Investment property financing is one of the major concerns of people looking to purchase property, especially if they are first time property buyers.
So, the question is, "how do you get the money to buy your first property?"
This real estate investing advice article explores two smart ways to pay for your next property, whether you're a low income earner or a high earning employee.
We know a good number of employees who bought their first investment property almost entirely from savings from their monthly salary.
Their investment property financing strategy was to look within themselves to raise the funds they needed to buy their first investment property.
Yes, it took longer but they did it by adopting an aggressive savings culture.
More important, a good number of this first time property buyers were low income earners.
So, how do you save aggressively to buy investment property?
Simply live below your income.
When you live below your income, you automatically release more money from your salary account into your savings account.
Consequently, your savings account will gradually grow over time to an amount that you can invest in buying investment property or deploy to mutual funds investing to grow its value further before pulling out from the mutual funds to invest the entire sum in buying your first investment property.
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The advice to live below your income is a popular advice from real estate investing consultants.
We completely agree that investment property financing starts with the potential investor.
In fact, even if you intend to secure a mortgage loan to finance your property acquisition, you must at least have some level of equity contribution otherwise most banks won't pay you any attention.
But how do you actually live below your income in practice?
In practice, you live below your income by spending money on things that are cheaper (or lower in cost) than what your salary can afford.
Let's consider some examples to drive the point home.
Live Below Your Income Example #1: Housing & Rent
Suppose you can afford to live in a 3 bedroom apartment with the salary you earn.
If you wish to live below your income (in order to raise money for buying your first property), then you can opt to rent a one bedroom apartment instead of a 3 bedroom apartment.
Live Below Your Income Example #2: Eating Out
How many times do you eat out per month?
Four times? 8 times? 12 times?
If you eat out 3 times per week (that is, 12 times per month), perhaps you can consider reducing that to once per week (that is, 4 times per month).
Eating out is pretty expensive.
So, if you want to prioritise buying your first property, then you need to take some classes in preparing delicious home cooked food so you can save more money for your retirement by cooking your own meals.
Live Below Your Income Example #3: Your Car
Do you own a car?
If yes, what kind of car do you drive?
How much do you spend on maintenance every month?
What is your car insurance cost like?
Could you downgrade your car to a smaller car with a smaller monthly maintenance and insurance cost in order to make more money available for real estate investing?
Live Below Your Income Example #4: Your Smart Phone
What brand of smart phone do you use?
How much did you pay to get it?
How often do you change your smart phone?
Do you buy a new smart phone every time the phone company releases their latest "cutting edge" model? Or every six months? Or once per year?
The more smart phones you buy per year, the less money you have left to save for real estate investing.
Remember: Any money you have spent on these latest phones and electronics is gone . . . it will no longer be available to be spent on real estate investing.
Live Below Your Income Example #5: Parties
How many parties do you organise per year?
How much do you spend per party?
If you cut down on the number of parties you host per year (and the cost per party), you will immediately release more money into your retirement savings account, which will then be available for buying your next investment property.
Live Below Your Income Example #6: Gifts
Gift giving is one way to show your love and appreciation for others and what they do (or have done) for you.
Do you give low cost memorable gifts or do you give expensive gifts to impress your friends (or to outspend your friends)?
Remember . . . when you're old, out of employment and broke, your friends whom you're trying hard to impress today will not be there to bail you out.
So, if you currently spend lavishly on gift giving, give it up.
Give gifts when necessary. And give low cost memorable gifts.
As wise people say, "what matters is not the size of the gift but the spirit (or love) behind the gift".
The second way to raise money for investment property financing is through investment property loans.
How do you access investment property loans?
What are the requirements?
How do you qualify to get even bigger loans to buy more properties and secure your retirement income?
These questions are answered in the investment property loan section of this retirement planning guide.
Click the link above to access that information.
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