5 Ways to Save for a Down payment on a Rental Property

Okay, so you have made the decision to purchase a rental property. What’s next? 🤔

Unless you already have the savings required to purchase a rental property, you will need to determine how much money you need for your down payment.

I teach my DPR (down payment reduction) method to new investors to get low money down loans & down payment assistance grants.

You can find out more about my DPR method in my FREE REI starter Guide.

With the right strategy and commitment, saving for a down payment on an investment property is not hard. But it will require some sacrifices now in order to come out with equity later and secure your financial future.

1. Hack your budget

Review your budget to cut out unnecessary expenses and save more.  

The best way to make the most out of your money is by being smart with what you spend. Review your current spending and cut out any unnecessary expenses from your income. When you review your recurring expenses, ask yourself which ones you can reduce or eliminate completely. You should then put this money into your down payment fund. Get creative and come up with ways you can tighten up your spending.

Here are a few ways you can lower your monthly expenses:

• Shop at thrift stores and buy used items as much as possible
• Eat out less
• Buy items in bulk at a discount (Sam’s club/Costco)
• Shop around before buying anything to find the best deals, use coupons and promotional deals
• Negotiate auto insurance rates, phone plan, cable plan etc.
• Take advantage of cheap or free food, entertainment, travel, etc.

After you’ve cut out unnecessary expenses, you should create a realistic savings goal.

Now that you’ve got your budget in order, it's time to create savings goals! Start with a small, manageable, short-term goal, like “Save $35 per week,”

With this savings goal you will achieve small milestones every week which will bring you closer to acquiring your rental property!

2. Reduce Your Living Expenses

Is it possible to cut back on your living space temporarily? Considering the average American spends 33% of their income on housing, this may be something to consider.

Are you able to live with a relative or close friend? Can you move to a cheaper apartment or house?

When I purchased my first duplex, my grandmother and I went half on a two-bedroom apartment and I was able to save up enough money for my first rental property 7 months later.

If you're currently renting a house or apartment and you have an unused room, then you could have a roommate. This will essentially cut your rent payments in half and would put you in a position to accelerate your savings.

3. Automate savings

Prioritize Saving for Your Property

Figure out how much money you can afford to save each paycheck or month and have that amount automatically deposited into a designated savings account. This will ensure that you are sticking to your savings goal without even having to think about it.

Make sure you stick to it!  Once that money is automatically deposited into your account, DON'T TOUCH IT. Remember the more cash reserves you have in the mortgage underwriting process, the Better.

REI Pro Tip - SET UP AN ACCOUNT THAT YOU DON’T SEE

In addition to automating your savings, set up a savings account separate from your day-to-day bank. This will limit your accessibility to these funds which will prevent impulse spending. The idea here is: out of sight = out of mind. Make this account accessible only when you’ve reached your savings goal. You can also consider looking into higher-interest savings accounts.

4. Save Your Tax Return and Unexpected Money

Put your tax return to work! Remember to purchase a house hack, you need a minimum of 3.5% down payment. For a $200,000 house that would only be $7,000 down. For many people their annual tax refund can contribute all or a significant amount to their down payment.

Other unexpected money comes in all different forms including: work bonuses, Christmas or birthday gifts, overtime, raises., etc.  Commit to putting any extra cash you receive throughout the year directly into your down payment fund. You’ll be surprised at how much money you are able to accumulate with this strategy.

5. Start a Side Hustle and/or ask for a raise or promotion

Start a side hustle and save every penny for your rental property down payment.

Target and Walmart out here paying $17-$19 hr. and there’s always DoorDash/Uber if you would like to make some cash on your own schedule.

Do you have any skills you can use?

There are so many people sitting on valuable skills that can make them money!

You can do hair/makeup, photography, sell meal kits, design websites, home organizing, or resell items (just to name a few.)

Is anyone in your household overdue for a raise, promotion or new job? Consider how bad the job market is right now (The great resignation). Employers are doing THE MOST to recruit employees like offering sign-on bonuses and other perks to beat the competition. 

CONCLUSION

Saving up for your first rental property can seem challenging but it is not impossible and there are plenty of ways to plan and save. The principle to remember here is: reduce your expenses and increase your income. Doing any of these tips will help accelerate your savings process to get your down payment fully funded!