Today we want to discuss how you can increase your current Investment Property Portfolio by paying for it with another investment property, or potentially using your primary home.
There are really 3 types of investors as defined in the current State of the Property Management Report. The intentional investor has purchased a rental as an investment from the start. The accidental landlord would be somebody that fell into a rental property ownership due to circumstances and they really don’t plan on growing their portfolio. The third is the unintentional investor, this is somebody that again fell into the property ownership due to circumstances but they are having a good time with it and plan to continue to add additional properties.
The question is which type of owner would you be? I invited Jeff Smith to help answer a couple of key questions. Jeff is the broker for the real estate side of our business-owned Legacy team. With years of experience in the industry and in Denver markets specifically, he is an investor himself with rentals and I thought he could help us answer some questions with regards to getting into additional properties.
What If I Want To Add To My Property Portfolio?
Did you know you can borrow against your current investment property portfolio to buy another? In this situation, you will need a 20% down payment, this is going to be the requested amount from your lender to invest in additional investment properties. Many investors use a local credit union which turns out to be a great resource for good interest rates and ease of loan with the application and getting what’s called an equity line credit on your qualified investment property portfolio. So if you currently had current investments in your portfolio, you could borrow against that with that equity line of credit.
Typically this is going to be a 75% loan to value on that property and you can get a nice line of credit. Another option would be to do a cash out refinance and you can work with the lender on what is required to get that done. You can also get the low interest rates in today’s market.
So you may be asking how do I know what my equity is currently in either my current rental or on my primary home? Well our real estate team can provide you with that accurate evaluation of your current primary home or investments within the Denver metro area. We invite you to work with one of our lender partners and they can provide you with a snapshot of your monthly costs and the value of your loan.
3 Things To Identify In Buy/Hold Model
What you want to look at are three things for all investors. The first one is what most people look at immediately and that is the cash flow. So you have your expenses on your investment property that we can go through with you, like what those expenses would be and whatever is left would be cashflow. That’s money in your pocket.
Some people like to call it mailbox money, but it’s just what comes in each month. The second piece is principal reduction and that is what your tenant is helping you with. When you have your occupied rental, your tenant is paying down that loan principal every month. This is a great benefit for you over time.
Then there is equity appreciation which is the last piece of the puzzle for all investors. Over time in history we at Legacy Property Management have had 6% equity appreciation every year over year. Sometimes we will have a bad year with no equity appreciation and then you’ll have an 8% to 10% growth another year. So it averages out over the last 40 years of 6%.
We have a worksheet available that we can offer you so we can give you a better way of managing that worksheet.
How Do I Get Started?
What are some next steps to take to either get one rental or add to the current portfolio?
Our goal is to give every one of our clients an investment legacy. The first thing to do would be to schedule an appointment with us so we can discuss some of your goals as an investor and determine what you are qualified to spend based on the lender recommendations. Then, what we will be able to do is run a worksheet analysis where we look at the identified properties in the areas that you want to purchase, to see the benefits of owning an investment over 5 years or 20 years, or even longer than that for your family
Overall it is all about developing a game plan on your investment legacy and getting you to pull the trigger.