Hi Folks,
I hope you are doing well.
Over the years I have been asked a lot of questions from new real estate investors.
One of the most popular questions that newbie investors ask me, is:
“How many rental properties do I need to buy?”
In my mind, the anwser to this is simple.
Most new real estate investors don’t realize that all they need to purchase is ONE rental property.
At the beginning of a real estate investor’s “investing career”, it is easy to get caught up with aspirations of buying multiple properties.
Few real estate investors will be able to do this successfully. Most will only end up buying one property.
Over the years I have observed some limiting factors that have prevented investors from buying more than one rental property. Here they are in no particular order:
1.Limited Capital
The reality is that most people who purchase their first rental property, will only have the capital to buy one property. There is always the exception, and a select amount of investors are able to purchase more properties. These investors utilize their cash savings, or they leverage existing real estate, in order to buy multiple properties.
2. Lack of Ambition
Lots of people do not want to own multiple properties. They are content with what they have. They have no desire to take on joint venture partners. Life is easier for them with only one property, and they want to keep life that way…Easy.
3. Lack of Knowledge of The Real Estate Market
People might be interested in buying more than one rental property, however, they may not know much about the market they are interested in investing in. As a result of the lack of knowledge of the market place, people decide to pass up on the opportunity to buy another rental property.
4. Tenants win the battle
Being a good landlord is not easy. Anyone who has been a Landlord for over 10 years, knows that there are many ups and downs, many great tenants and many horrible tenants. When a landlord encounters a horrible tenant, it can be enough to break that landlord’s spirits. Landlords have to deal with non payment of rent, damage to their rental property, just to name a few things.
Having dealt with these difficult situations myself, I have seen first hand how it can take the ‘wind’ out of a landlord’s ‘sails’. Investors can become ‘deflated’ and nervous to buy another rental property, due to their difficult challenges dealing with a problem tenant.
5. Limited Cash Flow
An investor needs to have cash flow generated from their rental property, in order to make it over the long term. If an investor owns a rental property that is generating a positive cash flow (Rent is greater than expenses), then this investor is putting themself in a strong position to succeed.
If a property is generating ‘cash flow’, this cash can be used towards paying for:
- Repairs on the property
- Paying for vacancy when there is no tenant
- Carrying the property when a tenant is late on rent, or stops paying
Investors get into trouble when they have limited ‘cash flow’. Meaning that they do not have enough funds to pay for repairs, vacancy, or paying the expenses when a tenant is late on rent or stops paying.
If an investor’s cash flow is tight, and they are struggling with their first rental property, chances are, they won’t be too thrilled to take on another headache and buy a second rental property.
Having said all of this, do investors successfully buy more than one rental property?
Absolutely. Many investors do this, all the time.
With some discipline, and running your first rental property like a ‘business’, you too can also manage to buy more than one rental property.
Happy Investing!
Neil
ps: For tips on how to buy your first rental property, please sign up for my First Rental Property email newsletter.
