Are You Ready to Scale Up Your Rental Business?
Most rental investors enter the industry thinking not just about owning a single rental property, but about how they can eventually acquire 2, 3, 4, or dozens of rental properties one day and retire from their day jobs.
If you’ve put all your available capital into property #1 and are planning how to acquire the next property to grow your rental business, there are some methods you can use to fast-track this process, even when you’re carrying a mortgage and have little capital.
Here’s how to scale your business and increase your income in months – not years:
Leverage Existing Equity
Hopefully, you’ve invested well and have a property(s) with equity in it/them. Why not put this equity to work to buy more rentals?
Contact your bank or call around to find out what your options are to tap into your equity. Can you do a cashout refinance? How about a line of credit?
Just make sure you’re not over-leveraging yourself – down the line, if tenants don’t pay rent, you want to be able to cover your expenses.
2. Get Qualified for a Second Mortgage
Since your first rental property is already mortgaged, this will count against you as a liability when trying to get approved for a loan to buy property #2, right? Not necessarily. You can actually use the income from your first rental business to cancel out your initial mortgage in the eyes of the bank.
Lenders will consider up to 70-80% of your rental income as part of your regular monthly income, so as long as this figure is higher than what you pay in monthly mortgage repayments, your first rental will work in your favor when financing the second. For example, if your mortgage payment is $500, and you get $1000 rent on property #1, then 80% of your rental income – $500 in loan repayments still adds an extra $300 a month to your overall income.
If neither of these strategies work for you, then an alternative approach is to try BRRRR investing to acquire your next rental business. We won’t get into the exact details of how this works – you can find plenty of resources on BP that take you through the process – but using this strategy lets you buy a second rental property, even if you can’t use a traditional mortgage or have little (or no) upfront capital.
4. Find a Partner
What if your credit isn’t where it needs to be to get approved for any of the options above? There’s a workaround for this, too: find a partner whose credit you can use instead. This could be someone you know in your personal life, or an investor from industry networking platforms like REIA or BP.
Use your experience and track record with your first property to help convince partners to work with you, clearly lay out your investment plan and how the profits will be divided, and then start building your portfolio together.
If you’re serious about growing your rental business that gives you more financial freedom, then you need to grow your portfolio size. One rental investment isn’t going to generate enough income to let you quit your day job, but several might.
These are just some of the ways you can scale your rental business quickly, even with limited capital and less-than-perfect credit. If you know another great strategy for building a rental portfolio, please share it with us in the comments below!
Image Courtesy of: Andrea Piacquadio