How To Buy Multiple Rental Properties: A Comprehensive Guide

Investing in rental properties can be a great way to build wealth over time. However, buying multiple rental properties at once can be a risky move if you’re not careful. This guide will assume you’ve already found properties using real estate lead gen software or more manual means. 

I’ll walk you through the process of buying multiple rental properties and help you avoid some of the common pitfalls.

four identical properties purchased by investor who sees the financial value in investing in multiple rental properties.

Things To Consider Before Buying Multiple Rental Properties

We all know that more rental properties means more returns. But before digging into the details of how to buy multiple rental properties – stop and ask yourself if this is something you’re financially prepared for.

Buying multiple rental properties is a big investment, and unless you have an inheritance to play with, you’ll need financing.

If you’re getting a mortgage to purchase multiple properties, here are some things to keep in mind…

  1. You Need Liquid Assets To Cover 6 Months Of Mortgage For Each Property

What you may not know is that you need to have liquid assets on hand for at least six months in order to cover your mortgage. This means having enough cash saved up so that, if for some reason you can’t make your monthly mortgage payments, your tenant decides to stop paying, etc – you can still cover these payments yourself.

  1. Expect Higher Interest Rates

When you borrow money to purchase two or more homes, the lender considers you a higher risk and charges accordingly. The interest rate on a home loan is based in part on the amount of risk the lender takes in making the loan. 

When you purchase several homes at once, the lender sees this as a greater risk, since you’re more likely to default on the loan if something goes wrong. As a result, they charge a higher interest rate to make up for that increased risk.

  1. You Need A Credit Score Of 720+
Credit rating meter showing good credit, which is what investors need when purchasing multiple rental properties.

If you’re buying multiple investment properties, you’ll need a credit score of over 720. The reasoning is simple;  if you have a lower credit score, you may be seen as a higher risk by potential lenders. 

A high credit score will help you secure the best interest rates and terms on your loan, which is essential for generating return on your investment.

Benefits Of Buying Multiple Rental Properties

  1. Tax Benefits

Buying multiple properties can offer tax benefits that rack up the savings. When you own more than one rental property, you can deduct certain expenses related to each property on one tax return. This includes:

  • mortgage interest
  • real estate taxes
  • insurance
  • Repairs
  • Property depreciation
  1. Benefits Of Scale

If you’re not owning and managing your own rental property, you’ll need to find a reliable contractor to handle repairs, property manager to handle tenants and contracts, landscaping companies, lawyer, accountant, etc. 

As long as your rental properties are near each other, you only need to source this team once and then they’re able to help you with any other rental properties you may have. 

  1. Decreased Risk

Owning multiple rental properties decreases your overall risk. This is because if one of your properties experiences a problem, you still have other sources of income to rely on. Additionally, by owning multiple properties, you spread your risk out over more units, which makes it less likely that any one property will cause serious financial problems for you. Finally, by owning multiple rental properties you can achieve economies of scale in terms of management and maintenance, which further reduces your overall risk.

  1. Higher ROI

If managed correctly, more rental properties means a higher ROI and more income. Which, at the end of the day, is your goal as an investor.

Financing Options For Buying Multiple Rental Properties

The Most Flexible Option: Private Lenders

Private lenders are the most flexible option for buying multiple rental properties. They can work with you to create a loan that fits your specific needs, and they are more likely to approve loans for people who already own multiple properties. This makes them a great option for people who are looking to expand their rental empire.

Plus, it’s easier to convince private lenders to finance your deal than banks when you can show them you’re getting a deal on the property. “Deals” are relative, but by using a real estate comps tool, you’re able to demonstrate the potential returns on your purchase.

While you can find private lenders for every rental arrangement – they’re generally more likely to look for multi-property deals. For single-family home investments, you’ll likely need to go to friends and family which, in this situation, are still considered private lenders.

Buying Up To 4 Properties

  1. Mortgage

For up to 4 properties, you can consider taking out a traditional mortgage. It’s relatively straightforward, and you’ll need to keep in mind the three points we mention in, “Things To Consider Before Buying Multiple Rental Properties” above.

This process can take several weeks, so be patient! 

Young investor in broker’s office taking out mortgage to purchase multiple rental properties as an investment.
  1. 203K Loans

203K loans are a type of FHA loan that allows the homeowner to borrow money for both the purchase and renovation of a property. This can be a great way to finance home repairs or improvements, as it combines the low interest rates of an FHA loan with the borrowing power of a construction loan.

  1. HELOC

Using a Home Equity Line of Credit (HELOC) to purchase multiple rental properties is an increasingly popular strategy for real estate investors. A HELOC allows borrowers to access the equity in their primary home or other investment property, allowing them to leverage the equity for buying additional rentals. The advantage of this approach is that a HELOC usually offers much lower interest rates than other financing options, making it a cost-effective way to acquire more rental properties. 

Another attractive feature of using a HELOC is that it provides the flexibility to borrow only what you need, while still maintaining access to the remaining credit limit should you decide to expand your rental portfolio further. Additionally, since you are not locked into one large loan amount with a fixed repayment schedule, you can adjust your payments depending on how much income your rentals generate each month. This makes it easier to manage your cash flow and prevent overborrowing and potential default. 

  1. Freddie Mac

Freddie Mac offers a variety of loan options for those looking to purchase multiple rental properties. For example, the Freddie Mac Small Balance Apartment Loan offers fixed or floating-rate mortgages for acquisition, refinancing, or cash-out refinancing of up to 10 rental properties with an aggregate balance up to $6 million. 

Freddie Mac offers fantastic financing options for individuals looking to purchase one to four rental properties.

This loan is usually offered with a 30-year term and amortization and a construction option that allows borrowers to purchase existing multifamily buildings from one to four units as well as new construction or renovation projects. 

To qualify for the program, borrowers must have satisfactory credit and meet the income requirements set by Freddie Mac, which can be found on their website. It is also important to make sure that all of the properties involved in the loan meet certain eligibility criteria, such as being at least two years old and having been inspected by an appraisal professional within the last 120 days. 

Additionally, any renovations or improvements made during the course of the loan must meet local building codes and satisfy certain energy efficiency guidelines. Finally, borrowers should be prepared to provide financials such as tax returns, financial statements, and bank statements when applying for a Freddie Mac Small Balance Apartment Loan. Taking these steps will ensure that applicants are able to get approved quickly and easily so they can begin taking advantage of this great opportunity right away!

Buying 5 – 10 Rental Properties

Fannie Mae’s 5 – 10 Properties Program

Fannie Mae‘s 5 – 10 Properties Program is an initiative designed to help small investors who are looking to buy multiple rental properties. It enables investors to purchase up to 10 residential properties with just one loan and one closing, making it easier and more efficient for smaller investors. 

In addition, Fannie Mae’s 5 – 10 Properties Program offers competitive pricing on loans that are backed by 30 years of guaranteed financing from the U.S. government. This means that lenders will be willing to work with borrowers even if their credit scores are lower than average or if they have higher debt levels than lenders would normally accept. 

My Final Thoughts on How To Buy Multiple Rental Properties

Buying multiple rental properties is not easy but it is doable, with the right dedication and finance behind you.

However, just as important as the right finance, is finding and buying the right real estate investment properties. The deals have to stack up, the properties have to be in locations that are going to rent well, you have to buy well at the beginning.

You can’t just blindly go in and buy anything. As with any investment, their is risk, you must do your research and due diligence, to avoid the pitfalls of buying the wrong rental properites.

Thank you very much for taking the time to read, my how to buy multiple rental properties guide. I would love to hear from you, so please leave your comments below. Have a great day.

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