Passive real estate investors know that, ultimately, they need to grow beyond a single investment property. It’s the only way to truly grow their passive income! For first-time investors, though, it’s not quite as simple as buying a second property willy-nilly. An investment property is a large purchase that, especially in the beginning, has to be saved for and carefully considered.
For investors considering their second or even third investment property, it’s not a decision to jump into without careful consideration. If you want to ensure that expanding your rental property portfolio is right for you, there are a few things you have to consider first.
The #1 Consideration Before Growing Your Real Estate Investment Portfolio
Are my finances healthy?
Before you think about buying another rental property, you have to take your finances into account. Namely, consider your debts. With rental properties typically comes an additional mortgage payment. Now, that is usually acceptable because a mortgage is deductible and tied directly to an asset.
The problem is if you have other outstanding debts to attend to. It’s not especially wise to take on another mortgage if you have significant debt elsewhere that needs to be paid off, whether you’ve incurred it recently or if it’s been hanging around for years. This debt is only going to continue to hang around and drag down your income-earning potential. Nip it in the bud!
If you pay off your debts, you won’t be incurring interest, you’ll increase your cash flow, and you won’t have to deal with an annoying extra payment each month.
4 Steps to Saving for Your Next Investment Property
Be intentional.
Savings don’t happen if you don’t make an effort to make them happen. Period. When it’s something as big as an investment property, which can have a downpayment of tens of thousands of dollars, that demands a lot of intentional savings. You have to believe that it’s within your ability to save and then you have to actually do the work.
If you make excuses for yourself, you won't save the money. Period. Telling yourself that your expenses are too high, you can't save because you have a family...whatever the reason is...you won't do it. If you are determined to save, you will find a way to do it.
Budget and be frugal.
Budgeting is everyone’s friend. When you want to save up for another rental property, you’ve got to revisit your budget and make the necessary adjustments to maximize your savings. If you want to buy as soon as possible, that might mean switching back to rice and beans for a little while. That may be an exaggeration, but frugal living is definitely the key to maximizing savings. Live below your means.
Keep your expenses low by minimizing leisure expenses—stop eating out, coupon when you go to the grocery store, and look for every chance to save.
Automate savings and look for high-yield savings accounts.
If possible, see if you can automate your savings through your bank by scheduling monthly or weekly transfers. If you’re using a high-yield account, you’ll also be incurring higher interest faster, which is extra savings in your pocket.
Clean house.
Still not enough to save the old-fashioned way? Want things to move faster? Look for ways to raise cash on the side. You can always scrounge up some extra cash by selling some of your belongings. Auction items on eBay or hold a garage sale. If you have quality pieces, you could get several hundreds of dollars or more instantly to add to your funds.
Sacrifices now will yield cash flow for the future.
Enlist help.
As a passive real estate investor, you have a valuable resource right at your fingertips: your turnkey real estate provider. With their experience in real estate investment, they’ve navigated thousands of deals over the years and worked with countless investors. If anyone can help you make a game plan to save for and acquire another investment property, it’s them.
If you’ve been thinking about growing your investment portfolio, pick up the phone and call. They would be glad to talk to you about your plans for the future and help you decide the best path moving forward.
At Memphis Invest, we want our clients to succeed. That includes helping them save and strategize for their investment future! Now is the time:
