How to more rapidly save for my first investment property

Question

I'm new to this world but dedicated to retire early on REI. I've been putting away a big chunk of my paycheck this past year to try to build up my savings for a first down payment but it's been a slow process! I live in LA so expenses are high and I'm only working with a 75K income. I'm putting about 20-25% of each paycheck into a "high" interest money market account. Is there anywhere else I should consider investing my savings to grow faster while I save more for a bigger down payment?? I could pull off a down payment for a class c or lower type of property out of state and BRRRR it, but being my first one (and literally all of my savings), I'd rather save up a class B or better since I have to go out of state, hence the need for a larger down payment. I know there's alwyas private money, but I don't have any close connections with the funds to offer, so I'll need time to build up a network of private money lenders - so in the meantime, any strategies to accelerate the savings account, other than spend less?? Thoughts?

Thanks in advance!

Adrian Rae · Answer

@Caroline C. Thank you for your feedback. I've definitely been considering the side hustle route. I'm gonna have to find something to help increase the monthly income. And good call on the C-class properties.

Thanks!

Caroline C. · Answer

@Adrian Rae I'd just add that I strongly agree if you are buying just a single property, don't go the C-class route, because then you need to make sure you have money set aside to handle worst case scenario, such as eviction and costly turnover.

Also, one of the things I talk about a lot is that it is really hard to 'save' your way to financial freedom. You need to focus on side hustles to address the income part of the equation.

Corey Hawkinson · Answer

@Adrian Rae Sounds like you’re already doing a lot of good things to reach your goals. Saving 25% is great! Seems like your expensive city is the main issue. I’m not sure if changing that is an option. Or, would that be offset too much from a pay decrease?

Obviously there are little things you can do to cut expenses, but as you mentioned, you don’t want to cut expenses so far that you hate life.

Dennis M. · Answer

Well I can tell you that Your lifestyle choices are adding to your difficulty in this case . Giant dog ..1150 rents ..Organic vegetarian diet in LA  living in poverty level income . Really ? How bad do you actually want this to work ?

Adrian Rae · Answer

Hi @craig curelop, thank you for response, but this is why I'm stuck! So my rent right now is pretty cheap for LA, $1150 (i do have a roommate) and I have a big dog so my options are extremely limited. I own my 2007 prius, so no car payments and it's a hybrid. I live 5 miles from work, so I could have cheaper rent if I wanted to sit in LA traffic, but I like having the option to ride my bike. I've been vegetarian for 11 years, but now instead of meat I buy organic produce :\ I don't eat out, but I am guilty of nights out at the bar with friends maybe once or twice a month. I guess I should cut back on that but I'll go crazy not being social - it's tough enough being new in a huge city with a small network. I also have 25% of my paycheck automatically deposited into my money market account so I live off an even smaller portion of my paycheck. I've done all (mostly all) of the thing major cutbacks I can realistically make without slipping into a state of isolated depression. I don't want to have to go that extreme and never leave my apt just to save money. There's got to be other options to accelerate this process! But maybe not?? And it's just a long slow process?

Craig Curelop · Answer

@Adrian Rae - I would start out with what are your biggest expenses right now? I am guessing housing, transportation, and food are your top 3. I would strategize and figure out how to lower these. Some initial ideas for each are:

Housing:

1. Find a cheaper place to live? Perhaps a room in a house somewhere?

2. Get a roommate or multiple?

3. Rent a 3 or 4 bedroom house and rent the others out by the room so that you can live for free?

Transportation:

1. Move closer to work?

2. Move near a bike path within 10 miles to work so you can bike in

3. I know public transportation stinks in LA, buy maybe figure something out?

Food:

1. Limit the amount of times you go out to eat. If you do go out, only get an appetizer. No drinks.

2. Check out Saving Sherpa for ways to save on groceries. Or BP Money Episode #3

3. Try to go vegetarian for a couple months. I bet you spend at least 25% of your grocery budget on meat (if you do eat meat)

Adrian Rae · Answer

@jim pellerin that's an interesting idea...is the risk level the same as investing in the stock market? what are the chances you could lose all of your investment??

Adrian Rae · Answer

@ryan riches, @theresa harris, @tim herman I would love to house hack! But a 3.5% down payment in the LA area is still way more than I currently have. And with only 3.5% down, the mortgage would exceed the rental cost of the 2nd bedroom and I would end up paying more then I do right now renting with a roommate. I'd have to put down a lot more money to make it a real house hack. So even if my first plan is to house hack, I'd still want to accelerate my savings rate. LA is so darn expensive!....I should probably just move! haha

Jim Pellerin · Answer

@Adrian Rae How about investing in Private Mortgages. Contact your mortgage agent and see if they do any Private Lending. You should be able to get 10%+ on a private mortgage investment. And what about looking at other strategies, like wholesaling, lease options, fix and flips with a joint venture partner?

Ryan Riches · Answer

I'll add another stick to the House Hack fire here. I don't know exactly what your budget looks like, but I can bet that your housing expense is one of the biggest ones on there. If you can find a place that makes sense, you can put 3.5% down and rent out the rooms to roommates, or airbnb. This is what I am currently doing in Colorado to increase my savings rate to get another property. If you have a family you could look into duplexes, or single families that have a natural dividing point (basement, attic, cottage, mother in law suite), to keep your space more private while still getting the benefits of House Hacking.