You’ve been hearing about how great the real estate investing industry is, and this is the year for you to go all in. Owning multiple rental properties could mean crazy wealth creation from all that passive income. But if you want to build up your real estate investment portfolio in a single year, it won’t be easy. It isn’t impossible though. Read through this blog to find out how to buy multiple rental properties so you can really grow your real estate business.
How to Buy Multiple Rental Properties
Determine How Many You Want
So you’re investing in rental properties. Before we can tell you how to buy multiple rental properties, you need to clear up a couple of things. What’s your strategy going into this? The first thing to figure out is how many investment properties are “multiple” properties for you: 5, 10, 15? To be realistic, I recommend not exceeding 3 or 4 property investments in a single year. That’s still enough to give you positive cash flow, but it won’t be too many to manage.
Select a Type of Investment Property
Another important factor to consider is the type of rental property you’re investing in. Do you want to invest in a single-family home, multi-family property, vacation home, or commercial property (apartment complex)? For example, determine whether you want to build a real estate business managing just vacation rentals, or if your investment strategy is to have a diversified portfolio.
Decide on an Investment Location
If you’re planning on buying an investment property but don’t know where to start, take a look at some stats of what other real estate investors are doing in the US housing market. The following data is from the 2018 NAR Investment and Vacation Home Buyers Survey.
- Vacation home buyers purchase location: 33% percent purchased in a resort area, 24% purchased in a rural area, 18% purchased in a small town, 21% purchased in lake towns
- Investors purchase location: 34% percent purchased in a suburb, 24% purchased in a small town, 19% purchased in an urban area
You also need to look at the state of the overall real estate market in your investment location. How high is the demand for rental units there? How long do homes for sale stay on the market? Is there a lot of investment activity in that location? Do people want to live here? These are all things that play a role in how your rental property investment ultimately performs.
Related: How to Find the Best Florida Rental Properties for Sale
Conduct an Efficient Investment Property Search
Searching for an investment property isn’t the same as searching for a home. There are other factors that need to be considered when buying rental property. But even when you’ve narrowed things down to property type, rental strategy, and location, there are still many listings to go through. Real estate investors who don’t use the right tools can spend months just searching for one investment property. Imagine the time it’ll take to find more than one. So what’s the solution if you can’t dedicate months to each property search?
Using Mashvisor’s Tools, like its Airbnb calculator, is how to find and analyze multiple rental properties in one go. Our Property Finder, for example, will help you find traditional and Airbnb investment properties that match your criteria in just 15 minutes. We also have the return on investment (ROI) metrics for each individual property and averages for each real estate market pre-calculated. This kind of data is indispensable during a search for multiple rental properties. Imagine how much time these tools cut down by providing you with property data and the real estate investment analysis you need for any property you might be interested in.
If you were conducting the search in the traditional way, you would spend months going through the MLS. And then even when you do find an investment property that matches your criteria, you need to spend even more time evaluating it to ensure positive cash flow and a strong return on investment. Efficiency is the answer to how to buy multiple rental properties. Be efficient by using Mashvisor’s tools. Start out your 14-day free trial with Mashvisor now. Do you have questions about Mashvisor? Read our FAQs and learn about our tools.
Related: 3 Important Steps of a Real Estate Property Search
Really Focus on ROI Metrics (For Each Investment Property and Collectively)
If you really want to succeed as a real estate investor, you shouldn’t be asking how to buy multiple rental properties. You should be asking how to buy multiple profitable rental properties. Look at the bigger picture. The properties you’ve found may seem like lucrative investments on their own. But when you buy them all at the same time, will the cash flow be enough to sustain them? These are the main ROI metrics to analyze for each investment property:
- Cap Rate: divides net operating income by property market value to give you a rate of return
- Cash on Cash Return: similar to cap rate, but the return rate factors in the financing method (mortgage payments). Found by dividing net operating income by your down payment and other acquisition costs
The two metrics above include a reflection of the rental income and the main costs of buying a rental property. But there are other expenses to consider which can ruin your dreams of a positive cash flow property:
- Closing costs
- Vacancy rate
- Marketing costs
- Repairs and maintenance
- Insurance
- Travel expenses, and more
Related: Investing in Income Properties: 8 Steps to Positive Cash Flow
Financing Multiple Rental Properties
This is probably the main question you had coming into this- How to finance multiple rental properties? It’s highly unlikely that you’ll be financing these investment properties with cash. Instead, you’ll be taking out a mortgage for each property purchase. You need to know which lenders to go to and which loans to apply for. National banks typically have more stringent loan qualifications, so I recommend you try your luck with smaller, local banks first. You should definitely look into each one a bit more, but a couple of financing options are hard money loan, HELOC, portfolio loan, blanket loan, and conventional finance. Also, the paperwork is going to be a lot. Some of the documents you’ll need to provide for each investment property are your tax returns, mortgage payment cost of your primary residence, and W-2 forms (to calculate your debt-to-income ratio).
It is a lot of work. But you need to get the best real estate deals out there, and that includes the best possible mortgage for your situation. The best way to go about this? Contact a mortgage broker. He or she will act as the middleman between you and the lender. They will find you lenders with low down payments, competitive interest rates, and other loan terms which fit your real estate investment needs.
Related: How to Finance Multiple Rental Properties (Yes, It’s Possible!)
When done right, investing in rental properties is a cash flow business. And it’s a great investment strategy. Don’t forget to start your 14-day free trial with Mashvisor now to get a taste of what our tools can do for your real estate investment career.