Diversifying into real estate investments is an excellent way to generate regular cash flow and build generational wealth. But how much should you save up to be able to afford a rental property, whether it’s a family home, a multi-apartment building, or an Airbnb? We’ve done the research for you and identified four ways to save for your first investment property.
1. Set a goal
Proper planning is essential when getting into real estate investing. Set a goal based on your financial capabilities, investment strategy, and future plans like when you want to retire and how much money you want to have for your retirement. Consider your timeframe, when you will need cash flow from your rental property, what risks you’re willing to take and whether your investment portfolio should be diversified to lower taxes and maximize returns. Also, understand the industry and learn about property taxes, budgeting, and what future property expenses you may incur like repairs, etc.
2. Talk and listen to experts
Having a mentor can do wonders for your investment success. Speak to experienced landlords that are already doing what you plan to achieve, find out how they were able to invest in their properties, what pitfalls they experienced, and what budget they started with.
The internet is also full of resources, including videos and podcasts like the BiggerPockets Podcast that can help answer some questions you may have.
3. Save for your down payment
To turn your dreams of owning a rental property into reality, you need to start saving for the down payment. You will need about 20-30% of the property price saved up before you can even start looking for an investment opportunity and apply for pre-approval. Saving may seem daunting at first, but by paying off your current debt, lowering your rent by moving in with your parents or into a cheaper apartment, reducing your living expenses by shopping cheaper groceries, switching to carpooling to work and taking a second job, or freelancing on the weekends, you will have your down payment saved up in just a few short years.
4. Get pre-qualified
Getting pre-qualified will help you determine which investment properties you will be able to afford. You will need at least a credit score of 680, a two-year job history at a US company, or 3-5 years of stable income as a self-employed individual, a low debt to income ratio, cash for the down payment, and at least 6 months’ worth of cash for expenses.
Buying a rental property is a great way to build wealth and provides a convenient source of additional income. By setting a goal, talking to experts, diligently saving for your down payment, and getting pre-qualified, you will soon be on your way to owning your first real estate investment property.
