Mashvisor for thousands of properties available throughout the US.