With Seth Van Essen, Seasoned Real Estate Investor and Senior Loan Officer
Investing in rental properties can be a smart way to build long-term wealth, but it can also be a challenging task. Many rental homeowners often find themselves in a position where they have to make difficult financial decisions to grow their portfolio. However, there are several strategies that rental homeowners can use to leverage their assets and build out a larger portfolio. In this article, we’ll discuss some of the most effective strategies rental homeowners can use to grow their portfolio, including home equity line of credit, cash-out refinancing, and house hacking.
Home Equity Line of Credit (HELOC)
One strategy that rental homeowners can use to leverage their assets and build out a larger portfolio is to take advantage of the equity in their existing rental properties. One way to do this is by applying for a home equity line of credit (HELOC). A HELOC is a type of loan that allows homeowners to borrow against the equity in their home. With a HELOC, rental homeowners can access the equity in their rental properties and use the funds to purchase additional rental properties or make improvements to their existing properties.
For example, let’s say that you own a rental property that’s worth $500,000, and you still owe $200,000 on your mortgage. You could potentially qualify for a HELOC of up to $200,000 (based on your creditworthiness and other factors). You could then use that money to purchase another rental property or make improvements to your existing rental properties.
Another strategy that rental homeowners can use to leverage their assets and build out a larger portfolio is cash-out refinancing. With cash-out refinancing, homeowners can refinance their existing mortgage and take out a larger loan than what they currently owe. The extra money can be used to purchase additional rental properties or make improvements to existing properties.
Lets use our same example and say that you own a rental property that’s worth $500,000, and you still owe $200,000 on your mortgage. If you qualify for a cash-out refinance, you could potentially refinance your mortgage for $300,000 (based on your creditworthiness and other factors) and use the extra $100,000 to purchase another rental property.
House hacking is a strategy that involves purchasing a multi-unit property and living in one unit while renting out the others. This strategy can be an excellent way for rental homeowners to build out their portfolio while minimizing their expenses. By living in one unit, rental homeowners can take advantage of owner-occupied financing, which typically offers lower interest rates and down payments than traditional investment property loans.
For example, perhaps you purchase a four-unit property for $500,000. You live in one unit and rent out the other three units for $1,000 per month each. That’s a total of $3,000 in rental income each month. If your mortgage payment is $2,000 per month, you could potentially cover your mortgage payment with rental income and live for free. Over time, as you pay down your mortgage and build equity in the property, you could potentially use the equity to purchase additional rental properties.
Partnering with Other Investors
Partnering with other investors is another strategy that rental homeowners can use to build out their portfolio. By partnering with other investors, rental homeowners can pool their resources and purchase larger properties or more properties than they could on their own. This strategy can also be beneficial for new investors who may not have the experience or resources to purchase properties on their own.
If you and another investor each have $100,000 to invest in rental properties, instead of purchasing two separate properties, you could pool your resources and purchase a larger property for $200,000. By doing so, you could potentially generate more rental income and build equity faster than if you each purchased individual properties.
When partnering with other investors, it’s important to establish clear expectations and guidelines. You should have a written agreement that outlines each person’s responsibilities, how profits will be split, and how decisions will be made.
Real Estate Investment Trusts (REITs)
Real estate investment trusts (REITs) are another strategy that rental homeowners can use to build out their portfolio. A REIT is a company that owns and operates income-generating real estate properties. By investing in a REIT, rental homeowners can own a share of a diversified portfolio of properties without the responsibilities of owning and managing individual properties.
For example, let’s say that you’re interested in investing in commercial real estate, but you don’t have the resources or experience to purchase and manage individual properties. You could potentially invest in a commercial real estate REIT and own a share of a portfolio of commercial properties. This strategy can provide rental homeowners with the benefits of real estate investing, such as diversification and potential for long-term growth, without the responsibilities of owning and managing individual properties.
Investing in rental properties is not for the faint of heart, but with the right strategies and mindset, it can be a path to financial freedom and long-term wealth. Whether you’re just starting out with your first rental property or you’re looking to build out a larger portfolio, there are many effective strategies that rental homeowners can use to leverage their assets and achieve their goals. By using techniques like home equity lines of credit, cash-out refinancing, house hacking, partnering with other investors, and Real Estate Investment Trusts, you can take control of your financial future and build the life you want. Don’t be afraid to take the leap and start building your rental property portfolio today. With persistence, patience, and a commitment to your goals, you can achieve great success as a rental property investor.
This post is for informational purposes only, and is not intended to be, nor is it, legal advice. In this regard, the reader should not construe or rely on this post as the writer providing any type or form of legal or financial advice. Prior to taking any action with regards to matters that are identified and discussed in this post, the reader, in his/her/its sole discretion, should consult with his/her/its legal or financial counsel, and/or any other advisors of the reader’s own choosing.