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There is nothing quite like buying your first property as an investor. We hear it all the time here at JacksonvilleWealthBuilders.com
The thrill of being a landlord and cashing monthly rent checks is unlike anything that you will experience in your life. For some investors, buying and owning just one property is not enough to meet their real estate goals or financial expentencies. Knowing when to buy your second investment property can help contribute to your income. Buying at the right time can help you avoid investment errors that new investors can make. There is more to mastering real estate apart from buying and holding properties to make higher profits.
Buying Your Second Investment Property
If your first property has started to produce monthly income, you can consider the thought of purchasing an additional property. The best time to consider this is after the first year or two of tax filings. Your personal and business income can take a toll on your annual taxes and going through a cycle or two of taxation will help. Buying a second investment property at the wrong time can put you in a different income bracket and raise your tax liability. The income that your first property is producing might not be enough to cover the changes. Placing yourself in a bad financial position is not a good place to be regardless of how great second property income appears on paper.
Being a landlord and property owner is a trial and error experience. Dealing with repairs, upgrades, tenant problems and rental increases is a stressful part of owning a property. If your first property is flawless, considering the purchase of a second property can then take place. The market can change a lot between one buying period and another. The success that you have had with one property might not translate to the other. There is a certain amount of risk involved when owning two or more properties. Going through the first year or two of trial and error managment and ownership can make you mentally tough enough to take on another property.
Interest rates will always affect your purchases unless you are independently financing a second property. The interest rates are currently at very low levels and this is a good sign. It might be possible for you to get a great deal on a second mortgage if your credit score has not been lowered. Doing your due dilligence research on cap rates, selling prices in the area and average rent prices can put you in a position to apply for another mortage. Some lenders have reduced the downpayment and interest rates for second mortgages as an incentive to buy. Both online and offline mortgage lenders vary widely in offers.
When Not to Buy a Second Investment Property
There are many factors that can point to not going through with a second property purchase. The first is the added cost. The cost of closing fees, property maintenance, utilities, insurance and property taxes can far outweight the profits that you expect to earn. One property might be an expense for the average person and two can lead to financial issues without a long-term tenant in place. If you go into debt with one property, using the cash earned from a second property to support the first is usually disastrous. It is always a good idea to buy a single property and hold it for a year or two to evaluate your financial growth. If you feel that managing two properties can lead you to more wealth, your analysis of your financial conditon now and in the future can help you decide when is the right time to buy a second investment property.