The Real Estate Apprentice: Create a system to save money automatically

Several weeks ago I shared a post which outlined my real estate goals for 2012.  One of the goals on my list was to help out an aspiring real estate investor get started with buying rental property.  Shortly after the article went live, Jason (one of our loyal readers) contacted me and expressed interest in working with me. 

After talking with him for the better part of 45 minuets, I realized that he was serious about getting started in real estate and wasn’t going to waste my time.  As a result, we’ve decided to work together to first learn the fundamentals of  buy and hold investing – learning a market, creating a network of real estate professionals, analyzing deals and acquiring property.  As a bonus, I thought it would be a great learning tool to have Jason outline his experience on the blog as he moves through the process.

Today is his first post, Jason take it away!

My name is Jason and I am working with Arthur to get started investing in real estate.  Over the next several months I will be sharing a series of posts called “The Real Estate Apprentice” to document my real time learning and actions took and translate them to actionable posts for all of you.   Today marks the first of post of many to come. 

There are a lot of real estate gurus suggesting creative methods of purchasing real estate. No Money down, lease options, options, private lenders, etc. But one thing many fail to mention in their books is that they have humble beginnings of simply putting 20% down on a property and renting it out.

John Schaub, an expert in Single Family Home Investing is a big proponent of seller financed purchases and buying undervalued properties. He also mentioned in his book that for his first rental property he paid retail price with 20% down. A far cry compared to deals he finds now, but that property got him started.

Wendy Patton, Peter Conti and David Finkel, are all experts in lease option or “rent-to-own” deals, all had their start in real estate by doing rentals. That is how they got started before transitioning to something more profitable.

For me, I am just getting ready to get started on my first real estate deal! I do not plan on hitting a home run with my first deal, instead I wish to emulate the real estate gurus and just get started. That means I am willing to work with a bank to finance my deal and an agent to find me a property. That also means I will have to have more cash upfront to get my first deal.

So this article will be about a trick you can use to automate your savings and take your emotions out of the process to make sure you succeed at your savings goals.

1. Today: Set up an ING DIRECT savings account.  

You will love ING because they allow you to easily create and delete multiple savings accounts (up to 30) without ever having to call them. Here’s a screen shot of my current accounts.

Does your bank allow you to do this?

I have different accounts that I put money towards from every paycheck and the last one is “REI AMAP” standing for “Real Estate Investing – As Much As Possible” I have a goal of $1250 per paycheck.

*Any bank account will do, but ING is the only one I know of that allows you to create multiple accounts for different purposes. I recommend it wholeheartedly.

2. 30 days later: Contact your HR Department to set up Direct Deposit into ING

You can begin by manually distributing your paycheck to get a feel of how much you can put towards saving for REI without cutting on gas, rent, and food. After 30 days, you should get a feel for how much you can save for your down payment. I learned I can put $1250 towards my savings and now I automated this process.

You can contact your HR department to complete the paperwork to set up another direct deposit to automatically put your savings in your separate account separate from your spendings.

3. 30 days later: Send your money to an “Out of Sight” Account (Optional)

I have a mutual fund account with Vanguard and so I opted to direct my company’s deposit of $1250 per paycheck towards that account instead. I have also set up parameters within my account to automatically purchase a limited-term tax exempt bond mutual fund (Low risk, perfect for short term savings) which will net me about 3.5% after tax every year. This is literally “set it and forget it”.

Unlike my bank account, my Vanguard account is not one I check daily. This will minimize any temptation to spend the money on less important things ($5,000 in the bank can get to be really tempting sometimes). Additionally, it will take around 7 business days to get my money out of my mutual fund and transferred to my bank.

I have created two layers of barriers to prevent myself from spending my savings and I feel very confident in achieving my saving goals.

I labeled this last part optional because if you do fine separating your money into your dedicated savings account within ING, then that’s all you need. But knowing myself, I know something will come up in life that will make my $5K very logical and reasonable to use in the short term. So I set up extra protection for my money…from myself.

Summary

Because of the few hours I spent automating my system, I am projected to save at least $2500 per month ($59K annual salary) without any extra effort on my part. And when I have an extra buck or so, like my tax return, I’ll direct it towards my Vanguard account to accelerate my savings.

Soon enough, I will have enough money to purchase my first investment property and get myself started. No matter how much money you earn now, you have to start your real estate investing career by saving enough money for your first property, use what you read from this article to get started.

If you do the same, you will be saving money without any budgeting and any money you see in your bank account you can spend guilt-free knowing you are saving enough towards your first rental purchase. Imagine how much closer you are to purchasing your first rental if you have saved up $20,000 a year or even two years from now?

You have to start by getting your finances in order and you can get started by opening an ING account now!

Best wishes to all of you, I wish you found this helpful and have been encouraged to take action.

Jason Co

P.S. Contact me at sycojason@gmail.com if you wish to get a referral link to open an ING DIRECT account and get a $25 sign up bonus (I get $10 if you sign up).

 

 

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Comments

  1. Brandon says:

    Welcome to the club Jason! I’m glad to see you are automating your savings. Getting that down payment is usually the worst part for most people. I look forward to hearing more from you as you progress!

    • Jason says:

      Hi Brandon,

      Thanks for the encouragement. I actually subscribe to your blog too and have read your ebook. I all for automation and business process hacks as well. Congrats on your new home too!

      Jason

  2. Ryan says:

    This will be fun. I like your plan.

    I am ready financially to make the first purchase, but feel like I need someone experienced in buy-and-hold SFR’s to guide me through it. I’ve read several books and do not buy into all of the schemes, just ready to do a 20% deal very soon. Contacted a realtor I trust, but even if they serve-up a great deal, I am not sure I would positively recognize it…

    Everyone out there seems to have an agenda and I could use a mentor to help me stop stalling and get going.

    • Jason says:

      This is very similar to my situation. I would suggest that you attend a local real estate group that focuses on buy-and-hold. I found mine on meetup.com and learned a lot just from one meeting. Also I met local agents and real estate lawyers. That would be a start.

  3. Kishor says:

    Hey Arthur, Its too informative article for every one. i subscribed your blog reading on daily basis. Thanks a lot for sharing with us.

  4. Melisa says:

    Congratulations Jason you are definitely on the right path keep up the good work.

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  1. [...] tuned this week, Jason Co aka “the Real Estate Apprentice” will be giving us an update on his journey toward [...]

  2. [...] the spirit of my last post, this post on obtaining the money you need to purchase your first rental property will also be [...]

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