As rental rates continue to rise nationwide, even in Howard County, Maryland, and mortgage interest rates become more forgiving, purchasing a rental property makes more sense than ever before. After all, investment properties in Columbia offer great supplemental income and can even turn into a full-fledged rental property business if done right.
But what if you are just starting out and don’t have your first rental property yet?
Everyone knows that in order to start buying investment properties, you typically have to have a sizable down payment. Yet, this can sometimes prove difficult.
But don’t worry. Getting your foot into the rental property business doesn’t have to be as hard as people make it out to be. At least when it comes to saving up for your property’s down payment, that is.
Today we are going to take a look at some of the budget-friendly ways you can save up for your first rental property.
How to Save for Your Rental Property Down Payment
1. Get Out of Debt
Before you even think about saving extra cash for a down payment on a rental property, you should get yourself out of debt as much as possible first. Although this can sometimes seem like a never-ending task, the truth is, if you have a bunch of debt weighing you down, it will only hurt your chances of being a successful landlord.
If you can cut your luxury spending, save money where you can, and pay off large debt such as car loans, student loans, and credit card debt, you will free up a lot of extra money that can be used for a down payment. Plus, this will likely boost your credit score and get you a better mortgage deal when it comes time to make your property purchase.
2. Automate Your Savings
One of the easiest ways to hit your pre-determined savings goals is to set up an automated savings plan.
You should allocate a certain percentage or dollar amount to be withdrawn from either your paycheck or regular checking account each month. The amount will coincide with the step above; whatever is needed for you to hit your goal within the determined time-frame you set for yourself.
Automating your savings guarantees that you will add to the savings each month, reduces the temptation to spend the money on other things, and makes savings more invisible so you don’t really feel the full effect. This is the same concept that many people use when saving for retirement and it helps a lot to save for the future.
3. Set a Goal
Saving money for a down payment is useless if you don’t have a goal in mind. Your goal doesn’t have to be perfectly spot on, but having a general idea is going to make saving more doable for you.
So, figure out approximately how much money you will need for your ideal down payment. Then, set mini goals each month that must be met in order to hit the deadline you set for yourself. For instance, tell yourself you must save $1,000 a month for one year and stick to it.
Try keeping tabs on your spending by using spreadsheets or online budget programs to make sure you are on track to hit your goal.
In addition, it is a good idea to place this savings in a separate bank account where you are less likely to touch it for other expenditures. This also makes tracking your progress much easier.
4. Have an Emergency Fund
Though automating the down payment for your Columbia investment property is useful, life sometimes happens. And, if you do not have any emergency money elsewhere, there is a good chance you may have to touch your down payment savings to pay for unexpected life surprises.
Sickness, major car repairs, and job loss can cause people to have to tap into every penny they have saved, regardless of what that money was supposed to be used for.
A great way to protect your down payment savings for your investment property is to have a sizeable emergency fund built up before you start saving to invest. This way, if something huge does crop up that will make a large dent in your pocket, you have other means for financing it.
5. Save Everything
Do you typically get a tax refund each year?
Deposit that refund directly into your Maryland property investment fund.
What about your annual holiday bonus?
Again, place that money directly into your down payment savings account. This will boost your savings quickly without having a major effect on your daily living.
Every little bit helps and by placing all of your “extras” into your down payment savings account, you are sure to hit your goal ahead of time.
6. Ask for Monetary Gifts
Instead of receiving gifts for your birthday, holidays, or events such as anniversaries, ask your family to donate money to help fund the down payment for your Columbia investment property. Again, this will have very little effect on the status of your day-to-day living expenses and will help you fund your down payment much quicker. In fact, it is not unusual to hear that many people use monetary gifts as a way to fund a down payment for a home.
If you happen to accept large monetary gifts from your family to fund your property’s down payment, just make sure you understand the different laws regarding gifted money.
There are limits on how much you can receive before either party is penalized. For instance, if your parents exceed the amount allowed per calendar year that can be donated to you to fund a down payment, there is a likely chance they will get penalized from the IRS in the form of gift taxes.
Additionally, there are rules regarding how much down payment money must come from you, which type of homes you can buy with gifted money, and certain loan restrictions when it comes to gifted down payments.
Purchasing your first investment property in Howard County may initially seem like an impossible task. However, if you break it down into smaller, easier to manage steps, you may find that saving for a down payment is actually more possible than you thought.
If you have nearly reached your down payment goal to purchase an investment property in Columbia, Maryland, and are thinking ahead as far as property management companies are concerned, consider contacting Bay Management Group.
We are knowledgeable in all things property management and can help you with the management of your property after you have secured a purchase.
Property advertisement, tenants screening, rent collection procedures, and 24/7 on call maintenance services are just some of the things Bay Management Group can do to help you manage your investment property.
So, save your money and give us a call. We are here to give you peace of mind knowing that your hard-earned investment property is professionally cared for.