When investing in real estate on your own, one of the first things you need to have is the down payment which is usually 20-25%, and in some cases up to 35% of the property purchase price. Without this sizable down payment, traditional lenders will not finance your property. The lack of down payment is the biggest reason why many people cannot invest in real estate (or purchase their home).
To overcome the down payment hurdle, there are creative financing techniques such as finding money partners (joint ventures), vender financing, rent to own (if you are living in the property), borrowing through private lenders, and perhaps even asking friends and family. These methods will be discussed on another blog posting. Today, we will focus on how you can save money for your first property.
It’s basic knowledge that in order to save money, you must spend less than what you make. Therefore, having a budget is vital to your goal of saving. A budget or cash flow statement is a record or projection of all the money coming in and all the money going out.
By knowing how much money you have and what you’re spending it on, you can identify where you may be overspending, cut back, and allocate funds toward saving. To do this, I recommend using a budgeting app on your smart phone to track all your purchases and expenses. I personally like iExpense and Spenz on my iPhone because it’s easily accessible and you can program it to remind you at a certain time of the day to enter all expenses. I find these tools very effective to keep you using them consistently.
Of course if you don’t have a smart phone, you shouldn’t be buying properties (kidding!) You can go the old school way and keep all your receipts in an envelope and track on-line payments. Tally up all these expenses at the end of every week or month and sort these into groups of expenses such as meals out, groceries, parking, subscriptions, etc.
Next you need to determine what your fixed expenses are (mortgage, cell phone, gas, utilities, daycare, food, etc.) and what your flexible expenses are (vacations, gifts for friends & family, entertainment, subscriptions and memberships, etc.) Don’t forget about credit card bills and other loan payments. As you can see, the list of expenses can get pretty long, so it’s important that we know how much we’re spending on each.
It’s a good idea to gather 3 months worth of expenses to get a clear picture of where you money is going to. Take a look at each months total and I’m sure you’ll be pretty surprised how much money you’re spending. You’ll also find that many expenses on your list are actually wants and not needs. The way I prevent myself from spending on wants is by asking myself, “Do I want this more than an asset that will generate monthly income and help me retire comfortably?” 9 out of 10 times, I stop myself from spending when I ask myself this question.
To further break spending habits, pay everything with cash as opposed to debit or credit cards. By forcing yourself to pay with cash, you will really get a sense of how much you’re spending and feel the pain when counting out money.
I know this method works as I’ve given my kids $200 each when we were on a one week vacation in Los Angeles (which includes Disneyland), and because they know that this is all they have to spend for the week, it made them think every time they wanted to buy something. There were many occasions where they thought about it and said, “No, this is not worth it”, or “I think I’ll spend my money on something else that I really want”.
I can go on and on and even write a few books on this topic as there are so many more ways to save, but I’ll talk about it on my next blog. You’ll learn creative methods on doing things differently to save money. Be sure to come back to learn how.
– by Teresa Leung
Start with 1) establishing a budget 2) determining needs 3) cutting out wants by asking yourself, “Do I want this more than an asset that will generate monthly income and help me retire comfortably?” and 4) using cash to pay. I recommend you do this with a partner, family, or friend who wants to invest with you. Nobody says you have to do this alone, and as a matter of fact, most real estate investment deals are made with other people. Benefits of having a partner are that you can keep each other accountable, encourage one another, learn how to invest together, and save much faster than doing it on your own.
I am a licensed realtor dedicated to securing you wealth through strategic real estate investment. My mission is to help you achieve financial freedom by creating enough passive income to eventually replace your working income, so that you can spend more time doing what you love with the people you care about. For more information, go to www.pointbinvestment.ca.