Owning real estate properties is one of the ways to create wealth and earn passive lifetime income. But it’s not that simple. The process can be quite complex. So, how can you buy multiple rental properties?
You can buy rental properties using financing options such as Conventional loans, Freddie Mac, blanket loans, portfolio mortgages, etc. The benefits include diversification, multiple income streams, and tax cuts. If you don’t want sole ownership, you can use joint ventures, REITs, and Crowdfunding.
However, real estate investment has its challenges, especially when managing multiple properties. Various tips can help you avoid making the wrong move. Here, we discuss how to buy multiple rental properties, other ways to invest in real estate, and the benefits of owning several rental properties.
How to Finance Real Estate Investments
Real estate investment is a complex thing that requires as much financial commitment as physical commitment. From the point you identify the property you want to buy, you need several skills and experience. Financing is perhaps the most important thing when it comes to owning multiple rental properties. Unless you have millions inherited, you’re going to need loans to build your real estate portfolio. There are various ways to get financing based on how many properties you have in your portfolio.
1. Conventional Loans
It’s usually easy to secure finance when getting started if you have the right credit score and meet all the loan requirements. Conventional lenders are always open to lending you the necessary funds you need to buy your first few rental properties. With a good credit rating, you can easily finance four rental properties using traditional financing methods such as getting a loan from a bank or credit union. These loans usually have a low-interest rate, last for up to 30 years, and require a down payment of 20% or more on the property. You may also need to take out mortgage insurance if the down payment is below 20%.
2. Freddie Mac Loans
You can use the Freddie Mac Investment Property Mortgages programs, which give qualified real estate investors the chance to finance as many as 10 investment properties. The requirements for this include:
- A minimum credits score of 720 for borrowers that has seven or more financed properties
- Debt to income ratio must not exceed 45%
- Not more than ten 1 – 4-unit properties
- Six months of cash reserves for each property
- Down payments between 15% – 25% depending on the number of properties.
3. Blanket Loans and Portfolio Mortgages
If you’re planning to finance more at least 10 properties, the best option is through portfolio mortgages and blanket loans. It’s private lenders that offer this kind of loan. A blanket loan is just one single mortgage for financing multiple properties. On the other hand, portfolio mortgages are individual loans to the borrower by the same lender. The terms of these loans include higher down payment, amortization, interest rate, balloon payments, etc. Lenders can tailor the terms of the loans to meet your needs, but this kind of loan comes with higher interest rates and fees.
Other creative ways for financing your real estate investments include:
- Cash-out refinancing
- Home equity line of credit
- Self-directed IRA.
- Seller financing
Other Ways to Own Several Rental Properties
There are several ways you can own multiple rental properties without being the
1. Joint Venture and LLC
Forming a limited liability company or joint venture with other investors is one of the best ways to invest in real estate. It helps you share the risk, lessen the burden, and divide the rewards based on a prior agreement or the contributing capital. It allows you to have a stake in more properties than you can own individually.
Another way to invest in multiple rental properties is through crowdfunding platforms. You can invest with very little in real estate crowdfunds and own a stake in different kinds of properties. Crowdfunding is the retail investing of the real estate market.
You can also own multiple rental properties by investing in real estate investment trusts. REITs invest in different real estate assets ranging from residential to commercial buildings and own and operate these buildings. Yours is simply to invest in the trust, and you get a stake in its profits. This is one of the ways to passively be a real estate investor.
Benefits Of Having Multiple Rental Properties
They say, “don’t put all your eggs in one basket.” That statement applies to real estate as much as it applies to other things. There are several benefits to owning multiple rental properties. These include:
1. Multiple Income streams
The income you earn on rental properties is enough motivation to invest in it. With the high demand for housing in America, the cost of rent is also rising, which means more profits for you. But even in this hyper active real estate market, rental income isn’t always so consistent. Finding the right tenant for a home can take some time, and there are times when you have to pay major bills such as repairs on your rental property. If you have multiple rental properties, you have multiple sources of income, which means if one has a negative cash flow in the short term, you can use the income from another to offset that cost. You also get to make more money every month.
Balancing risks is very important for investments, and diversification is one of the best ways to manage risks. The best way to diversify your portfolio with real estate is by investing in several locations. The hottest real estate market changes, which means demand is always fluctuating. But having homes in several locations allows you to always have places where you can count on the demand to generate rent for you every month. The best cities to own rental properties are the ones with affordable living costs because these are the ones that most people are moving to. Whatever you do, it’s always better to have options in multiple cities.
3. Tax benefits
Real estate investors usually get a lot of tax write-offs compared to all other asset classes. So, the US tax laws are friendly to those who own rental properties. You can enjoy write-offs such as operating expenses and business expenses deductions. Depreciation deduction is perhaps the biggest tax benefit and could help you save a significant amount annually on your taxes. The more rental property you have, the more depreciation you can deduct. You can always calculate the deduction with various tools available for this purpose. It doesn’t hurt to use actual tax professionals for the best results with taxes.
Tips For Real Estate Investment
- Work with real estate agents, mortgage brokers, property managers, tax attorneys, etc.
- Define your investment strategy before you start
- Pay attention to the numbers and learn how to calculate key metrics
- Real estate investment requires lots of work, especially when doing it yourself, so be ready for that commitment
- Consider the risks of investing in real estate and avoid overleveraging.
- Ensure your properties are regular home types such as condominiums, single-family, multi-family units, houses, etc.
Owning multiple rental properties has many benefits, but it’s a complex and tasking process. The most difficult part is financing the purchase. But there are several ways to get the necessary funding you need to build your real estate portfolio.