More people are opting for property investment for their career, or even just for additional income, as it can provide so much freedom as well as early retirement if people commit to it. However, that initial step to getting your first investment property is the most difficult and can often put people off. We’re here with some realistic steps to help you get there, with sacrifices usually being required to meet your investment goals.
1- Research Your Local Market and Identify Lucrative Areas
The first thing you need to do to save for your investment property is to research your local market and identify the most lucrative areas, to find your first investment property. You may have the dream of investing in a more expensive area, but the likelihood of being able to make money on that investment is lower, as the initial purchase price will be high. However, if you find an up and coming area locally that is closer to the most sought after areas, you will be able to access lower initial purchase prices, potentially with more run down properties and therefore, significant opportunities to make money on the property. BMV properties (below market value) are a great option here, typically properties that are in up and coming areas or need work doing, so are sold at lower rates.
So, research your local area whilst you’re saving, speak to local estate agents and get an idea of the size of property you want to purchase and where. This will help you to understand exactly how much you need to save for the deposit and the renovation costs, and you can work towards that.
2- Set A Savings Goal and Strict Budget
Now you have an idea of how much you’re going to need to save, it’s time to set yourself a clear savings goal and a strict budget to help you get there. There is more to think about aside from the initial deposit, as if you want to make money on a property, then you’ll need to do renovations on it. So, say you’re looking at properties that cost £150,000, if you can access a 5% deposit, you will need £7,500 to get that initial purchase. Then, you may need £10,000 for the renovations, for example if you need cosmetic improvements throughout and then perhaps a new bathroom, or new appliances. Then, you’ll need around £2,500 in contingency funds, so you’d be looking at a total of £20,000.
So, now you have the goal to work towards, it’s time to make it happen. To do this, you need to figure out how much you can spare each month to figure out how long it will take you to reach that goal. For example, if you wanted to save over 2 years, you’d need £830 spare per month in order to do that. For someone with an income of over £2,000, living at home and not paying many bills, saving this would likely be realistic. However, for someone who earns less money, or has more outgoings in terms of living expenses, it may take closer to 4 years, which would be £416 per month, or potentially longer.
In order to meet this goal, think about anywhere you can cut back or potentially additional income. How much you’re able to sacrifice all depends on how much of a priority this investment is financially, so if it means no holidays for a year or only going out for food once a month rather than every weekend, some may be happy with that, whilst others would want to strike more of a balance alongside their lifestyle. This all comes down to personal preference, however set yourself a goal, create a budget so you know exactly what you’re saving, and send your savings over to your savings account on pay-day as a non-negotiable outgoing.
3- Consider Living In Once You’ve Purchased
Now that you’re working towards your savings goal, one way to make the investment more achievable is to live in the property once you’ve purchased it. Rather than paying for rent separately on top of your new mortgage, you can significantly cut your monthly outgoings, which will help you to fund the renovations. If you live in the property for a year whilst you renovate then sell or begin renting it out, you can either use the additional income saved from renting elsewhere to invest into the renovations, or to increase the amount of your mortgage that you’re paying off, so when you do go to sell, you have more equity. Plus, you’ll likely find that you progress more quickly with the renovations when you’re living in. If possible, get one room in fully livable condition, such as a bedroom, then you have that space to escape to at the end of a day.
4- Look At Government Schemes To Help
Something else you should definitely look into are any government schemes that can help with your savings. For example, in the UK, there is a Lifetime ISA. You can put up to £4,000 a year into the Lifetime ISA, and the government will pay 25% of whatever you’ve contributed directly into your ISA, so if you contribute the full £4,000, then the government will automatically pay £1,000 into the account. If you’re saving for your property for three years, you can put in £12,000 and the government will increase that to £15,000, simply for you having the account. There are schemes like this in different countries too to help people purchase their first property, so it’s absolutely worth looking into it as it can be transformative in terms of your savings.
5- Consider Additional Income Options
Last but not least, a great option is to consider additional income options to reach your savings goal. If you have the capacity to work an additional job for a few hours a few times a week, you could easily save an additional £500 per month, which can cut the time you’re saving down by a huge amount. If you’re not wanting to sacrifice other elements of your lifestyle, such as holidays or how much you go out for food or drinks, then this is another way to continue to meet your goals.
