One burden experienced by a large percentage of adults who plan to purchase an investment property is how to come up with the needed funds. While the housing industry does offer substantial returns, some people might never get the chance to reap the ROI that is available due to lack of positive cash flow. This how to save money to buy a rental guide is meant for average earners who are getting into the real estate industry as a first timer.
Evaluate Your Sources of Income
Many adults have diversified income that is earned in several different markets. Standard income includes money received from a job, from retirement withdrawals or a fixed income payment. Learning what primary and secondary income streams are available can help determine what portion of every dollar can be saved to purchase a first home.
Primary Income: This type of income includes employment earnings, alimony, child support, royalties, business income, stocks, bonds, unemployment compensation, pension plans, social security, disability benefits or passive investments.
Secondary Income: This type of income can include interest from bank accounts or mutual funds, hobbies, part-time jobs, annuities, sale of personal property, IRA withdrawals, consulting income etc.
Reduce Monthly Spending
Actually sitting down and reviewing all spending that takes place in a one-month period can be a real eye opener for the average adult. Buying a $3 coffee every weekday before starting a job or spending $5.75 for lunch will quickly add up to $175 or $2100 annually. By reducing these types of expenses, a considerable amount of money can be saved and added to existing cash or retirement dollars.
Utility bills can also be reduced to help bring in extra cash. Many Internet companies offer basic packages that are meant for web usage and not constant streaming videos or downloads. These packages can save $25 to $45 a month compared to the regular price of a higher megabyte package.
Get Rid of Most Debt
The majority of middle-class Americans can afford to purchase a home or even an investment property by making some smarter financial decisions. It is common for men and women to have one or more automobile loans, student debt, credit card debt and an existing mortgage. Because interest rates have increased in the past several years, many people are now struggling to get out of debt and are unable to save much needed cash.
Paying off existing high interest loans can help a person to put the saved funds into an investment account to build up the down payment money needed to buy an investment property at a reduced price. Additional contributions could be made to an IRA or 401K account or catch-up contributions could be made by a person who is nearing the age of retirement.
Establish Savings Goals
A person who reduces expenses can easily setup a regular routine to save more money every month. A savings goal can be created to ensure that a financial goal can be reached within a one to five-year period. By prioritizing expenses and setting goals, it is much easier to save cash for investments. Setting up regular weekly transfers, monthly transfers or ACH transfers to money market accounts is relatively simple.
Partner with Other Investors
Being short on cash is a real deal killer when it comes to investing in real estate. Partners can be found in the industry to make it easier for beginners to get into the rental market. Groups of investors now band together to purchase properties making it more economical for all people involved in the partnership. It is easier for 4 people to invest $30,000 each to buy a $120,000 property instead of one person footing the bill. The partnership approach is one that is preferred by many first investors.