So you’ve acquired your first investment property and don’t know how to go about buying the second one? You don’t know if you will even be able to afford your next real estate rental investment.
The internet is full of articles helping people buy their first investment properties. If you type it into Google, you get hundreds of results helping the first-time buyers.
But what about the second-time buyers?
I seem to struggle to find decent articles that help the people that already own property, to buy their second one. I have thus decided to help you guys with this article. Not only will I explain what to know about your next real estate rental property, but also the pitfalls to look out for.
Are you financially ready?
This is, without a doubt, the most important thing you should think of before considering buying. Can you actually afford to buy a second property?
Let’s face it, the banks make it much easier for us to finance our first property, than the second one. If you’re a first-time buyer, the banks are more likely to lend you 100% of the bond amount. This means you don’t have to have extra capital for a deposit.
If on the other hand, you are a second-time buyer, the banks won’t be that generous and you will probably have to have quite a hefty deposit to put down. This is not always possible, is it?
You should also keep your first property in mind. If you are in a shortfall with your existing property, you should make sure whether or not you will be in a positive cash flow or negative cash flow situation with your new property.
If you are in a negative cash flow situation, you must be able to pay that difference, together with your first one’s shortfall, out of your own pocket. If you will not be able to do this, you will struggle with the repayments of this property.
As mentioned above, the chances are very good that you will have to put down a deposit when you want to buy your next real estate rental investment. The fact that you already own a property, is good news for this part.
|Read about the Two-Pronged Approach investment strategy|
Have you ever heard of refinancing?
Refinancing, in simple terms, is when you repay an existing loan by taking out a new loan. In this case, you will increase the amount of loan by the banks to help you finance the second property.
This is a great way to be able to pay that deposit and hopefully be in a cash flow positive situation.
Potential “hidden costs”
Okay, so you’ve got the capital available and you’re ready to invest in your next real estate rental investment. What can go wrong?
You’ve got a good deal with the bank and they’ve given you a great interest rate for your property repayment. What you should not forget though is, interest rates can spike…Didn’t think about it, hey?
This could have major outcomes.
Think about your current property and its interest rate. Just think if that interest rate was to go up by 2%. You can do the math. You are most definitely not going to be happy and the chances are, if you were in a cash flow positive situation, you are now probably in a cash flow negative one.
Another thing you should also cater for is maintenance. Depending on the current state of the new property, there might have to be some maintenance work done. Whether it is painting or fixing cupboards, it is always good to keep an extra bit of cash aside for that.
If you don’t pay attention to the flaws in your property, you might struggle to get tenants in your place. Any real estate agent will tell you that you should always pay attention to detail. Small things like painting the walls can have a big impact when it comes to getting the right tenants.
Decide the purpose for buying
It is very important to decide beforehand, whether this property is going to be a property to flip or a long-term property.
Each strategy has its own benefits at different stages.
If you are a bit tight with cash flow, my suggestion would be to rather think of a property to flip. By implementing this strategy you will be making a profit, which in return, you can then reinvest into the next property.
It is very important to make use of flipping property in your investment strategy. I know a lot of people believe in the buy-and-hold strategy for all their properties but it just doesn’t make sense. You will get to a point where you realize, you can’t buy any more properties due to a lack of funds.
The banks will also be more willing to lend you the money if they see you have excess money. This way they know you will be able to meet the repayment requirements.
If you have enough money to afford a buy-to-let property, then that is the way to go (unless you find a very good flipping deal). These types of property are the ones that will be providing income for the long-term benefit.
Buying your next real estate rental investment property can be just as daunting as the first one. Each has its own challenges.
The most important thing you should do is always make sure you will be able to afford the next one. It won’t help if you can buy the property but you aren’t able to keep you and your family alive with bread on the table.
Once you know you can afford it, always decide which investment strategy you are going to use. This way you will know where you’re going with each property.
Remember the motto, don’t think whether you can afford it, rather think how you’re going to afford it.
I hope that you’ve enjoyed the post and that you were able to learn something from it. If you did, please feel free to share it on social media.