One of the biggest initial obstacles faced by would-be real estate investors is finding the down payment. Although there are all sorts of financing programs for investment properties, generally speaking though, if you’re looking to finance the purchase, you will need 20% down for a single unit and 25% down on a multi-unit. So, if you’re interested in getting started in investing in real estate, how can you get the required down payment. Well, to help you get started on your journey, here are a few ideas…
- Save your money) The idea of saving enough for a down payment can be daunting and overwhelming. However, you can do it. Depending on the price of the investment property, you may not need as large of a down payment as you’re thinking. To save for your down payment (or anything for that matter), you can…(1) Get a second job; (2) Moonlight as an entrepreneur; (3) Automatically transfer a portion of your paycheck to your savings; (4) Set aside tax refunds; (5) Ask for a raise/bonus and set that aside; as well as (6) Cut out unnecessary expenses and instead save what you would have paid (i.e. cut out/down your cable plan, stop purchasing $5 coffee, reduce the extracurricular shopping).
- Partner Up)Partnering up is another solution for investors looking to get together their down payment. For instance, you and a partner can each put 50% of the down payment down, and then split costs and profits 50/50. Or, one partner may put down the majority, and the other in return will be responsible for managing the property and will receive a lower return on profits.
- Sell your existing home to trade-up for a better investment) First off, I’m not stating sell your home and go buy an investment property and then you personally go without a home. What I am saying though, is you can sell your existing home and purchase a larger home and rent out the room(s), purchase a multi-unit and rent out the unit(s), or purchase a couple less expensive homes (i.e. a primary residence for your self and a cheaper investment property here or out of state). The fact is, many times, the easiest way to kick start your journey in real estate investing is by selling your existing home(s) and using the funds to purchase another property that is better suited for investment opportunities. Additionally, it’s helpful to know that if the investment property is being used as owner occupied, then you can take advantage of loan programs requiring as little as 3.5%/5%. However, it’s best to speak to a Realtor as myself, who can help you decide whether selling your existing home is the right route to take prior to entering the market of real estate investing. Furthermore, if you have a lot of expenses outside of those in real estate (i.e. car loans, student loans, and/or credit cards), part of the earned profits from selling your home can be used to pay off debts prior to purchasing your new home or set aside as reserves. Similarly, depending on how much equity you have built on your primary residence, you can also pull cash-out and use those funds to purchase another property and/or pay down debts.
- Sell off your old, unwanted items) You’d be surprised how much the items in your home which you no longer use are worth. Therefore, rather than holding onto these things, sell them, and save the funds to pay down debt and/or use as a down payment.
- Call out your entrepreneurial side) I touched on this on idea #1, but it’s worth noting again. If you follow any inspirational entrepreneurial gurus, you may have heard such statement as, “If you want to be successful in this world, you have to follow your passion.” Or, “Follow your passion, not your paycheck. The money will come eventually.” As such, this is a great opportunity to start a little side gig based on something you’re passionate about. Doing so, you can save for your down payment, pay off debts, and save as reserves. Who knows, maybe you can generate another system of passive income as well.
- Savings/Other Investments) Although not recommended for everyone, you can pull funds by cashing out your 401K, selling your stocks, and/or selling off other investments.
- Find cheap properties) I touched on this on idea #3, but allow me to elaborate. Investment properties don’t have to be expensive. One method of investing is to sell your existing home and downsizing to one that’s still suitable for you and your family. Then, use the other profits from your sale to purchase cheap properties. For example, you can easily find gorgeous properties in incredible locations out of state at a fraction of the cost compared to Southern California (i.e. at $50,000 or less). Such properties can be rented out, sold, or held on for more equity.
- Qualify for cheap financing) I also touched on this on idea #3, but to explicate…While federally insured loans aren’t available for the purpose of buying an investment property, you can use FHA financing to purchase an owner-occupied home and then later rent out one of the rooms/units. Similarly, you can find non-FHA loans with great rates and a range of down payment requirements for investment properties. For a better understanding on affordable financing options for investment properties, feel free to reach out and I can put you in contact with one of one of our lending partners.
Hope that helps you see the light at the end of the tunnel. Putting together a down payment for an investment property is possible if you want it enough. Finally, since selling properties for maximum returns is a major factor in real estate investing, I’m next going to share a few tips on how you can sell your property quickly and for more.