If you are earning big, one significant investment you can do is investing in a property. Why? As time goes by, the value of the property or land is growing as well.
Imagine if you have got multiple properties, you’ve got a pretty significant investment.
Buying a home or a piece of land is a good investment because its value increases over time. If you want to level up and purchase multiple houses, it is a great way to increase your assets.
Nonetheless, you have to be aware of some fundamental differences between buying a property as your Home and purchasing properties to rent out.
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The Process of Buying
Once you like a property, you can get a home loan for a rental property.
It’s similar to buying a residential property. You’ll need to come up with a down payment, but there are options to make it happen.
Here is a couple of buying options you can do in purchasing a property:
- Down payment is generally needed: at least 20% of the property price.
- Loans are available for homebuyers with FHA and USDA Loans. If it’s your first home, these loans might be good options.
- You will need to look at conventional loans for rental property.
- Reserves are needed if you were buying from a personal income. If you are able to get the down payment, you can negotiate closing costs.
First time buyers are able to purchase homes with special assistance. Look at house hacking if you are willing to share some of your space and live more inexpensively.
Read: House Hacking: How I Bought A House With $1500
How to Be Prepared
There are a lot of things to know when buying a rental property for the first time. It would be best if you had a plan to avoid problems down the road.
Think About Potential Repairs
With a concrete plan, you can mitigate your risk and make the best deal. For example, if you purchase a property, you will want to make sure that you have funds for unexpected repairs.
Owning multiple properties is not a liquid investment. You should NEVER expect a quick source of cash. At times it you have equity, you may be able to get a line of credit.
Look At The Numbers
You must conduct thorough research on the responsibilities and considerations of being a landlord and the rules of renting properties.
You should identify the potential ROI or return on your investment.
You must analyze and decide if you will manage the property yourself or have someone or an agency handle your rental properties.
Always remember that a long-term investment in properties may yield good returns over time.
Advantages of Owning Multiple Rental Properties
- Business Opportunity
- Passive Income
- Property insurance covers losses in part or full due to accidents, fires, or some types of losses due to damage
- Rental properties generate cash flow
Disadvantages of Owning Multiple Rental Properties
- The misbehaving tenants
- Destruction of property
- Lacking experience in some fields
- It may take weeks or months to sell a property.
- Keeping track of and executing the repairs and maintenance takes time and money, finding a trusted contractor to do the work.
Knowing the advantages and disadvantages of owning multiple rental properties, you can easily decide what kind of business you will do with your stuff.
Key Metrics In Evaluating Rental On Your Properties
- Cash-on-cash return is the annual rate of return concerning the amount of financing paid during the same year.
- The Cap Rate is the expected return rate on real estate that uses net operating income and does not include mortgage debt.
- Return on investment (ROI) refers to the profit made on investment as a percentage of the investment cost.
Different Strategies When You Start Buying Multiple Rental Properties
It would help if you had a better understanding of rental properties before investing and buying multiple properties. We have collected a few tips on purchasing and financing multiple rental properties:
Purchase Property in One Area
Focus on one area of buying multiple rental properties. This is easy to understand the market value quickly and make a deal with your investments.
If your property is in one area, you will be able to manage it easier. It will easier to check up on your properties.
Better Understanding of Loan Limits
It is recommended to understand what limits a lender in making a loan for multiple properties.
Limit Conventional Financing
Did you know that most conventional lenders only allow four mortgages appearing on your credit report?
In general, you will be able to get 4 loans relatively easily. You are able to get up to 10 homes with conventional financing.
After you get to 10 homes, you will need to look at portfolio lending.
Use the BRRRR Method
BRRRR means buy, rehab, rent, refinance, and repeat. This method limits your cash flows after refinancing, and that also means you should have more cash to buy more properties.
The BRRRR method is a great way to build up passive income. You will need to source great deals and the rehab work. Once you have your tenant, you will be able to get most if not all your money back.
Join A Team
Connect with your local Real Estate Investment Association (REIA) and attend their gatherings and meet-ups.
You can generate relationships among other real estate investors like you that could benefit your business.
A lot of people are looking to find deals. If you can team up with people, you can partner up for deals.
By joining a team, you will have multiple benefits. It can be a good way to understand the process and gain confidence.
Different Options Similar To Buying Multiple Rental Properties
The reason you want to buy multiple rental properties is to earn passive income and do well financially. These are assets that will stay with you and you can pass on to other people.
Read: 39 Real Estate Related Niches You Can Build A Business Around
Buy an Apartment Complex
Look at syndications. Look at joining local groups. You should also be able to find commercial real estate groups in your local area. Some good places are Facebook groups.
Look at connecting with Real Estate Lawyers. They usually know other real estate investors. If you have funds, it may be a good way to get into a deal as a private investor.
Crowdfunding Multiple Rental Properties
You can look at crowdfunding multiple rental properties. In general, you will need to start looking at private investors for your deals.
Look at starting a networking event for real estate investors. you will find some people that just want to be investors. If you can pool this money, you can use them to buy rental properties.
REITs as an Alternative to Buying Multiple Rentals
If you don’t want to deal with the hassle of managing real estate, you can buy REITs. They are a good way to get into real estate investing without having to do any work.
If you spend a little bit more time, you may be able to increase funds by working directly with real estate investors.
Land Investing
I’m personally involved with land investing. The strategy is to buy land for cheap and sell it.
When you sell your land, you can sell it for owner financing or for cash.
Owner financing deals are a good way to increase passive income. If you sell it for cash, you are able to get larger chunks of cash.
Read: Land Investing: Land Flipping 101
The Risks of Owning Rental Properties
Vacancy
If your property is vacant, you will lose rental each month of vacancy, but you are still paying for the mortgage, or the repairs for maintenance are needed.
Make sure to prepare vacancies and have a way for finding new tenants. You can hire a property manager to bring in potential tenants.
Look at posting on different Real Estate Listing sites like Zillow and Trulia. You will want to look at classified pages like Craigslist and Facebook Marketplace.
Damage/Repairs/Maintenance
These can be categorized as controllable or uncontrollable expenses due to there are items that need maintenance over time.
However, if the materials being used are durable that could last long term, then you don’t have to worry that much.
The repairs and maintenance would depend on the major or minor cost of repairs. Thus, it is always smart to have spare money whenever these repairs show up to not make the issues grow bigger.
Plan on having some kind of budget for capital expenses. At some point, you will need to make repairs to your house.
Financing Options for Rental Properties:
Creative Sources of Financing:
Hard Money Loan is best for fast, short-term financing. These have initial fees called points and a higher interest rate.
Owner Financing is best for creative financing. Usually it will be a down payment to the owner and a wrap around mortgage.
Blanket Loan is best for buying multiple properties. You can look at refinancing homes to get better rates and avoid balloon payments.
Looking at the Bank for Financing:
Conventional financing is best for credit scores that are above 660. Look at a 20% to 30% down payment and a fixed interest rate.
It may be possible to get a lower down payment, check with you bank on their rates.
Cash-out Refinance is best for Investing properties with 40% to 50% equity. This can be a good way to use existing real estate assets.
Home Equity Line of Credit (HELOC) is another way to access your home’s equity.
BRRRR is best for rehabilitating properties. It’s a good way to get passive income and keep reinvesting your funds. It uses refinancing strategies from a bank.
Retirement Account for Funds:
Retirement Account is best for borrowing against retirement funds for a down payment or purchase.
Leveraging Your Other Real Estate Assets:
If you have a home, look at creating it into a rental. Your second home can become a primate residence.
1031 Exchange is best for reinvesting rental property profits into additional properties. Make sure to use a lawyer. There are different criteria and restrictions.
You will want to consider a 1031 Exchange if you are looking to save taxes. In these cases, you are looking to not pay capital gains.
Tips On Buying Multiple Rental Properties
Buy Your Property For The Right Price
Buy below market value to have instant equity, which can be used for reinvestment for more properties. If you don’t pay the right amount, you will lose.
Add value through a renovation, which is an excellent way of gaining equity quickly. If it create enough equity, you can look at refinancing the property.
Make sure to have a positive cash flow where you can reinvest the extra cash flow. If you are looking for appreciation, plan your exit for a sale.
Looking at the Real Estate Season
Buy at the right time in the property cycle means considering the market if it is declining or booming.
Never buy a property if the market is dropping as you will run out of equity, and you might lose to invest further.
Build Up Your Team
Consider a smart mortgage broker that will help you to maximize your borrowing capacity and will allow you to get approved for more and better loans.
You will want a real estate lawyer on your team. As you build up your portfolio, you will have different legal needs.
A handyman is vital. Look at having different construction people on your team.
Your insurance agent will help you make sure all your properties are protected.
Taking Care Of Your Tenants
Take good care of your tenants. A bottle of wine or freebies at the movie theater will make them happy. It’s important to have a good relationship with them.
In buying multiple rental properties, there is always a learning curve that you should know to learn the right strategies to maintain your business’s cash flow.
Let us go deeper into the meaning of rent. The price paid for the use of a particular property or a piece of land is called rent.
Make Sure You Get Your Rent
Whenever you are looking to rent your property, screen your potential tenants. You will want to make sure they have the income.
Look at setting up payments. You can use a free service like Cozy. You will be able to list your properties and receive payments directly to your bank account.
Frequently Asked Questions:
Is it reasonable to own multiple properties?
As we all know that buying is a pretty good investment. Suppose you want to take a step further by purchasing multiple rental properties. A lot of people have done it, you can too.
Is rental income a sound retirement strategy?
Rental properties can indeed be a great addition to your retirement. For most people, their house is their largest asset in their retirement.
If you have multiple property, and you purchased them early, you will have a large amount of equity and homes that are totally paid off. It’s a consistent paycheck to your bank account.
