4 Ways To Save For A Down Payment On An Investment Property

While many people are jumping on the real estate investing bandwagon – it’s a great way to increase your wealth – coming up with the required 20-percent down payment can be challenging. For many would-be investors, this is the part that stops them in their tracks.

If this is what’s keeping you from making your investing dreams come true, read on to discover four easy ways to save up for the down payment on your next investment property.

1. Use The 50/30/20 Rule

If you aren’t already tracking your spending, begin right away. You can’t start saving money until you know how much money you have going out each month. There are several budgeting apps out there, so find one that works for you.

Next, use the 50/30/20 rule to begin putting money aside. Spend 50 percent of your income on mandatory expenses such as rent, student loans, etc.

Use 30 percent of your income for discretionary spending. This includes things like your Netflix subscription, gym membership, and any other entertainment you enjoy. A budgeting app can alert you when you get close to your 30-percent limit, so you know when to dial back your shopping habit.

Finally, put the last 20 percent of your income into a savings account and don’t touch it.

2. Develop A Timeline To Acquire The Property You Want

If you’ve decided you want to be the owner of an investment property worth $100,000 in two years’ time, figure out how much you’ll need to put aside each month to reach the $20,000 down payment amount and then get busy. Don’t forget about closing costs and contingency fees, which can be about 2 percent each. This means you’ll need to save about $1,000 a month for the next 24 months.

If this sounds crazy, consider extending the timeline to three years or beyond.

3. Automate Your Budget

You’re human, and as such, you cannot rely on willpower alone. You may start out with good intentions, but it’s too easy to succumb to spending more than your budget allows on things you enjoy. So, help yourself save for that investment property by automating as much of your budget as possible.

Set up fixed/mandatory bills to come out of your account on the same day. This way, you’ll be able to see exactly how much they are. Next, set up an automatic transfer of 20 percent of your income into an account designated especially for the down payment on an investment property. Anything left in your regular account is what you can spend on anything you want.

4. Get Rid Of Things That Don’t Add Value To Your Life

Take a look at your expenses and determine the things that don’t add much value to your life or the things you can do without. This might include magazine subscriptions or the highest cable TV package, for example. Cutting back or doing away with these “extra” expenses can help you put more money aside for that investment property you dream of.