Why You Should Buy a Second Investment Property
If you’ve already gotten your feet wet with your first investment property, it’s probably time to go all in. Now that you have learned some things and have some experience under your belt, why not leverage that knowledge and use it to really ramp up your wealth building through real estate investing? The next step is to buy a second investment property. If you’re still on the fence about whether or not this is a good time, consider all these reasons why you should buy a second investment property.
Buying a second investment property gives you the opportunity to diversify your investment portfolio. And, as you know, diversification is the name of the game when it comes to reducing your exposure to market fluctuations. There’s no reason why you can’t have a variety of investment properties in your portfolio. Maybe right now you only have stocks, bonds and one real estate property. But just as an investor might have a variety of stocks in several different industries, you should also have a variety of real estate properties. For instance, if you already own a single-family rental, you might want to consider buying a duplex or even a four-plex. Or you could buy a fractional share of a vacation rental property. These are all very reasonable second investments for newer real estate investors.
Of course, when you buy a second investment property, you also get yourself some added income. As long as you buy rentals that are cash flowing, you can look forward to more passive income. So if you have just one investment rental that cash flows, for example, $250 a month, you can double your monthly passive income with just one more investment property that cash flows at least that amount. No one would turn down what amounts to free money each month, right? That’s another reason why it’s time for you to buy a second investment property.
Leverage Your Experience
When you bought your first investment property, you didn’t have much experience with buying and owning a rental. There was a learning curve involved, and it took some time to find your feet. Unless you continue buying real estate investment properties, you kind of lose the time you spent learning how to own and manage investment rentals. Why not buy a second investment property and leverage the experience you gained? This time around, you know which turnkey rental company you want to work with, you know what the process is like, and you know what to look for in a real estate rental. The whole transaction is probably going to take much less time, and you’ll feel much more confident of your decision-making abilities.
Reach Investment Goals Faster
Buying your first real estate investment property is likely the smartest financial move you’ve ever made. It’s a step in the right direction. But few people generate lasting wealth with just one property. One property is just the beginning. You can exponentially increase the rate of reaching your investment goals when you add increasing numbers of real estate investment properties to your portfolio. The obvious next step is to buy your second property.
Every landlord’s bad dream is to have a rental property go vacant for long periods of time. If the property is vacant, it’s not producing income. But that doesn’t keep the bills from coming in. Your mortgage payment, utility bills and insurance all need to be paid no matter if you have a tenant in the property or not. You can’t even have the power shut off without running the risk of damage to the property. And, when a rental is vacant, there’s the added threat of vandalism. However, when you add a second investment property to the mix, you have significantly reduced risk. At least if you have one rental tenant out of two properties, you have some cash flow coming in to mitigate the hit on your budget from the vacant rental. There’s some comfort in knowing that at least one of your rentals is cash flowing. You can further spike the odds in your favor by staggering your rental leases when you own at least two rental properties. Avoid having both leases start or terminate in the same month. For instance, you could have one lease start in January and the other start in June. As you add even more rental properties to your portfolio, make sure each lease terminates in different months.
Interest Rates Are Favorable
Now is a good time to get a mortgage for any property, but especially for your second real estate investment property. Interest rates go up and down over time, so you can’t be guaranteed that they will remain this low for very much longer. Your interest rate factors into how much a real estate investment property will cash flow, so it always makes sense to take advantage of favorable interest rates. As they say, strike while the iron is hot, so you can lock in low rates and maximize returns on your second real estate investment property.
Whether you’re interested in buying your second single-family rental in the Texas DFW area, investing in a fractional share ownership of a vacation rental property or getting into private money lending, Real Estate Cowboys and American Real Estate Investments can help. Contact us to learn more about opportunities that are available for every budget.