Getting a foot into the market is a tough step for anyone trying to buy an investment property. After bills, rent, groceries, petrol, insurance… there isn’t a whole lot left for saving.
For a $400,000 property you’re going to need a minimum $40,000 deposit. For some people, that’s their entire annual salary.
So how can you save without having to live off a diet of baked beans on toast?
It’s actually surprisingly simple. Here are 10 smart tips for saving your investment property deposit.
1. Pay off your debt
It sounds simple enough, but you’d be surprised at the number of people with huge credit card debt, car loans, holiday loans, etc. This is all bad debt.
While you may be happy just paying the minimums so that you can save money, that’s actually a terrible idea.
According to the Australian Securities and Investments Commission (ASIC) Australians carry an average of $4,300 per person in debt and if their rates are between 15 to 20 percent they’re paying about $700 per year in interest charges.
This means that if you have $4,400 debt on your credit card and make the minimum repayments each month, it would take you 31 years to pay it off!
And the interest you’d pay? Nearly $15,000!
However, in this scenario if you paid $216 per month your debt would be paid off in only 2 years and you’d shave off nearly $10,000 of interest charges.
Bottom line, you can’t have a savings plan while you have debt. In fact, your ability to service an investment property with loads of unsecured debt is impaired as well.
2. Get a budget
You’ve probably heard this a thousand times. So do you have a budget? A budget is the single most effective tool for saving money. You can use an excel spreadsheet which will cost you nothing – or you can invest in accounting/budgeting software.
Once you’re aware of how much money you’re spending each month, you can see where you are overspending and areas you can cut back on.
While a budget is important to have while saving for an investment property, it will become indispensable once you own that investment property.
3. Adopt a goal-oriented mindset
Do you know “precisely” what you want? One fundamental attribute you’ll find among the wealthy is goal setting.
They know exactly what they want and they create a plan to achieve it – a plan that they relentlessly follow until it’s completed.
4. Save consistently
Yes, I know I said you can’t have a savings plan while you’re in debt. This is to be done after you’ve eliminated your debt.
Automate your savings by having it taken out and put into an interest bearing account before you even see it by using pay withdrawals.
You know…”out of sight, out of mind”, right? The goal here is to “forget it”. Wipe the existence of your account out of your mind entirely and you’ll be surprised how quickly your savings will add up.
5. Sell and/or reorganise
- Sell off assets (sell that second car, boat, etc.)
- Move back in with mum & dad (temporarily)
- Live on one salary and save the other
- Move your savings to a high interest account (if it’s not cost prohibitive)
- Get a second job – or start your own part time business
- Sell off your clutter on and offline
- Move your high interest debt to a zero interest credit card and pay it off BEFORE the introductory period expires.
- Change over to a “cash and carry” mentality. Keep your credit cards at home.
- Cut your rent – move to a cheaper location
6. Practice financial discipline
Being fiscally responsible will serve you now while you’re trying to save and it will be absolutely indispensable when you’re a homeowner.
As much as you can set up your budget to reflect what you will be paying once you’ve purchased your investment property. The more financial discipline you practice now the easier it will be throughout your life.
7. Nurture a love of learning
No matter how long you invest there will always be something new to learn.
Adopt an attitude of openness to learning new things and you’ll be amazed at what will happen.
However, don’t listen to just anyone. Find people who have achieved the success you are seeking and ask them how they made it.
People love to share what they know, so take advantage of it and ask questions!
8. Slash your bills
Reduce your outgoings and you’ll instantly save money…without working longer hours.
Start with the non-essentials such as pay TV. Yes, you aren’t required to pay for premium channels, so cut back.
There are other ways to get your entertainment, such as streaming videos or “low tech” activities such as a walk in the park!
Once you’ve eliminated those bills that you don’t need, try to find ways to reduce your essential bills.
If, for example, you can buy fewer minutes for your cell phone, then switch plans if you won’t incur a large penalty.
9. Get help
Find one or more individuals who would be willing to buy the investment property through a joint venture. Granted you’ll split ownership, however part of something is always worth more than all of nothing!
10. Claim your inheritance early
It’s not uncommon for mums and dads to help their kids get into a property – even if it’s an investment property.
If they’re willing, your parents can gift you some of your deposit, however remember that lenders want to see that you can save money so part of the deposit needs to come from your savings which have accumulated over a period of time – typically at least 3 months.
More great tips? Book a FREE consultation with one of our coaches!