When most people think of money-saving tips, they think of how
to save on food, utilities, and discretionary purchases. But there
are also ways to save money when buying investment property.
The most important tip is to do your research first and make sure
that you're financially ready for the risk that investment
You also need to consider all expenses involved, including purchase
cost and loan amount, and costs of carrying the property, such as
taxes and insurance.
Before you start looking, define why you want to buy investment
Is it for an extra income stream? To eventually quit your job and
make your living from investment property? To have a more
Your reason for buying an investment property will influence your
choices along the way. Knowing your reasons helps you stay focused.
If buying investment property is a goal, but not an immediate one,
consider letting Mint.com help you stay on track with its
goal setting tools
Then, when it's time to start scoping out properties, consider
these money saving tips that can help.
Start as Owner-Occupant
With this strategy, you buy a property to live in that you will
later rent out. If you occupy a house for at least a year, you can
make a smaller down payment, particularly with
After you have lived in the house for at least a year, you find
another house to purchase and move into, and rent out the original
house. Rinse and repeat as desired.
The obvious drawback to this approach is the hassle of frequent
moves, particularly if you have young children. Make sure you and
your partner are fully on board with owner-occupancy before trying
Become a Real Estate Agent
As money saving tips go, getting a real estate license may seem
unusual, but showing properties, arranging sales, and making
commissions aren't the only ways real estate agents make money.
Those who want to buy multiple investment properties can save money
and get better deals by becoming licensed real estate agents first.
As an agent, you can save thousands in commissions with each
transaction. If you only buy one investment property of $100,000 in
a year, you can save $2,500 to $3,000 on commissions by acting as
your own buyer's agent.
You'll also enjoy these advantages:
- Access to MLS listings, which can help you find properties,
and determine prices on comparable properties, which can help you
make the most informed offer.
- Valuable contacts with people who can tip you off when great
properties become available.
- The possibility of more deductions on taxes as an agent than
if investment properties are a sideline.
The cost of becoming a licensed real estate agent varies by state,
but in Nevada (home of Las Vegas, one of the
top cities recommended for real estate
), you can
expect to pay
$300 to $1000 for coursework, and around $1,600 for the required
Seek Seller Financing
Occasionally you'll find a seller willing to finance and allow you
to put down less than 20%. If your lender offers to loan you 80%,
you may be able to get the seller to finance the other 20%.
Or the seller may be able to finance a smaller percentage, which
would still help you put down less than 20% as a down payment.
However, it's not easy to find sellers willing to do this. Most
sellers just want to sell, not finance a loan.
Look for homes with no loans against them or that say "seller
financing" in the listing. Sellers' terms vary significantly, so
don't expect great interest rates. Sellers generally want a premium
Ask the Seller to Pay Closing Costs
One of the more common money saving tips when buying real estate is
asking the seller to help with closing costs. Seller financing may
be rare, but you may be able to get the seller to pay for part of
the closing costs as a condition of your offer.
Buyers often ask for a percentage of the closing costs to be paid
by sellers. Sometimes sellers who won't come down on the price will
agree to cover some of the closing costs in order to get their
asking price. Don't be afraid to ask. Worst case is they'll say no
and you start negotiations over.
If you're considering buying investment property, it is critical to
think of it as a long-term investment. Even in the heyday of
property flipping before the real estate meltdown, flipping a
property required a lot of hard work, more work than most people
If you can follow some of these money-saving tips, break even on
the expenses and keep the property in repair, it should gain value
over time. You should be prepared for the responsibilities of a
landlord (or hire a top property manager to do it for you), and you
need to be able to financially withstand a one or two month vacancy
if the rental market is slow in your area.
Investment properties can be a terrific investment, or they can be
disastrous. Knowing the market, your own risk level, and the level
of work required is essential to succeeding as a real estate
Editor's Note: This article by Mary Hiers was originally
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