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A second property can be a great investment for your future, especially if you’re starting to see considerable returns from your first investment property. Acquiring a second property can significantly help move you closer to your financial goals.
But how does the homebuying process differ when it’s your second time around? What decisions should you make while selecting your second property purchase? When is it time to buy a second investment property? To help guide you through the process, here are the six most important considerations when making your second property investment.
1. Make Sure You’re Prepared
Before taking the plunge, be sure to take a step back to ensure that you’re ready to purchase and manage a second rental property. Think about the current challenges you face as a landlord — and then double them. More property means more tenants to deal with, more appliances that need fixing, and more attention and time required from you. Choosing a property management software platform can be a huge help in saving you time and headache managing your properties.
Alongside the additional responsibility of managing a second property, it’s also important to ensure you’re financially ready to make this purchase. This includes not only the cost of the property itself, but also the costs associated with any necessary repairs or renovations, inspections, and maintenance.
2. Research Real Estate Investment Opportunities
The first decision you’ll want to make before you begin property hunting is where you want your property to be located. Be sure to take a strategic approach to this decision — will you want your second property to be in close proximity to your first, or is it a better decision for you to invest in a different market?
There are pros and cons to both sides of this decision, so be sure to weigh your options and determine which makes the most sense for you. If you’re unsure where to start, get to know your market by talking to local real estate investors or your Realtor.
3. Determine the Type of Property You Want to Purchase
Once you’ve determined where you’d like your property to be located, it’s time to consider the type of property you’d like to purchase. This not only helps to narrow your search once you’ve begun the shopping process, but it also helps to prepare you for the responsibility each property type might entail. Here are a few property types for example:
- Single-family homes: This is usually the simplest type of rental, with one house rented to one tenant or family. Research the neighborhood and comparable rental properties before investing.
- Duplexes: These are two-unit homes separated by a wall or a floor. Although these properties can be a good financial investment, as you receive double the rental income, remember you’ll also have double the tenants to manage.
- Three or Four Unit Properties: These types of properties, which can (but not always) include apartment complexes, are buildings with more than one rentable space. Although these properties might require a larger initial investment, they can still qualify for conventional mortgages and generate a strong monthly cash flow. In fact, a multi-family property is more likely to be approved by a bank for a loan than the average home because the more units a property has, the lower the risk of foreclosure.
- Five or More Unit Properties: Larger multifamily properties, or those with five or more units, start to fall into the “commercial real estate” category.
4. Get Pre-Approved
It’s important to begin the financing process as soon as you’re ready to start looking for your investment for a couple of reasons. Firstly, starting the process early will eliminate any financial obstacles during the closing process, which will help you close on time without any surprises.
Secondly, getting pre-approved for a mortgage early will give you a better idea of how much you can finance for your home, which is helpful once you start shopping for houses. This helps you prepare your budget for your second property, which is critical to stick to once you start adding on properties.
5. Create a Management Plan
One consideration that’s often overlooked is deciding how you want to handle the day-to-day management of the rental units. This is dependent on how much time you’re willing to commit to running your property. If property rentals are just your side gig and you also maintain a full-time day job, you may want to consider hiring a property manager or an associate to manage your rentals.
Bear in mind that the more units or tenants you have, the more time and attention your properties will require. It’s often wise to create a process or use property management tools for reporting issues or damages, collecting rent money, or outlining hours of communication before you begin searching for tenants to establish clear-cut rules of engagement.
6. Update Your Landlord Insurance or Rent Default Insurance
Once you’re ready to rent out your new property, be sure to also update your landlord insurance policy so that it also covers your new property. With the chaos of purchasing a new property, many landlords will forget this important step, which can be detrimental in the long term should something happen to the property.
Some landlords also choose to buy rent default insurance for their properties (also known as rent guarantee insurance) to protect their rental income in the event a tenant stops paying rent. If you have rent default insurance for your first property, make sure your second property is eligible for the coverage, too.
Manage Your Properties With Landlord Software
Buying a second investment property is an excellent way to expand your real estate portfolio and generate another stream of income. Once you add a new property to your portfolio, make sure you’re getting the most out of your investment by setting a competitive rent price for your area and finding quality tenants who will pay on time and keep your rental property in great shape.
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What if you could win prizes just by paying your rent?
We’re kicking off the first-ever Pay Rent, Win Prizes giveaway, and you’re invited.
Here’s How It Works:
1. Anyone can enter to win by signing up below and clicking “Daily Bonus Entry.” You can enter for a chance to win once a day, every day until the end of the giveaway.
2. Click “Schedule Rent” to start paying contactless rent through Avail.
3. Click “Share on Facebook or Pinterest” to invite your friends. When your friends sign up, you earn more entries to win.
4. Last but not least, click “Check out CreditBoost” to learn how to improve your credit by reporting on-time rent payments.
Here’s What’s up for Grabs:
- KitchenAid Mixer (1)
- Oculus Rift (1)
- Beats by Dre Headphones (1)
- $100 Netflix (1)
- $50 Target (2)
- $25 Dominos (4)
Signing up to win takes just a few clicks. Simplify the way you pay rent, start using contactless payments, and stop worrying about paying on time.
Enter to Win Now:
Double Your Winnings
Want to double your prize? It’s simple — just set up Autopay in your Avail account. Autopay puts your rent payments on cruise control so you never have to worry about scheduling or making a payment, and you can forever avoid late rent fees.
If you’re chosen as the winner and you have Autopay activated in your account, your prize will be automatically doubled!
Boost Your Credit by Paying Rent
Did you know you can help boost your credit by paying your rent on time each month? Avail offers renters the ability to build their credit by reporting rent payments through CreditBoost.
Avail will report your on-time rent payments to TransUnion every month to help you improve your credit score. You can choose to report future on-time payments made through Avail, or up to 24 months of past payments, regardless of how you paid*.
Learn more about CreditBoost and start getting something in return for your rent payments.
*CreditBoost results may vary by individual.
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]]>The post Tenants Benefit When They Get Credit for Paying Rent appeared first on Avail.
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HUD’s most recent study, reported by the Wall Street Journal, explains that tenants stand to benefit when their landlords report on-time rent payments. For vulnerable renters in public housing with limited to no credit, reporting on-time rent payments can be highly important to their credit health. “This study shows that public housing tenants currently have credit scores well below average. One-half to two-thirds of those with credit scores are rated as subprime (below 620). Up to half of all tenants studied were “credit invisible” to one or both of the consulted credit scoring systems,” according to HUD.
In conjunction with the release of the study, HUD’s Assistant Secretary for Policy Development and Research said, “Rent is the largest monthly recurring expense that many households pay and reporting it can be a powerful way to reduce credit invisibility … This unprecedented study will excite a new conversation about the need for focusing on improving the credit of low-income families, and how on time rent payment is an important way to show credit-worthiness.”
Low credit scores increase costs for renters in other areas of life. Acquiring insurance, a cell phone, credit cards, car loans, and home loans all require credit. Not to mention many landlords require a credit check in order to rent an apartment or house. Renters with subprime credit scores end up paying higher deposits, fees, and interest rates on nearly everything. The single largest monthly bill renters are paying isn’t counting towards their credit score.Click To Tweet
According to Housing Authority of Cook County’s (HACC), “Other HUD research finds that low credit scores substantially limit tenant choice on where they search for private rental housing and that tenants are motivated to improve their credit, receive financial education, and take advantage of available credit counseling.”
The HUD study also reflects much of what Avail has seen in regards to reporting rent payments for renters.
The release of @HUDgov’s study confirms what we’ve known all along: Tenants fair far better when they’re able to get credit for paying rent on time. Read more about the study via @_willparker_‘s piece for @WSJ here: https://t.co/sfvVHLGCrp
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— Avail (@HelloAvail) February 14, 2020
Historically, reporting rent payments in the past has been a challenge for independent DIY landlords because they simply did not have the time or the resources to do this. Often only big landlords with expensive solutions were able to achieve this.
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— Avail (@HelloAvail) February 14, 2020
“Currently, it is negative rent-payment information that accounts for the overwhelming majority of what credit agencies receive on rent, according to HUD.” (@WSJ)
And this is exactly what we hope to change.
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— Avail (@HelloAvail) February 14, 2020
By reporting on-time rent payments, @helloavail is giving renters who may have limited or no credit, the chance to build their credit above subprime cutoffs.
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— Avail (@HelloAvail) February 14, 2020
For any housing authorities that are looking for an affordable solution to help residents, come and talk to us — we’d love to help! All media inquiries, direct quotes or questions please reach out to @ryanmcoon, CEO of Avail (or email us: press@avail.co) https://t.co/eGizXusffa
— Avail (@HelloAvail) February 14, 2020
HACC was a significant participant in the study and also released a statement. Richard Monocchio, HACC Executive Director, said, “More and more landlords throughout suburban Cook County are using credit score checks to determine whether or not to accept a tenant’s application, especially in areas of opportunity … For our low-income tenants, many of whom have low or non-existent scores due to their circumstances, this means an automatic denial. HACC is proud to have participated in this groundbreaking study and is excited to explore a path forward given the promising findings.”
Reporting rent payments helps renters, and it doesn’t have to be difficult or time-consuming for landlords to report on-time rent payments. HUD concludes that most landlords do not have the capability to report rent for their tenants, since the process is either labor intensive or cost prohibitive. Avail has created a solution to tackle this problem, called CreditBoost*.
It’s not only tenants who will win from reporting on-time rent payments — both landlords and tenants benefit when tenants are incentivized to pay their rent on time. Tenants have the added benefit of reporting their on-time rent payments as a form of building credit, which is a great way to help those that HUD refers to as “credit invisible” avoid unnecessary and costly fees.
“The report released by HUD reiterates what we’ve known for a while,” said Avail CEO Ryan Coon. “Renters benefit when their on-time payments are considered by the credit bureaus. With renting becoming more popular across all age groups and income brackets, reporting rent payments is increasingly important for all renters. Last year, we released functionality for this inside of the Avail platform, and have already helped tens of thousands of renters from across the U.S. boost their scores via our CreditBoost feature. We look forward to working with more landlords and public housing authorities to boost credit scores for all renters across the country.”
HUD concludes that more attention to reporting rent payments is warranted by stakeholders and policymakers. Avail is already working to help landlords who otherwise wouldn’t able to report rent payments and is ready and capable to help housing authorities across the country.
Housing Authorities looking for a solution provider to report rent payments on behalf of renters, please email partnerships@avail.co.
*CreditBoost results may vary by individual.
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