How to Buy Multiple Rental properties: Full Guide
Buying multiple rental properties is one sign that you aren’t new in property investment. However, you’ll still need guidance in accumulating such huge properties.
I’m sure you’ve tasted rental income and found the sweetness of it. That’s why you need to upgrade. Right?
However, before adding more rental property, ensure that the current one is stable enough to repay the mortgage in case your job fails.
This guide will show you how to make those big investments with much ease. You’ll also learn the precautions before making a mistake while investing in multiple rental properties.
The ideas you’ll learn here have worked for more prominent real estate investors who own properties worth billions of money.
How do you invest in Multiple Rental Properties?
Step 1: Determine your goals
You might want to retire early with real estate. That’s why you could be planning on multiple rental property investments. With a goal in mind, you will manage to stay in line to achieve your dreams.
- Consider different types of real estate.
You can consider investing in mixed-use rentals if you have a residential rental property. A mixed-use rental refers to property that can serve as retail stores at the front and residential rooms at the back.
You can also try investing in apartments or single-family residential, leisure buildings, warehouses, and offices for rent.
This criterion will ensure you get different types of tenants that will boost your rental income.
- Research on best locations for your rental property
Diversify your rental properties such that you don’t congest them in one area. Remember, you could suffer losses if something like fire breaks into your property.
Different locations have different rental yields in Kenya. For instance, rental yield in Ruiru, Limuru, Kamulu, Athiriver, Mlolongo and other Nairobi metropolitan areas is higher compared to rural towns.
Step 2: How to finance multiple rental property investments
Indeed, you need funds to multiply your rental properties. So where do you get the funds, even with an ongoing mortgage repayment?
- An investment line of credit
To get funds through this method, the property you are using as collateral should have equity of above 40%. The mortgage lender refinances your previous loan. Once that happens, they will clear the old loan and give you the balance. However, the new funds will be a new loan with different interests, installments, and repayment terms.
- Cash Out Refinance
This method allows you to use the existing property’s equity against the loan to use the funds as a new estate down payment.
- Blanket mortgage
This mortgage covers multiple real estates so you don’t have to apply for a mortgage loan for each property.
However, this financing method requires you to have prior experience with real estate.
- Conventional financing
This type of financing can only occur when you don’t have an active loan repayment. The borrowing is entirely based on your credit score, income level and at least a 20% loan down payment.
When getting any of the above loans, you will need the following.
- Personal and rental business tax returns for the last two years
- Bank statements, both personal and business
- Experience in previous real estate investment
Step 3: Register each property as a different Limited Liability Company (LLC).
Having each property stand as a single LLC protects you from losing your property in case of an accident in one of your rental properties.
For instance, a tenant can sue you due to damages in case of an accident resulting from faulty maintenance of your property. If they win, they could follow other properties under the same name, including personal property.
Therefore, it’s advisable to confuse the law by registering each rental property as a different LLC.
Registering your property as a different LLC saves you from keeping personal expenses from rental business expenses.
It will also be an excellent way to keep clear records of each property. Therefore, property management will be simple.
Different LLCs mean that each company will have different expenses, hence reducing the tax liability. In addition, profits and losses will be divided among each property’s shareholders, again, reducing the tax liability.
Factors to Consider Before Investing in Multiple Rental Property
- Ensure you set your goals clearly to avoid changing your mind halfway in investment.
- Your income level should be higher. If you need to finance your other properties, you need lots of money, which you may get from a blanket mortgage.
- You need to hire a professional property attorney who has handled multiple property transfers
- Are you ready to hire a property manager? You are now turning into a big real estate investor and need people with great minds around you. That’s why you should get a professional property manager to ensure you don’t lose money in your investment.
If you want to invest in multiple rental properties, you need to take calculated risks to avoid losing money in the end.
Real estate investment is actually not for the faint-hearted, so ensure you are psychologically prepared to take huge risks.
Frequently Asked Questions
- How do I buy multiple properties with one mortgage?
The only sure way to buy multiple rental properties with one mortgage is by taking a blanket mortgage. With this loan, you can finance the buying of multiple properties with one big mortgage. However, you must have a solid experience in the real estate industry.
- How do I use my property to buy more properties?
Through the accrued property equity, you can refinance your mortgage or get a property equity line of credit.
- Is there a limit to the number of properties I can own?
No. There is no limit to the number of properties you can own. All you need to do is ensure that every property stands as a single LLC.