When Jack Holden was asked how his family got started investing in real estate, here's how he responded. We scraped, borrowed, and leveraged from every resource we had to muster the funds we needed.. . . For seed money we cashed in saving bonds and borrowed from our insurance policies.
The entire family went on an austerity plan to cut back our food, travel, and entertainment expenses. Today we're thankful we made those early sacrifices. Thankful, yes, and also wealthy. Because of their disciplined spending, saving, and investing, the Holdens (an otherwise average family) built a real estate net worth of $4.7 million that includes not only their home equity of $600,000, but also a variety of rental houses and small apartment buildings. Like most people who make big money in property, the Holdens didn't start out with cash. As Jack Holden says, his family scrimped, saved, leveraged, and borrowed every way they could.
So what's the lesson that you can learn? To build wealth in real estate, don't wait until you get the cash or credit and then decide to invest. No! First, commit yourself to investing, then figure out how to come up with the money. You can keep fiwishing and a-hop-ing to invest someday. Or you can now decide to own property and immediately begin to shape up your finances and create a plan to invest. Want some ideas to start your own austerity plan, raise cash, and strengthen your credit? Try these suggestions.
Never Say Budget
No one likes to budget. It sounds too much like work. Instead, think priorities. Think reward. The quality of your life improves as you allocate your money according to your highest values. If you truly want to own investment real estate, put your money where it can yield the smartest returns. For example . . .
Stop Paying Rent
If you don’t yet own your own home, rent is probably your biggest money waster. Can you figure out how to eliminate or reduce your rent payments? Can you switch to a lower-cost apartment? Can you house-share? Can you find a house-sitting job for the next 3 to 12 months? Can you move back with your parents or stay rent-free with relatives or friends? Bank your rent money for 6 to 12 months, and for the rest of your life you need never pay rent again.
Cut Your Food Bills in Half
Eliminate eating out. Brown-bag your lunches. Buy unbranded foods in bulk. Prepare your food in large quantities and freeze portions in meal-sized servings. Forget those $2 to $3 microwave lunches and dinners. Locate a remainder and closeout grocery like Save-a-Lot, Big Lots, or Drug Emporium. Or maybe you can shop the food warehouses that have opened in most cities. Food prices in discount stores sometimes run 20 to 50 percent less than big-name supermarkets. Collect and use as many coupons as you can find. When you find bargain-priced items you regularly use, buy them by the case.
Cut Your Credit Cards in Half
Credit card spending is just too easy. Put yourself on a strict diet of cash. Nothing holds back spending more than having to count out real cash. Besides, credit card bills will zap strength from your borrowing power. Even worse, by the time you've finished paying off your credit card balances at 18 percent interest, you will pay back $2 for every dollar you originally charged - and that's in after-tax, take-home dollars. Once you consider that you only take home 60 to 80 percent of what you earn, you'll see that you may have to earn $3 to pay back each dollar you charge to your credit cards.
Don’t Put the Car Before the Investment Property
If you own a car that'’s worth nearly as much as a down payment on an investment property, sell that car. Get rid of those big cash-draining car payments. If your car is mostly paid for, there’s a good part of the money you need to move up to investment property. If you'’re thinking about buying a more expensive car, stop! Until you can afford to pay cash for a new car, drive the least expensive, dependable pre-owned car you can find. For too many Americans, their car is the enemy of their investment program.
Buy Your Clothes in Thrift Shops
In her newspaper column, Dress for Less, Candy Barrie writes, I'm a big fan of these (consignment and thrift) shops for the fashion bargains you can find there.. . . Get on down and you'll discover we're not just talking about 20, 30, or 40 percent discounts. Sometimes you can get your clothes for 90 to 95 percent off retail.
You can save thousands on clothing expenses. Just follow Candy's advice: Check all the recycled, discount, and closeout clothing stores in your area (or a nearby big city). Whatever your tastes and price range, you'll find that you can slash your total clothing costs by 50 percent or more. I regularly shop at a small, local store where the owner provides excellent service and advice along with well-known name brands such as L.L. Bean, Eddie Bauer, and Lands' End, at prices 40 to 70 percent off retail.
