Buying multiple properties is a great way to quickly increase your net worth and achieve financial freedom. However, very few people ever stretch beyond owning just 1-2 properties.
In this article I am going to reveal 10 secrets that will help you buy multiple properties and significantly grow your investment portfolio.
Most Investors Use The Wrong Investment Strategy
The majority of Investors don’t purchase more than 1-2 properties not because they don’t earn enough money but because they don’t purchase the properties correctly and they don’t use the correct investment strategy.
Most people simply purchase a property because it is in their local area and they fall in love with it. They give no thought to cash flow or future growth of the property.
If you want to buy multiple investment properties then you need to live and breathe the following statement
You make money when you buy, not when you sell
Most investors believe the only way to make money in property is when you sell it. But the best investors understand that if you make money when you buy you can accelerate the growth of your portfolio.
10 Secrets to Buying Multiple Properties
So how do we accelerate the growth of our real estate portfolio and what secrets do we need to know in order to successfully own mutliple investment properties.
Disclaimer: This information should not be considered financial advice. Always see a professional before making any financial decisions.
1. Buy Properties Below Market Value
This is KEY if you want to buy multiple properties quickly.If you want to grow your portfolio quickly then it is imperative that you purchase properties below market value.
By purchasing below market value you are then able to get your property revalued and are quickly able to access equity in that property which can be used for the down payment on a second property.
Buying properties below market value isn’t easy. You need to take your time and do your research property.
2. Increase Equity Through Cosmetic Renovations
The key to buying multiple properties fast is accessing the equity you have in the property. This can be done through buying properties under market value (see point #1) or it can be done by increasing the value of a property through cosmetic renovations.
Cosmetic renovations are non-structural renovations such as painting, improving the kitchen and bathroom or landscaping the yard.
The idea is to take a property that is in need of some TLC (and priced accordingly) and by adding sweat equity and doing a renovation you can increase the value of the home above the amount you investing into the renovations.
You then get the property revalued and access the equity therein to use as a deposit on your next property.
3. Don’t Stop Saving
A lot of investors work hard to save their first home or investment deposit and then once they purchase that property they stop saving.
If you want to buy multiple investment properties then you need to continue saving towards that goal. Don’t rely solely on the growth of your existing properties, because if they don’t grow then neither can you.
By continuing you save you will be able to grow your portfolio (almost) regardless of the performance of your existing investment properties.
4. Create and Reinvest Positive Cash Flow
If each property you owned cost you $500/month out of your own money just to keep it afloat you will max out pretty quickly. But positive cash flow works different to negative gearing and instead puts money in your pocket.
Professional real estate investors understand this and invest in cash flow positive or cash flow neutral properties.
This means the income the property is generating from the rent covers all the expenses of the invest and you and then free to continue to save your deposit.
Every time you access equity your expenses goes up (because your mortgage payments get larger) so being positive cash flowed gives you a buffer of income to help and pay for those extra equity loans you will be taking out. Plus the positive cash flow can be used to go towards saving another deposit.
5. Have Ways of Quickly Scanning The Market
Being able to quickly and easily scan the market to find great investments is important if you are going to be buying properties on a consistent basis.
The basic search sites simply do not allow you to be specific enough and you will spend hours look at and analyzing hundreds or properties to find a single suitable one.
As your time is likely to be extremely limited property search tools will help you locate the best investments faster and easier so you can continue to “make money when you buy”.
6. Diversify Your Portfolio
If you are relying on capital growth to fund your purchase of more investment properties then it often makes sense to diversify your portfolio.
Sure if you have 5 properties in the one suburb and every year that suburb goes up in value you will be fine, but the chances of that happening are very slim.
What is more likely to happen is that different suburbs are increasing in value or remaining stagnant at different times.
If all your properties are in one suburb and that suburb doesn’t grow in value for 3 years, you won’t have any equity to invest in those 3 years.
But if you have 5 properties in 5 different suburbs then the chances are at least one of those properties will be increasing in value each year. Allowing you to continually expand your investment portfolio.
7. Sell Properties That Are No Longer Performing
Steve McKnight author of the best seller 0-130 properties in 3.5 years openly discusses the fact that he happily sells properties that are under performing in order to purchase properties that will bring him a greater return.
If he has a property that has gone up in value and as a result the rental yield has dropped he will consider selling that property to reinvest in a property that is going to generate a higher rental yield.
Don’t just hold on to properties that are bad investments and going to remain bad investments for many years to come and not think twice about it. Consider selling, accessing the equity and using it to invest in something that is going to bring you a positive return.
8. Get Your Properties Revalued
Get your properties revalued and revalued often, especially if they have gone up in value. By getting your properties revalued on a regular basis you are then able to access any equity you may have gained through capital growth.
If you don’t get your properties revalued then the bank will continually assume it is worth the same amount and thus will not extend your lending privileges.
NOTE: Most lenders will not allow you to revalue your property if you have already had a valuation done less than 12 months ago. However, there are some lenders who will (eg. Most of the big 4 banks). So consider this before deciding which lender to go with.
9. Don’t Cross Collateralise
Cross collateralisation is when a loan is secured by multiple properties in your portfolio.
Most lenders do this automatically so you need to be careful.
Let’s say you own two properties and both were purchased for $200,000.
Property 1 goes up in valued by $50,000. In most cases you would be able to get an equity loan for $40,000 (80%) but let’s say property #2 has gone down in value by $50,000.
If these properties are cross collateralize then you will not be able to access any equity as the total value of the portfolio remains the same. However, if each loan is secured separately you may still be able to access equity on the $50,000 growth property #1 received.
10. Use Interest Only Loans
Interest only loans are a great way to lower your weekly/monthly expenses and free up cash flow in order to be capable of servicing more loans and purchasing more properties.
Principal and Interest loans have a larger monthly expenses, as you are paying more than the interest rate. This means you need to find more money each month to be able to afford to pay for these loans.
This either has to come out of rent or it has to come out of your own pocket. It is likely that this extra cost will limit how quickly you can save future deposits as well as how many loans you can afford.
By going interest only you give yourself the best chance of expanding into new properties due to the lower ongoing mortgage costs.
You can later switch to principal and interest once you have decided you have purchased enough properties and you want to begin paying off some debt.
11. Actively Manage Your Portfolio
Most investors take a ‘set and forget’ approach to their investing. They do this for their super and they also do this for their property portfolio.
By actively tracking your property portfolio’s performance and by looking for ways to improve it’s performance you will dramatically increase your chances of buying and being able to afford multiple real estate investments.
12. Don’t Quit Your Day Job
The goal for most people when buying multiple properties is to achieve financial freedom. However, this doesn’t happen instantly and if you quit your job too early you may find it difficult to expand your portfolio.
If you quit your day job early you will lose your steady and secure income stream and lenders may refuse to lend to you because they believe you cannot support the repayments that the loan requires.
Quit your day job once you achieve financial freedom or once you establish yourself with your lenders so that they agree to lend to you based on the performance of your portfolio, not because of the income of your job.
Buying Multiple Properties Takes Hard Work and Dedication
Buying multiple properties isn’t easy. It takes a lot of hard work and a lot of dedication. It won’t happen overnight, and it won’t happen in just 12 months (unless you are an awesome investor).
But give it time and before you know it you will be waking up one morning (not having to go to work) thinking to yourself “How did I get so lucky?”