Most people in the world get to experience working a normal job and getting regular pay. For some, it's enough, and as long as the pay is high enough, they’ll probably never aim for something more.
On the other hand, some people want to do more, have more income, and do things differently. There are countless business opportunities these days and owing multiple rental properties seems to be a lucrative one.
Renting one apartment or house can be financially rewarding, but what if you want to make an “empire”? Being able to buy multiple rental properties isn’t impossible, and you can get the rent to pay off the properties.
Which Financing Option Is the Best?
The most important thing you should realize is that there isn’t the best or the worst financing option. There is the one that works for you. Most are different, which is why you always have multiple options.
Get a Traditional Mortgage
A regular mortgage is something you’d consider if you’re planning on buying your first house. With that said, it’s not a bad choice if you want to buy multiple properties. The struggle is to find a band or a lender who will give you multiple loans.
The best thing about these kinds of mortgages is that there are hundreds of lenders, so its only a matter of time before finding one that will give you the loan.
One great thing about these kinds of mortgages is that they’re generally easy for approval, at least the first few. As long as you’re prepared for a slightly larger down payment, you can convince the lender that you’ll be good on your payments and get the approval.
The best part is that the requirements are more or less similar across the state with most lenders. You’ll be asked for your credit score, proof of income DTI ratio, and any cash reserves. Once you submit everything, you’ll need to wait for an answer.
Blanket Loan
Experts compare blanket loans to the traditional ones, with the main difference being in the amount of money you’ll get. The blanket loan is the type of mortgage you’ll consider when looking to buy multiple properties at once.
It’s like having several traditional ones stacked into one big loan. Ideally, you’d want to research which properties you plan on purchasing beforehand so that you know how much money you’ll need to ask.
While traditional mortgages limit how many you can get, with blanket loans, you don’t have that limit. As long as the combined value of the properties is higher than the loan you’re asking, then you’ll probably get approved.
DSCR Loan
Another great option for buying multiple rental properties is getting a DSCR loan. What sets this type apart from others is the evaluation process. With the more traditional mortgages, the lender looks at your income and decides whether you’ll get approved.
DSCR loans on the other hand, work by looking at the potential profits on the property you want to buy. This means your personal finances won’t play a massive role. Another great thing about this kind of mortgage is that you’re not limited and can get multiple properties.
The debt-service coverage ratio of this loan should be at least 1.25. This is to ensure that the rental property's income covers the mortgage expenses.
Things to Consider When Financing Multiple Rental Properties
The idea behind this is pretty good, and on paper, it would seem like it could make you a lot of money. That said, things aren’t black and white, meaning there are some things you should consider before deciding to take this step.
You’re getting multiple properties to rent, so you should consider the rent and the mortgage payments. Since each rental property has a mortgage, you’d want to aim for a rent price that covers the monthly payments.
In addition to that, you should also consider additional expenses and unexpected repairs. These fall on you, so it’s up to you to do the math. The rent price will depend on the location, size, and condition of each property.
While a competitive price may be a good idea to help bring in tenants, you’re also minimizing profits. Even though it’s not ideal, you’d want to at least be able to cover the mortgage and any expenses.
Your involvement in the properties will also play a massive role. If you have a regular 9-to-5 job and this is your “additional income” job, then you’ll probably need to consider hiring someone to help.
A property manager is a good idea to ensure someone is consistently committed and cares for each property. Alternatively, you can quit your normal job if you notice that the rent and profits are worth focusing entirely on this part of your business.
