These days, it’s easier than ever to own investment properties, and many people are taking advantage of this relatively easy way to earn additional income. Sure, being a landlord can have its downsides, but there are plenty of advantages as well.
Are you thinking about expanding your empire after the success you’ve had with your first income property? Are you just dipping your toe into the water but know that you’d like to have multiple properties?
Our tips can help you get started on the right track.
Determine Your Level of Involvement
Some people make a career out of renting properties. They might own hundreds of properties, have several full-time paid employees, and work on the business 40 hours a week - or more. Others are more low-key. They may simply renovate a basement apartment in the home they live in and rent that out.
Where do you fall on this spectrum? Do you want to be very involved in the process of being a landlord or do you just want to earn a bit of money on the side? If you want to hold onto your current job while still having multiple properties, you might want to get a management company involved. You will have to pay out some of the profits, but you won’t have as many headaches.
Financing Multiple Homes
Perhaps the biggest challenge when you’re trying to buy multiple investment properties is financing all of those purchases. While you can usually get your first mortgage with only a 5 percent down payment, banks typically require you to have at least 20 percent as a down payment on any additional homes you purchase. Furthermore, you may start to have problems getting approved once you start looking to buy your seventh or eighth home.
How can you make all of this work? First of all, it’s important to avoid over-extending yourself. Falling behind on mortgage payments will make it all but impossible to get financing again. It’s also a good idea to use your capital to buy homes outright if you can. Instead of putting a 20 percent down payment on a $500,000 home, consider purchasing a townhome that only costs $300,000. You're paying more upfront but when you have the capital, a property like this will make you thousands in pure profit from the day your tenants move in, accumulated year after year, while it appreciates in value at the same time.
The exception to this would be if that $500,000 home is a multi-unit property that will earn you a significant amount of money. Then it could be worth you mortgaging the home knowing you'll be making a higher profit margin to put towards the principal and fund new properties.
Choose Homes that People Want to Rent
The key to earning money with your rental properties is making sure that you always have someone renting them. To do this, you need to carefully select the homes you purchase. A home that will sit on the rental market is not a good deal, no matter how great the price is.
Focus on things like the location of the home. Is it in a good neighbourhood? Is it relatively close to the city? Are there grocery stores and other amenities nearby? If so, you could have a winner. Think also about the types of people you’ll rent to. If you’re looking at young professionals who might have roommates, then you may want to look at properties that have multiple bedroom suites. If you’re looking to rent to families, you should look for homes with big backyards and a playground nearby.
Consider Buying New
Older homes may cost less, but they often have problems associated with them. As a landlord, you’ll be responsible for fixing those problems. Do you want that hassle? Do you have the money in the bank to fix those problems?
You don’t have these issues with brand new homes. Everything is new, so there won’t be large repair costs. Furthermore, a brand new home is going to have a stylish look that’s hard to come by in most rental properties. You’ll be able to get top dollar for your properties if they look great.
When you own multiple properties and you’re interested in buying more, it’s smart to keep paying attention to your finances. Obviously, you should be charging rental rates that are higher than your monthly mortgage payment. Don’t go crazy spending that profit though. You need to keep saving it. You’ll want that money on hand to cover any repairs or to pay the mortgage those times that you don’t have a tenant and still need to pay the mortgage. Once that savings account gets big enough, you can then use the money as a down payment for your next income property.
Being a landlord comes with a lot of responsibilities, but when you start to build up a nice profile of properties, it can give you more financial freedom. Just be smart about your investments, and you’ll be on your way to success.