5 Tips for Saving Money as a Real Estate Investor
To start making money as a real estate investor, you need to save money to buy your first rental property and continue investing in rental properties long-term. Like any business, investing requires fiscal discipline and responsibility. You must know how to handle your first $100,000 so that you can sustain your business for years to come.
Saving money means allocating your money in the right areas to capitalize on your real estate deals. You can also find ways to reduce your operating expenses, compare vendors and services, and simplify your business. The more money you save, the more opportunities you have to invest in better deals or last-minute buys. Below are some tips for saving money as a real estate investor.
Use the 50/30/20 Rule
Analyzing your business finances starts with looking at where your money is already going. The 50/30/20 rule is a great place to start when it comes to looking at how much you can save monthly. This percentage-based budget is a simple and effective method for managing finances. Here is an example of how the rule works:
- Use 50% of your take-home income for all of your mandatory/fixed expenses. These expenses will vary slightly for each person but should include your rent, student loan payments, car payments, etc.
- Use 30% of your take-home income for discretionary spending. This includes subscriptions to Spotify/Netflix, dining, gym memberships, and bars/entertainment.
- Save the last 20% of your take-home income. In this case, that’d be $900 a month. Once you’ve set your monthly saving amount, you can begin to forecast how long it will take to save up for a 20% down payment on an investment property.
This model is flexible and can be tweaked to suit your financial situation. The point is that you can control how and where your income goes when you have a workable allocation model.
Keep Your Current Job
It can be tempting to quit your current so that you can pursue real estate investing full-time. However, you need to maintain financial stability as your business grows. Otherwise, your efforts will derail quickly. Having a steady income flow will help you pay the bills and monthly expenses, affording you the ability to find your first few deals.
If you do not have a job, you may want to seek out a side hustle or freelance at something you’re good at, just to keep the money coming in. If possible, put away as much of your earnings as possible into a savings account, and allocate that money for your first real estate investment deal. Being financially stable in your business’s early stages can give you mental clarity and reduce your stress.
Find Ways to Reduce Your Expenses
The more successful you become as a real estate investor, the more expenses you will incur to maintain your business. These expenses can quickly eat into your profits, making it difficult to survive financially. Some of the most common expenses that investors take on include
- Closing costs
- Appraisal fees
- Property taxes
- Marketing expenses
- Property upgrading costs
- Accounting fees
- Legal Consultation
As a landlord, you’ll take on a whole new set of expenses, including maintenance, property management, property taxes, tenant screens, vacancy costs, pest control, and, of course, income tax. You pay for team members such as realtors, contractors, appraisers, and a marketing team. As you grow, you may also develop an in-house team of employees. It is vital that you learn to cut costs as much as possible, starting with your first real estate deal.
Trim Your Lifestyle
Real estate investors are often depicted as living glamorous lives with big cars and even bigger houses. While it is true that you need to project a professional and successful image, little of that has to do with your lifestyle. Take a personal inventory and decide where you can cut back on personal expenses.
For instance, you may need to own a house right now. A house comes with its own set of expenses that can eat into your take-home income. While it is important to have a decent looking car, there’s no need for a luxury vehicle. Also, look at your daily expenses. Are you eating out too much? Are you spending too much money on utilities? Living more simply and frugally gives you more time and energy to devote to your investment business.
Consider a Partnership
You may think that a partnership will cut your profits in half. And this is true. However, a partnership can also cut your expenses in half and give you more leverage to get your business off the ground. Find a partner with a similar drive, vision, and level as you, and grow your business together. A partner can reduce both the emotional and financial stress you may experience independently.
Keep in mind that partnerships do not have to last forever. They also do not have to follow a certain trajectory. You and your business partner are free to form the partnership as you wish for as long as you wish. If you are looking for a partner to help share the expenses, chances are they are looking for a partner for the same reason. So, find someone you can rely on, establish the terms, and move forward.
You Can Be Successful in Real Estate Investing
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