- Landlords own about 75% of residential properties, making expansion a potentially good investment.
- Research and consider the location to determine rental revenue potential before acquiring properties.
- Financing options, such as new mortgages or refinancing current properties, can help fund expansion.
- Management team expansion may be necessary to maintain increased workloads and ensure profitability.
- Benefits include increased cash flow, a diversified portfolio, and greater leverage through economies of scale.
Expanding your property sounds like an excellent opportunity for landlords to increase their residual income. But how, where, and when should landlords start expanding their properties? There are a lot of things to consider and think through before making the big decision to grow your portfolio.
Landlords in The U.S.
It’s estimated that landlords own about 75% of residential areas in the country and are using it for long-term investments. Expanding should be something in your mind if you don’t want to get left behind in the industry. Here are some things to consider when expanding and how to finance your expansion over time.
Before acquiring properties, you want to research and consider the location where you want to expand. You want to make sure you purchase property in an area with a demand for rentals. For example, if your current portfolio is in a college town, you may want to expand to another town with students needing a place to live. Location will also dictate the type of property you want to acquire, such as a single-family home, multi-units, or commercial real estate.
Once you have identified the location, you want to conduct a market analysis to determine rental and vacancy rates and trends. This step is crucial in determining the rental revenue potential. If rental rates are declining in the area, that may not be the best opportunity for expansion, no matter how appealing the location may seem.
Acquiring new properties will require significant capital investment. Before investing, you must consider financing options, purchase options, and mortgage rates. Think about whether it’s better to pay cash or finance properties. Landlords should meet with a financial planner before making any substantial investments.
Expanding your properties requires increased workload and responsibility. You may benefit from adding a property manager to your team or even delegating some responsibilities to a property management company. Budgeting for the additional resources needed for property maintenance, rent collection, and administration is vital to ensure your investment is profitable.
Understand the legal requirements, zoning laws, taxes, and regulations of the location where you want to expand. Local taxes and regulations could greatly impact your overall profitability, so it’s essential to research and understand the legal considerations before investing in a new location.
The Benefits of Expanding Your Properties
Expansion can lead to new opportunities. Here are some of them:
- Increased Cash Flow: Acquiring more properties can increase rental income and cash flow.
- Diversified Portfolio: Expanding your portfolio diversifies your investments, which can help protect you from market swings.
- Greater Leverage: The acquisition of multiple properties benefits from economies of scale, allowing landlords to leverage their resources to gain greater investment returns.
- More Tenants: It’s always good to have a more extensive tenant base, and by expanding, you can take in more tenants.
Ways to Finance Your Expansion
Financing is crucial for expanding your portfolio, and there are several ways to make it happen. Here are some of those ways:
Start a New Mortgage
A new mortgage is one of the most common ways to expand your properties. Visit your local mortgage companies and shop for the right loan for your expansion. Choose the one that fits your budget and consider it as the financing tool for your expansion.
If you have gained equity over the years in your current properties, you can use that to finance your expansion. Refinancing or taking out a home equity loan can be an alternative financing source.
If you have saved up enough money over time, this could be another option for financing your expansion. Although it may take longer and require more dedication, using your savings is a great way to ensure you don’t get into debt while expanding.
Expanding your property can be a great way to increase rental income and diversify your real estate portfolio. With the proper research, financing options, and management team in place, landlords can see substantial returns from their investments. As with any investment, you want to ensure you understand the risks involved and are prepared before diving headfirst into an expansion project.