Los Angeles is considered the most overpriced city in the nation, and it’s not hard to see why. Rent has been skyrocketing out of control over the past three years (rent for a two-bedroom averages $2,900 at the moment), starter homes begin in the high-$400,000’s and salaries haven’t budged much over the past decade. But, L.A. is where I live and consider “home.” So, when Mr. LH and I got serious about buying a house, we knew that saving for the down payment was going to be the most difficult part for us.
Before I outline how we were able to save $30,000 in two years, let me just preface this by saying we don’t each make a six-figure salary (though our combined salaries are pretty close to that) and we didn’t get help from our parents in the form of an inheritance or cash gift. Many couples we know who own homes in the Los Angeles area had some kind of financial help from relatives or inherited a house, but that definitely was not our situation.
Below is our step-by-step plan that helped us put together our down payment and hopefully will be an encouragement for others in a similar situation.
Step 1 – Automatic savings withdrawals
Saving seems like a no-brainer, right? Of course, but setting up automatic withdrawals made saving easy. I didn’t have to think about it once I scheduled the deposits. I also separated my deposits into two different accounts; a savings account and a mutual fund. The mutual fund did pretty well the first year I invested in it, earning much more than the measly .01% that the savings account was earning. The combined amount of each account in two years was $8,000.
Step 2 – Save any extra income
Any extra income that came our way that wasn’t part of our regular salary, went towards a savings account. We are still using this strategy today as we save additional cash for upcoming house purchases and landscaping. Any income earned through blogging, eBay sales, or my Teachers Pay Teachers sales gets deposited into a savings account (having side gigs really helps). Combined amount in two years, $3,000.
Step 3 – Get a raise
As a teacher, I can’t negotiate my salary as an individual. However, the way our salary table works is that the more college credits I have, the more income I make. As I was finishing up my second credential, I made sure to submit my college transcripts each semester and worked my way up to the top of the salary scale. I increased my salary by $14,000 over two years through salary points and with the help of a district raise. That raise really helped us save for our down payment. Total saved through just the raise: $5,000.
Step 4 – Find a rapid growth investment
We realized we needed to grow our money quickly if we wanted to have a down payment ready by early this year (2016). Mr. LH had been researching a few companies whose stock was on the upswing. We took a chunk of our own savings plus a 0% transfer balance from a credit card (incredibly risky, but you can read about the arbitrage here) and invested it in a company that grew exponentially over a year-and-a-half. That alone made up the difference in the $14,000 that we needed.
Before we were able to actually save for our down payment, we had to work really hard at paying down our consumer debt and increasing our credit scores. It wasn’t an overnight event, but totally worth it. We are currently in the process of building a manufactured home and should be moving in about 5 weeks or so.
If you’re curious about why we chose a manufactured house, you can read about our decision here.
Are you struggling to save for a down payment? How long did it take you to save to buy a house?