Are you thinking of getting into real estate? Owning rental properties is a great way to start. With the high demand for housing, rental properties can earn passive income while the house itself appreciates. But you might wonder how many houses you can have in your portfolio. So, is there a limit to how many rental properties you can own?
There’s no limit to how many rental properties you can own. But you can only have ten conventional mortgages, which may be a limit. Forming an LLC can help you access more financing, but it’s best to be cautious. An LLC also helps avoid personal liabilities, get tax cuts, and attract investors.
However, getting financing for real estate investments is more stressful than residential properties. Lenders require several documents to prove income, assets, credit, and the property state. Here, we answer whether there’s a limit on how many properties you can own.
How many Mortgages Can You Have?
When most people think of buying a property, the first thing that comes to mind is qualifying for a mortgage. Due to the high cost of homes, only a few people self-finance their home purchases. With investments like owning rental properties, getting a mortgage is necessary to acquire the property. Theoretically, you can have as many as ten mortgages to your name using conventional loans. But you can always have more through alternative financing. Since a mortgage is what you need to acquire a rental property, you can have as many rental properties as you want.
The only thing you need to contend with is the mortgage debts you have paid and not exceeding your debt-to-income ratio. Doing that may affect your credit score and make it impossible for you to take another loan or even lead to default. Thus, while there’s no limit to how many properties you can own, it’s important to be cautious. Before you can start acquiring rental properties on a large scale, the first few properties you have should be able to generate positive. This might take a while, but it’s advisable to be patient since real estate investments are usually for a lifetime.
How To Own Several Rental Properties with Financing?
You can own more than ten rental properties using a conventional mortgage. Doing this requires creating a corporation or trust and financing all the properties under the corporation’s name with a blanket loan. A blanket loan covers several properties, and several financial institutions issue this type of loan. With the loan, you can pay off all your existing mortgages. Most times, your mortgage application doesn’t ask you about commercial property.
With this approach, all the properties under the corporation will be considered one property, no matter how many. While this works effectively to help you acquire more rental properties, it’s something you need an expert to do. You should discuss with tax attorneys and professionals before using this strategy, so you’ll know how best to structure the loan. With this strategy, you must prepare and file corporate tax returns on the properties.
Why create a Limited Liability Company for your Real Estate Investments
When you’re thinking of owning rental properties on a grand scale, you should form a limited liability company and transfer titles to it or buy properties under its name. There are reasons why this might be a great idea, and that includes:
1. Avoid Personal Liabilities
While there’s no limit on how many rental properties you can own, it gets to a point where it’s more advisable to hold the property through another legal entity due to the liabilities. This will help you avoid exposing your personal assets to any claim or obligations. An LLC also means that another party that obtains monetary judgment can’t force the LLC to sell the property. Instead, the party will only obtain a lien on the property, which means you at least get to keep your properties.
2. Ease of Attracting Outside Capital
An LLC looks more professional, and therefore, investors and sellers are more comfortable dealing with such an entity than with an individual house owner. If you’re planning to get other people to invest in your real estate portfolio or partner with you, then make sure it’s an LLC.
With LLC, your profits will be subject to corporate tax, which means investors can enjoy some tax benefits. Of course, this is by no way absolute, and you may still have to pay some personal income tax on the profits.
Required Information by Lenders
When applying for a mortgage, you’ll have to submit certain documents to prove that you provided the right information. Here is the information you need to prove and the documents you need to submit to prove them:
In order to prove your income, you’ll have to submit tax returns for the past two years, including schedule E, which shows all your rental property information. The lender will also require your paychecks and the personal income tax returns (W – 2 form) for the last two years.
Beyond income, you also need assets to show you can afford to meet the financial obligations associated with the loan. The lender requires your bank statements for the last two months, the latest quarterly statement of your 401(k), and other retirement funds. You also need to submit proof that you have access to the funds in your retirement plans.
Having good credit is crucial to qualifying for any loan, and you’ll need several documents to prove this. That includes a credit report, proof that all your mortgages are current and paid, evidence of on-time payments for private financing, and copies of notes for any seller or private financing.
4. Property Specific Information
You also need to supply information about the property, and that requires submitting documents such as homeowner insurance without liens or special title search for debt-free properties, copy of closing statements for properties that don’t show on your tax returns or was bought within the last 12 months. the homeowner’s association statements, copies of current mortgage statements, property tax bills, homeowner insurance premium. The lender may sometimes ask for a form 1025 or 1007 rental income analysis, which appraises your property. This usually comes at an additional charge.
It’s possible to own as many rental homes as possible in the US. But if you’re going to be financing them through a mortgage, there’s a limit. You can create a different legal entity such as a corporation or trust to hold your real estate portfolio.