In the early 1990s, we read many books and attended seminars on real estate investing. One of the books we read was “Successful Real Estate Investing” by Peter G. Miller. One of the suggestions for coming up with a down payment was to use “OPM,” or other people’s money, for the down payment. At that time, real estate appreciated quickly, so the thought was that you could easily refinance to pay back the private lender. However, no investment is predictable, so we believe it is risky to use OPM as the down payment. If the economy slows down, or lenders tighten their mortgage qualification requirements, it becomes more difficult to refinance. We believe it is more prudent to use your own money for the down payment.
How to Save for a Down Payment?
Discipline is the answer. If you have a specific goal in mind, and a specific timetable you can focus on setting aside money from your discretionary expenses. What are discretionary expenses? Discretionary expenses are material items you don’t have to have, such as new shoes, new clothes, cable TV, smart phones with data packages and fees, expensive vacations, eating out at restaurants, etc.
Examine Your Budget
Examine every line item in your budget. For each line item, ask yourself, is this really necessary? How does it improve my life? How long do I have to work to pay for this? Is there a cheaper alternative?
For example, a cell phone plus data package can easily cost $100 per month. With pre-paid phone service such as Tracfone, you can save $75 per month. Who really needs to check their email and Facebook all day long? A Tracfone gives you cell phone, plus texting, for much less per month. Another example is eating out for lunch everyday. We take our lunch to work 99% of the time, which easily saves thousands of dollars per year. Just one year of taking your lunch everyday, will save enough for a 3% down payment on a $100,000 property. Take a couple of days to monitor every penny you spend during the day, and determine if you really need the product or service.
Benjamin Franklin said “Watch the pennies and the dollars take care of themselves.”
The opinions expressed herein are solely those of the Author/WebMaster. Before taking any action, please consult your real estate, financial, and legal advisors.