There's nothing to stop beginner investors from success in property
In a recent article, we discussed what's stopping you from life-changing property investing. For many would-be property investors, it”s the daunting size of deposit they need to save. If this sounds like you, then read on. The strategies we discuss in this article have helped many beginner investors get the deposit together to make a start in property investing.
Sacrifice, Save, Share – the keys to financing your investment property deposit
I wish I could wave a magic wand and produce the deposit you need, but I can't. What I can do is tell you that it's hard work to get a deposit together. It takes a lot of self-control. But if you are determined to own an investment property – and I think you are. Otherwise, you wouldn't be reading this article – there are ways to get that deposit together.
You need a plan that includes sacrificing, saving and sharing. These are the main ingredients of the deposit recipe, though when you're mixing them, you'll also need to do so with a new budgeting mindset.
Step 1 – Sacrifice
Saving for an investment property deposit is a little like trying to lose weight. If you go on a diet, you must make sacrifices. You can look in the cake shop, so long as you don't step in and buy all the doughnuts.
To save your deposit and start investing in property, you must make a few financial sacrifices. Spend a week living how you normally do and note down every penny you spend. At the end of the week, review your spending. You'll be surprised at how much you can cut out. When you do so, put the money into a savings account and watch it roll up. Common sacrifices include:
- Your morning latte at the coffee shop. Cut this out, and you will probably save around £15 per week. That's £750 per year.
- Lunch from the local sandwich shop. Take a packed lunch to work instead. That's another £20 per week saved. £1,000 per year.
- Gym membership (which most people don't use). If you exercise regularly, this might be a keeper; but for most, a gym membership is an uneconomic luxury. Would you get the same health benefits by walking or jogging for free? Another £1,000 per year saved.
- Sky package. A friend of mine assessed his Sky package a few months ago. He watched very little television and had subscribed to follow his football team. He dumped his Sky package and now watches the matches he wants at his local. He's saved £25 per month, even after paying for a pint per game. That's another £300 per year.
- The same friend tossed away his smartphone (I hear gasps of shock and horror from all!). He moved to a pay-as-you-go analogue phone. His mobile charges fell from £75 per month to £25. That's £600 per year.
There are dozens of things that you could sacrifice. Most of your unnecessary spending is habitual. The above few examples are just the tip of the iceberg. Cutting these out would save more than £3,500 per year. A couple would save the best part of £7,000 by nixing these items alone.
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Other more drastic sacrifices include getting rid of your car. Especially if you're young, car costs are astronomical. Fuel, insurance, road tax – it all adds up. Analyse your spending on your car. Add together all the costs associated with owning a car, and divide by the miles you drive. You could find it's cheaper to get taxis everywhere! If you only use your car during the week to drive to the railway station, park it, and then drive home, you should consider how much you can save by walking or jogging. For many, it adds up to thousands every year.
Step 2 – Save
Okay, now that you've identified the sacrifices you can make, you must now commit to saving. You've already started to alter your mindset, but you must now work harder to do so. The first thing to do is to pay yourself first. Commit to saving.
You've been spending all that money on things you don't need. They are all stopping you from achieving your lifestyle goals in the future. Unnecessary spending today will delay your future financial freedom, and perhaps even destroy it. Add up all the money you can cut from your spending, and save it instead. Move it from your bank account to a savings account on the day you get paid.
Learn to avoid impulse buys, too. You see a dress or pair of trousers you just ˜have to have”. They're on sale. A bargain. Walk away. When you are out of the shop, think about your current wardrobe. I bet there are plenty of clothes you haven't worn in a long time. Do you need another item of clothing that will get stuffed at the back of the wardrobe after its first wearing? Think about every purchase you make before you part with your money.
Step 3 – Share
There are plenty of ways in which you can save money (and make money) by sharing. If you need your car to drive to work, how about setting up a car share? Split the cost of fuel and parking with others.
There are even companies that specialise in car sharing – you book the time you want a car, and ˜own” that car for that period. Average savings have been estimated at £1,000 per year.
If you live near a railway station, have you thought of ˜sharing” your driveway with a commuter? They get cheaper parking, you make a little extra income.
How about sharing your home with a lodger? Did you know you can charge up to £7,500 to a lodger and pay no tax on that income?
If you don't own your own home, or don't have the spare room to house a lodger, you could consider moving back in with your parents, or house share with friends for a while.
Another friend of mine has a son who got into a big financial mess. He earned less than £20,000 per year and was around £25,000 in debt. He moved back in with his parents for two years. Instead of paying £500 per month in rent, plus council tax, utility bills, and so on, he paid his parents a couple of hundred pounds. He also made a lot of sacrifices (like those above) and got into the savings habit.
He's now been living with his parents for three years. He's no longer in debt and has more than £8,000 in the bank. He's planning to stay put for one more year, by which time he should have enough money as a deposit for a modest buy-to-let investment. If he hadn't had that debt in the first place, he'd already had the deposit he needs to start property investing.
Other things you can do to get the deposit for property investing
There are also other things you can do to raise the deposit you need for that first property investment. These include:
- Doing more overtime at work
- Taking a second job
- Raising your rates if you're self-employed, or cutting your costs
- Using your skills to do some freelance work
- Clear out your home, and sell unwanted items on eBay
Some of the most successful property investors I've met started from modest means. Below-average wages, and no savings. They all have a few personal traits in common:
- They want to better themselves and create a better lifestyle for them and their family
- They have a specific goal
- They are determined and disciplined
- They sacrifice, save, and share
They have all proved to me that the only thing stopping you from achieving your lifestyle goals is you. Why not contact one of the Gladfish team today on +44 (0)207 923 6100 Let us help you get your financial goals into perspective, and discover how to invest in property to create the lifestyle you desire and deserve.
Live with passion,