How Do I Go From One Rental Property to Five?

Owning a rental property can be one of the most lucrative opportunities in investing. Rental properties offer ways to generate passive income and capitalize on changes in the market and economy that allow you to continue earning, even in uncertain times. When it’s time to scale your rental business, it’s helpful to explore different methods for acquiring more rental properties to ensure you choose the best approach for your portfolio and financial goals. Here’s a closer look at how to go from one rental property to five and the different approaches to real estate investing.

Key Takeaways

• Investing in rental properties is an effective way to build wealth in the long term, but it’s not an ideal way to increase immediate cash flow.
• Options for investing in new rental properties include conventional loans, Federal Housing Administration loans, and cash-out refinancing, though the benefits of each can vary according to the type of investor.
• It’s inadvisable to quit your current job to pursue real estate investing full time, as this can result in insufficient cash flow to continue investing in new properties.

Benefits of Investing in Rental Properties

A rental property is a home or apartment that you purchase to rent out. There are several benefits to investing in rental properties. It can be a great way to build long-term wealth, as the principal payment will increase over time, earning you more money as you pay off your loan. While inflation affects the value of your liquid assets, the value of a rental property typically stays the same or may even increase, depending on trends in the real estate market.

Another benefit to investing in rental properties is the potential wealth you can build through collecting rent. While rent often increases with inflation, your mortgage payments will remain the same, regardless of what occurs in the economy. This means that you can earn more each month when the average rent is higher without paying more on your mortgage. If you rent out a piece of commercial real estate, this can generate even greater wealth, as the business that occupies your property will earn income from its operations.

How To Scale a Real Estate Business

If you’ve been investing in real estate for a while, the thought of scaling your business has likely crossed your mind. If you want to expand your real estate business and acquire more properties, one of the most effective actions you can take is building new skills to guide your efforts. Consider developing your leadership skills so you can delegate maintenance tasks or improve your finance skills to ensure you always get the best interest rates.

For example, suppose you’re an experienced acquisition specialist, which makes you great at finding properties for sale and securing the best financing or loans. In that case, you might learn more about how to succeed in property or people management. When you learn how to manage other people effectively, you can hire property managers to maintain your rentals, which will save you time. This means you’ll have more time to look for properties and line up your next investments.

Options for Funding Your Next Rental Acquisition

There are several ways to invest in your next rental property. Whether you want to take out a new loan or refinance a current one, you can find a method of investing that works with your budget and overall goals. Here are some of the most common ways to fund the purchase of a new rental property:

Conventional Loan

The simplest way to acquire a new rental property is to take out a conventional loan that you can afford. You may find conventional loans with exceptionally low interest rates, sometimes as low as 5% down. However, many of these types of loans are for primary residences, so the property must qualify as your main residence for some time after you buy it. 

For example, you can’t use a primary residence loan to purchase a property that you don’t intend to live in, as this would be fraud. However, if you purchase a home that you use as your primary residence for a while and then have to move due to a new job opportunity or life changes, you can rent out that property. 

FHA Loan

You’ve probably heard of an FHA loan, though many people assume they’re only for first-time home buyers. You can apply for an FHA loan even if you’ve owned a home before, but there are a few things to keep in mind if you want to use this loan to acquire another rental property. 

If you have an FHA loan in progress, you’ll need to refinance it to qualify for a new one, since you can only have one FHA loan at a time. Another option is to sell the house you currently own and pay off the loan, starting a new FHA loan for the property you want to acquire. You can also refinance your current FHA loan into a conventional loan and open a new FHA loan for your next property.

Cash-Out Refinance

A cash-out refinance is another option for funding a rental property purchase. This involves accessing cash from your current mortgage in return for a more substantial loan. One of the benefits of this method is that it provides you with cash on hand that you can use to purchase a new property outright, so you won’t have to dip into your savings. 

This option, though, can come with some risks, such as higher interest rates than traditional loans. When you complete a cash-out refinance, you also risk making the first property that you invested in less profitable by refinancing it with a bigger loan.

Should You Quit Your Job To Pursue Investing Full Time?

When you find success with your first rental property, it may be tempting to quit your day job to pursue full-time investing. This isn’t always advisable, as real estate investments are better suited to long-term wealth generation than immediate cash flow. Real estate investments also involve putting cash down for the initial purchase, which will be more difficult if your regular income ceases to exist. 

You should also consider that the housing market has experienced a drastic decrease in the number of properties available. This means that it may not be as lucrative as in previous years to focus solely on investing in real estate for wealth generation. If you want to make real estate investing your primary source of income, you might consider establishing a real estate investing business or syndicate. In this case, you divide responsibility among different participants. You may have one person leading acquisitions, another overseeing property management, and property managers taking charge of regular maintenance.

Learn More About Investing in Rentals From Experts

Whether you want to start investing in rental properties for the first time or build your portfolio as a seasoned real estate investor, Infinity Investing can help you. We offer paid memberships at various tiers, each of which includes exclusive perks and access to resources that will make your investing journey easier. With our Starter membership, you’ll get access to strategy sessions with certified Infinity advisors, on-demand training and resources, and weekly stock rooms and real estate investing rooms, which include a live deal analysis.

There’s also the 360 Pro membership with even more perks. You’ll get a copy of The Five-Step Formula for Generating Infinity Income and Wealth, membership to the Anderson Business Advisors Funding Community and Blueprint Consult, and exclusive access to turnkey rental properties that will be perfect for your growing real estate portfolio. Purchase a membership with Infinity Investing today to explore how you can reach your full potential as an investor and expand your real estate business. We also have an exciting free membership if you’d like to try out some of our basic services risk-free.

If there’s a specific property you’re interested in but you can’t quite afford it out of pocket, a new FHA loan or a cash-out refinance may be the best option. If you want to shop around and find the most lucrative properties for your next rental, consider applying for conventional loans with low-interest rates that will give you flexibility. Regardless of your financial goals or personal skills, you can diversify your portfolio and increase your wealth by investing in more rental properties.