How can you Save Enough Money to Buy a Rental Property?

One of the hardest of buying rental properties is saving enough money to afford them. There are ways to buy rental properties with little money down, but these techniques usually make it harder to cash flow than putting 20 percent down. Putting little money down also involves buying as an owner occupant in many cases, which is not easy to do for those with families. The most profitable way to buy rental properties is to put 20 percent down, make repairs and have money in a reserve for maintenance and vacancies. However, It is not easy to save the money needed to pay for all the expenses that come with buying a rental property with 20 percent down.

For more information on my rental properties, check out my complete guide to purchasing long-term rental properties.

How much money do you have to save to buy a rental property with 20 percent down?

The rental properties I buy cost from $80,000 to $135,000 in my market in Colorado. I put 20% down on my rentals and use an ARM to finance them. I also buy properties that need repairs to buy my rental properties below market value. If you add all the costs including carrying costs, repairs, down payments and closing costs. I need about $30,000 to $35,000 in cash for rental property I buy. I also need to have money in reserves for repairs or vacancies. I figure I need to have at least $40,000 in cash before I buy a rental property. I discuss the costs of a rental property in more detail in this article.

How can someone save $40,000 for a rental property?

$40,000 is a lot of money and an unthinkable amount of money to save for many people. I was in that boat early in my real estate career; I could not save any money to buy a rental. One of the first steps to saving money is actually believing you can save money!  Once you get it in your head you can save money, it becomes much easier. Then you can start planning, setting goals and working towards those saving goals. It may sound cheesy that believing you can save money will help you save, but it works. If you tell yourself over and over you can’t save money because you don’t make enough, you have a family or your taxes are too high, then you won’t save any money. If you get the idea into your head that you can save money, you will start to see places where you can cut back and build up your savings account.

Are their alternatives to saving $40,000 for a rental property?

There are ways to buy a rental property with less than $40,000.

  • The easiest way to use less cash to buy a rental property is to buy cheaper houses. The price of a rental property will be largely determined by your market prices. If you can cash flow on a rental property that is only $50,000, in an area you would want a rental, than you won’t need $40,000 you may only need $25,000 or less.
  • You can also buy a rental property as an owner occupant, live in the home a year and then rent out the property. This technique definitely saves upfront cash, but your payments will be higher due to higher loan amounts and mortgage insurance. This makes it harder to cash flow, because of the higher payments.
  • Another owner occupant strategy is to buy a multifamily property and live in one of the units. If you buy a 1-4 unit property, you can get an owner occupant loan if you live in one of the units. You could move out and rent the unit after one year or continue to live there.
  • Seller financing can also be used to reduce the amount of cash needed to buy a rental. The problem with seller financing is finding a seller willing to loan money back to you. If you can find seller financing, in my experience the sellers willing to do this are looking for top dollar on their properties and I want a great deal when I buy.
  • Patterning with another investor may allow you to put less money down, but you will have to share the profits and decision-making.  If you partner with someone make sure everything is in writing and crystal clear.
  • A very risky strategy is to buy a rental property with a hard money loan and then refinance that property into a conventional mortgage. This strategy requires a lot of experience and is very risky because hard money loans have to be refinanced with a year or less

What is the easiest way to save more money for rentals?

I can say this from personal experience; the easiest way to save more money than you are now is to make more money. Many personal finance experts suggest saving as much as 50% of your income. That is very hard to do if you don’t make much money and hard to do even when you do make a lot of money. Our society and economy is based on consumers spending money and it is tough to save. Making more money makes it easier to save if you don’t raise your spending habits with your additional income. So many people automatically start spending money when they get a raise or a bonus.

I am not saying you should never start raising your spending habits. I am not a frugal person and I think it is good to spend money on things that make us happy. Before you start raising your spending habits, save money and save a lot of it. The more money you save the better off you will be financially, whether you invest in real estate or something else. If you have money saved up and have investments you will feel better about spending money on things that really make you happy as well.

How can you make more money to invest in rental properties?

  • Start a business.  When you own your own business you have control and a lot more opportunity to make more money. I am a real estate agent and I run my own real estate team, fix and flip houses, run this blog and I have rental properties which are also a business. Make sure when you start a business you run the business and don’t let it run you. The point is for the business to make money without you, not for you to work 80 hours a week doing everything yourself.
  • Ask for it. The easiest way to make more money is ask for it. Ask for a raise if you are in a position where you work for someone else.  You better be able to justify your raise from work performance. If you have no basis to ask for a raise start working harder and smarter and show your value.
  • Change careers. Have you reached a ceiling in your current field of employment? Do you hate your current field of employment? Are you burned out and not doing of good a job as you should. Think about changing career paths to something you may actually enjoy.
  • Educate yourself. The most successful people never stop learning. They take classes, seminars, read and listen to audio books.  Don’t be afraid to go back to school if that will give your career a boost.
  • Do something you love. There are varying opinion on doing something you love versus getting paid. Some say it is impossible to do what you love and make money in some fields. I think anyone can make money in any field doing what they love. It may not be the exact job you envisioned if you wanted to be a professional baseball player. But that doesn’t mean you can’t make money in that field.  You could work as a trainer, coach, manager, or product designer. When you love what you do, you have more passion and work harder at what you do. You don’t wait for quitting time everyday because you can’t wait I leave. You get excited to go to work everyday and are disappointed when you run out of time to work because you are having so much fun.

Whatever you do to start making money, make sure you set goals. Set goals and plan how you will make more money, because it won’t happen without hard work and change. Go out and make things happen, don’t wait for it to come to you.

How can you use a refinance to get money for rental properties?

I have refinanced my personal house in the past and two rental properties to get more cash for investing. A cash out refinance can be a great way to generate the cash needed for a rental, but you have to make sure you have though the process through.

1. You must have enough equity in your home to be able to do a cash out refinance. If you are refinancing your personal house you can usually refinance up to 95 percent of the value.

2. You must be able to qualify for a rental property after you refinance. If you refinance your house and your loan amount goes up, it will reduce the amount you can qualify for.

3. There will be closing costs and other costs that are associated with a refinance. Make sure the amount of money you are getting is worth the costs associated with the new loan.

4. Make sure you can afford the new payment with the refinance and still be able to save money.

For more information on financing and refinancing long-term rental properties, fix and flips or owner occupant homes, check out my 99 page E book: How to Finance Multiple Rental Properties. The book is available at Amazon or in PDF format for only $6.99.

The first step to saving money for rental properties is to use a budget

Hopefully you found a way to make more money, but you also need to spend less. The first way to spend less money is to realize what you are spending money on.  A budget starts by tracking everything you spend money on; food, clothes, gas, housing, cars, entertainment, travel, etc. Most people never track their expenses, because they are scared to see what they spend their money on or they are worried they will have to spend less money on things they love.

By tracking your spending you will see a few things right away that you can save money on. You may be spending too much money on housing, food, clothing or entertainment. Once you see what you spend, use a budget to limit your spending each month. Cutting back just a little on some expenses will go a long way to helping you save the money you need. A great tool for tracking the money you spend and your net worth is Personal Capital. They offer a free AP that links all your accounts and tells you what you are worth and what you spend.

Pay yourself first when you save money for a rental property

It is very hard to get to a point where you can save 50 percent of your income unless you make a lot of money. Your first goal should be to save more money than you are saving now. A good rule of thumb is to save at least 10 percent of your income, but you should work to increase that number as much as possible.

Pay yourself first means you save 10 percent or whatever percent you choose of your income before you pay any bills. As soon as you get your paycheck you put 10 percent in a savings account that can only be used for investing. Make yourself live on what is left over after you have put away your savings.

Save money for rental properties by spending less on your house

Lenders will tell you exactly how much house you can qualify for when you talk to them about getting a loan. But qualifying and affording a house payment are two different things. I think if you buy the most expensive house you can qualify for, it will make it very hard to save any money. It will also make it very hard to buy a rental property because you have maxed out how much you can qualify for. I like spend about 10 percent of my income on my house payment and that leaves me plenty of money to save. That’s not easy to do if you don’t make a lot of money. Spend more on your house if you have too, but try not to buy the most expensive house you can afford.

Quick tips to save money for rental properties

There are many books out there on saving money, I highly suggest you read them. I don’t know every technique and I can’t go over everything in one article, but hopefully this helps you start saving more than you are now, which is the only way to start.

  • Pay off credit card debt by paying of the lowest balances first.
  • Compare rates on insurance. Check different companies for rates and move all policies to own company to get a multi-policy discount.
  • Eliminate or shop around for cable and cell phone services. Many times simply calling your company you currently use will lower your bill. Threaten to leave and they may give a better price. You could eliminate cable all together as well.
  • Turn the temperature in your house down a couple of degrees in the winter and up a couple of degrees in the summer to save on heating and cooling.
  • Carpool to work, walk or ride a bike on short trips that don’t require a car.
  •  Stop drinking or smoking and don’t go out to eat every night.
  •  Use credit cards to pay for everything. Yes, I said use credit cards for everything, but you just be very disciplined. I have a credit card that pays me 2% cash back on every purchase. If I pay my balance off every month I am charged no interest. It is like getting 2 percent off everything I buy with my credit card and it adds up.


There are many ways to save money that I have not listed, but the important thing is to start saving now. If you can couple spending less money with making more money, you will be surprised how fast things can change. I am not a fan of being overly frugal and never spending money on anything, but you can’t spend all your money either. You need to find a happy medium that works for you where you are saving money, spending money on things that are important to you and building a future.


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