Buying real estate requires upfront cash: In most cases, you need money for a down payment and closing costs. Plus, it’s smart to have an emergency fund for any maintenance issues or unexpected costs that may arise.
If you’re in debt or have nothing in savings, buying property isn’t completely out of the question. Plenty of real estate investors that Insider has spoken with started in the red or with no money in savings.
Here are three strategies that successful investors used to save up enough money to afford their first homes. Insider verified each investor’s claims regarding property ownership and debt payoff.
Sean Allen lived in the red for years before he got serious about tackling his debt and investing in real estate.
The turning point for him occurred when he thought about what he wanted his future to look like. His vision was clear — to build wealth through real estate — and in order to do that, he needed to eliminate his high-interest debt and then save for a down payment.
“Sit down and visualize,” advised Allen, who paid off $81,000 worth of debt in 1.5 years, owns six properties in California and North Carolina, and has built up a net worth of over $1 million. “What do you really see yourself doing at 30, 40, or 50? Ask yourself if what you’re doing now aligns with that vision. Because every decision that you make is either going to get you closer or further away from that vision.”
Take it a step further and create a vision board, he said. Then, write down specific goals that will help you turn your vision into reality. If you want to save enough money to afford a down payment on a home, figure out exactly how much you’ll need based on home prices in your area. If you want to put 10% down on a $200,000 home, for example, that’s $20,000. Then, set a goal for when you want to have that money. If you want to buy in a year, that means you have to save about $1,700 a month.
“I’ve always had a written goal plan with a vision statement,” Allen said. “The goals get you toward your vision, so write them out.”
Another step Allen took was getting his spending under control.
He started by tracking his finances, he said: “I put together a spreadsheet that tracks bills and income, so I could see where my money was going and how I could plan better.”
Tracking his spending helped him better understand where he could cut back. For example, after combing through his credit-card statements, he found 28 recurring charges and cut them down to the 18 or so he really needed. Plus, he eliminated expensive travel habits: “I stopped splurging on airplane tickets and took the Greyhound. I drove a beat-up car that didn’t have a car note. I got it all the way to 340,000 miles. No one would ride with me, but it saved a lot of money.”
New York-based investors Ali and Josh Lupo, who also started deep in debt before buying their first property, say that tracking their spending was incredibly revealing.
“A few years ago, we thought we had a good idea of what we were making and spending, but when we started actually tracking it, we realized our numbers were completely off,” said Josh.
Once they understood where their money was going, they were able to implement lifestyle changes that allowed them to cut back significantly, Ali added: “It’s really important to get a good idea of: How much am I making every month? How much am I spending? What debts do I have? What assets do I have? You want to get a picture of where your money is going so you can optimize it.”
The more money you have coming in, the more you can set aside for your future home.
The majority of real estate investors that Insider has spoken with, including Allen and the Lupos, put in extra hours at their day job or started a side hustle in order to reach their goals faster.
Allen revamped his résumé business, Sean’s Resume Shop, which he started in 2013, and got certified as a career coach. He brought in up to $2,200 per month doing career coaching and helping people write their résumés, he said. Plus, he still earned a salary from his full-time job.
He continued coaching even after paying off his debt. The additional money has helped him grow his real-estate portfolio.
Seattle-based investor Mike Newton, who had nothing to his name before building a 10-unit portfolio, picked up overtime shifts when he was saving up for his first property.
“I was working 90 hours a week and saving every penny until I had the money I needed,” said Newton, who works in law enforcement full-time as a state trooper and member of the SWAT team.
The combination of increasing his income and living frugally allowed him to save $30,000 in about six months, enough to cover the upfront costs for his first home.
Dion McNeeley, who also resides and invests in Washington state, lived paycheck-to-paycheck for years before he could afford to invest in real estate. Thanks to working overtime and various side hustles, he saved up $20,000 over two years to buy his first investment property. He now has a 16-unit real estate portfolio and considers himself financially independent.
Think beyond your day job, encouraged McNeeley: “The mistake a lot of people make is selling their lives one hour at a time and not realizing that you make a lot more money when you get paid on the value you produce.”
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