Want to buy a rental property? I always recommend doing it with cash.
And then of course I hear this…
“Derek, you must live in some kind of fairy tale if you think people can save up enough cash to buy a property outright. Most can barely do it with a loan!”
Well, I’m not most people, and you shouldn’t be either…because most people are broke and have constant setbacks from their continual poor choices!
Instead of living in the land of “most people”, let’s first discover the major benefits of buying a house with cash:
- Never pay interest to the bank – this alone is hundreds of thousands of dollars in savings
- No need to pay for an appraisal – saves time and makes it more appealing to the buyer
- Cheeeeaaap closing costs – since the greedy bank isn’t involved, you save thousands here
- A reduced purchase price – everyone loves cash so much, they’ll actually accept less to get their hands on it sooner
- Improve your cash flow – when you buy a property with hardly any down-payment, the cash flow is peanuts – often $100 a month or less. It’s totally not worth all the running around you’re doing.
- Makes administrative tasks crazy simple – just a property tax and insurance bill once a year. That’s it. Gotta love it
- Peace of mind – No one can take this house away from you. It’s 100% yours.
And there’s probably even more benefits that I’ve forgotten!
How to Save Up Cash for Your Next Rental Purchase
Now that we know the “why”, let’s take some time to figure out the “how”.
So many people think it’s impossible to save up $100,000 in cash. They think it’s going to take a lifetime, so they give up before they even start. Let me tell you that not only is it possible, but you can purchase multiple investment properties for cash over your lifetime; and quite honestly, it just keeps getting easier and easier.
Liz and I live on 33% of my take-home pay. No, I don’t make $200,000 a year (In fact, I don’t even earn $100,000 a year through my day-job as a financial analyst). But, we still manage to live on far less than our single income because we live with extreme frugality.
Early on in our relationship, we decided that we wanted our family to live without financial worry. So, we:
- cut our cable,
- started shopping at the discount grocery store,
- cut back on our entertainment spending (most people are out of control in this category!),
- started driving reliable, but inexpensive cars (2002 Dodge Intrepid for her, 2001 Honda Civic for me),
- and we paid off all our debt as quickly as we possibly could.
With reliable paid-for cars, no consumer debt, and intentional frugality on everything else, saving up cash got pretty easy!
2) Pay Off Your House
If you’re thinking about investing in a rental property, I assume that you have no credit card debt, car debt, or student loan debt (and if you do…you’re nuts! Stop reading this post right now and go pay them off!). But…you’re probably still hanging onto your mortgage loan.
In order to save up cash for your next rental purchase, I recommend that you tackle your own mortgage debt first!
- The bank owns your house…not you. It’s best to pay it off and gain full ownership for the complete safety of you and your family.
- With no debt, you can save up like mad. Think about it. If you had absolutely no payments, how much extra money would you have each month? $1,000? $2,000? More? Start saving those payments and you’ll have a pile of cash faster than you ever thought possible!
3) Sell a Property
This obviously isn’t the case for everybody, but some of you have multiple properties already. Maybe you and your significant other each owned your own homes, or maybe you already jumped into the rental business before reading this post (and realizing that you should be doing it with cash!). If you have more than one residence already, I would recommend selling one of them, taking the profits, and putting that toward your next rental purchase.
Liz and I met when we were in our late 20’s. She owned an old farm house on 26 acres that was in the middle of nowhere and I lived closer to her family and my family. While her property was extremely cool, it only made sense to sell it.
So we fixed it up (which is an understatement btw… it needed new carpet, walls needed patching, and every single room needed paint) and made it as presentable as possible to get the absolute highest offer.
Thankfully, it worked.
Our months of intensive labor yielded a profit of more than $40,000.
4) Start a Side Hustle
My preferred side hustle over the years has been my blog. Somehow, I’ve been able to earn over $75,000 by just talking about money on the internet. Isn’t that crazy! Thankfully though, it’s possible.
If you have an idea for a blog and want to make it a reality, check out my helpful page, “Start Your Own Blog” and take the next steps.
If you have absolutely no interest in starting a blog, then start to brainstorm other ways you could generate a side-income!
Here’s just a few ideas off the top of my head:
- Car repair
- Car cleaning/detailing
- House cleaning (inside or outside)
- Home repair
Blah blah blah. Honestly, the list could go on and on. If you’re still struggling for ideas though, subscribe to my page and you can get my free eBook, “101 Ways to Make More Money“. If you still can’t think of any ways to make money…you’re not even trying…
5) Fix and Flip
People don’t fix anything anymore. Something breaks, they throw it away or sell it for peanuts, and they go buy a new one. It’s not the best move financially for them, but it can sure help your pocket book!
When I was digging my way out of debt and fighting to pay off the house, I flipped cars and made an average of $1,000 on each of them. My Dad was a car dealer when I was growing up, so I guess it came naturally for me. If you’ve got the same gift, give it a go so you can save up cash for your next rental a little faster.
Not car savvy? Don’t worry, this can be done with anything:
- Garage sale items
- Furniture (refurbish)
- Small houses
- Small appliances
Here’s the key. Look for something that’s barely broken and that the current owner doesn’t want to mess with. You can buy it for cheap, put just a few bucks into it, and then sell it for hundreds (maybe thousands) more than what you bought it for.
6) Get Promoted
This one’s kind of a given, but I figure I almost have to mention it so no one ignores this obvious fact.
If you have a good job and can get promoted within a decent time-frame, then fight for that promotion (come up with innovative ideas, work extra hours, and become well-known at the office). After all, a $20,000 bump in pay with a promotion is probably wayyyy easier than flipping a bunch of cars or side-hustling from scratch.
Figure out where your efforts are best utilized so you can more quickly acquire that next rental property, and then go after it!
7) Don’t Inflate Your Lifestyle
When you start making bank, you feel like you’re on top of the world! And it’s really easy to (in that moment) pat yourself on the back, tell yourself how much you deserve this or that, and then quickly give yourself the upgrade…
- a better computer
- a new car
- a sweet cottage on the lake…
Whatever it is, it’s likely not necessary and it’s probably keeping you farther away from the future you really want.
Before you reach that next milestone, plan your reward in advance…
- a new baseball hat
- a nice outfit
- a $50 dinner to a restaurant of your choice…
Be sure it’s a reward that’s appropriate for the milestone, and no more.
I’ve been promoted five times in seven years and my lifestyle has inflated very little:
- Instead of driving a $2,500 Honda, I drive a $4,000 Pontiac Vibe
- Instead of renting a 1,200 square foot house, I own a 1,400 square foot house
- We travel to Sanibel Island once a year instead of staying local
- We eat out once every couple of weeks instead of once a month
That’s about it, and you know what? I’m happier than ever because I know that my present is brighter than my past and my future will be even brighter than today. And that’s the way it should be! If you waste all your future money on today, you’ll end up jaded, bitter, and lonely later in life. I don’t know about you, but that’s nowhere I want to be!
Will You Save Up Cash for Your Next Rental?
It’s your turn. You’ve got the tools and all the information to make your next rental purchase with cash, but will you?
Will you cut the cable, slim down your entertainment spending, and get rid of all your debts so you can start saving up piles of cash for the future? Or will you do nothing, save up piddly cash, and borrow the rest from the bank (which will earn you far less from your investment)?
It’s totally up to you. But after experiencing both a house purchase with a loan and others without, I’d choose no loan every single time!
Will you make your next rental purchase with cash? What’s your plan?
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.