Many people are currently thinking of investing in rental homes so they can have a new income stream. With around 4.4 million households currently renting, there is quite a rich market out there. Many more landlords are also now taking out Mortgages. 200,000 landlords took out Mortgages worth £27.4billion in 2014 alone. However, the percentage of landlords who own just one property is around 78%. The fact is, while most landlords start off wanting to build an empire of rental homes, most never take it to the next level. How can you invest in rental homes and successfully expand?
Borrowing money: The pros and cons
In order to build a rental home empire, it’s likely that you’ll have to increase your debt. This is almost unavoidable but since it’s necessary, it should serve as an incentive to invest as wisely as possible. Landlords looking to snap up more real-estate as rental property will usually borrow against their existing property; a practice referred to as leveraging. This works something like this; you take a mortgage to buy the first property and if the value of this property rises, you can release some equity from it and therefore use the increase in value on your first property to pay for the deposit on the second property. This can also be supplemented using savings collected from rent on the first property. In the long run, you will gain from both the rent collected and the increase in property values. However, all this will depend on factor and that is rising property values. If property values don’t fall, your losses will also be significant.
Choosing the right property when you start out is quite important. Age isn’t a factor because statistics now show that a rising number of investors are in the age bracket of 31-40 years. In the North, the entry prices for those looking to invest in property is much lower and returns have the potential to be quite high. This is where many investors choose to start out. Manchester and Liverpool are quite popular.
Making a good return on investment depends a lot on your timing. Being able to buy when property prices are low can be very profitable. Many people snapped up valuable properties cheaply after the housing market crash and many are still reaping the benefits today.
Many people like to upgrade once they’ve achieved a bit of success. This may mean moving from flats to something else. However, the smart money is usually in specialising in one thing. When you have found a business model that works, it’s much safe and it may even be more lucrative to focus all your attention on that type of property. Going into other areas will bring new challenges.
There are small mistakes that can make it hard for you to build your empire. High maintenance costs on your current properties will consume much of your money. You can avoid this by hiring the right managers and only renting to trustworthy tenants.