How Many Investment Properties Can I Own?
Investment properties are an excellent way to build you passive income and your long term wealth but how many investment properties can you own? The amount of investment properties you can own depends of a variety of factors.
As everyone’s financial situation is different your limiting factors will be different from your neighbours. But no matter what your limiting factors are there are things you can do to own as many investment properties as you can get your hands on.
At the end of the day everyone has the capabilities of owning as many investment properties as they want. How many you will own comes down to how dedicated you are to overcoming any obstacles that may stand in your way.
The Benefit of Owning Multiple Investment Properties
Owning multiple investment properties can have a major positive benefit on your financial situation. Capital gains growth from properties has the potential to grow your net worth to millions of dollars and positive cash flow properties can help you to become financially free so that you have passive income coming in that you don’t have to work for.
When you own multiple investment properties you are taking advantage of multiple growth opportunities, both in rental income and in your properties valuations. One property may not be enough to make you financially free but there are thousands of people who have successfully achieved financial freedom by owning multiple properties.
If you are still considering whether property investment is the right choice for you check out my post on whether positive geared property will be a good investment for you.
The Limiting Factors
There are 5 main factors that will affect your ability to purchase multiple properties. I want to not only cover what these limiting factors are but I also want to provide you with some actionable steps that you can take to increase your likelihood of building a large property portfolio.
Limiting Factor #1: Getting Started
This is by far the biggest limiting factor I see in potential investors who want to own multiple investment properties. There is a saying that says
The first step is always the hardest
And unfortunately this is almost always true. Taking that first step to purchase your first investment will likely be the most difficult step you take.
When making that first purchase there are a lot of unknowns that you have to deal with. You have to learn how to work with real estate agents, how to work with solicitors on contracts, you need to learn about building and pest inspections as well as the true valuation of the house (which isn’t always what you pay for it). There are also more risks with your first purchase due to lack of experience.
But often it is the ability to save your house deposit that stops people for making that initial purchase and starting their investment career.
How to Take the First Step with Ease
There is no magic button you can push to be 100% confident in your first purchase and to lower your risk to 0. However, there are some things you can do to make that first step a little easier for you.
- Use these tips on how to save for a house and start saving your deposit. Don’t let anything stop you
- If you are scared to talk to real estate agents then start by viewing properties online and sending emails with questions and even property offers. This is exactly how I got over my fear
- Do as much research as possible not only into investment strategies (by reading books) but also into the area you please to invest. Look at what has previously sold and how much for. Don’t rush into it.
- Have a ‘worst case scenario’ plan (or an ‘exit’ plan). If things go wrong have a way to get out and lose as little money as possible. I would never go into an investment without a defined exit plan.
- Start smaller and lower your deposit requirements. Start with a cheaper property (usually less risk of losing lots of money) and even consider a smaller deposit (many lenders will lend you money with a 5% deposit). This will help you get into the market faster. Always speak to a financial adviser first.
Limiting Factor #2: Enough Money/Equity For Deposits
I am not talking about saving your deposit to purchase your first property but rather I am talking about a limit in your ability to come up with enough money to continue to provide banks with deposits for new properties.
I don’t know if you realised but lenders aren’t really giving out 110% loans anymore. This means you need to come up with some sort of money in order to purchase each successive property.
Ideas So You Always Have Enough Money for Deposit
- Get your properties revaluated as often as you need to in order to ensure that the banks recognise any equity you may have in the property.
- Invest in positive cash flow properties and save the excess rental income for future investments.
- Get an interest only loan and put excess money into an offset account. This ensures that you have access to the money when you need it.
- Look at borrowing money when lending is good and storing it in an offset account (but make sure you don’t spend it) or getting approval for a withdrawal amount that you can take at any time
- It may help in some circumstances to diversify your lenders to avoid any cross collateralisation (where they hold one property as a security for another and limit lending)
- Don’t stop saving like you did for your first property. Keep saving for deposits and use excess income from the property and growth in equity to grow your portfolio even faster.
Limiting Factor #3: Serviceability
The amount of investment properties you can own will depend largely on your serviceability.
The banks want minimal risks on their loan portfolio and thus they will hesitate to lend you more than they think you can comfortably afford (service) the loan.
If you earn $60,000/year ($5,000/month before tax) the bank is not going to lend you money on investments that are going to cost you $6,000/month because you won’t be able to afford them. You will then have to default on your loan and that is exactly what the banks are trying to avoid.
How to Try and Increase Your Serviceability
- Increase your income wherever possible. Take promotions, ask for more money, move companies for increased pay. Banks will rarely factor in commissions are less you have a very long standing record of getting them on a regular basis
- Grow other forms of income. You could potentially start a side business that earns you $500/month. Although it is not as reliable as an employee’s income it will often still be taken into account and that can help you secure more loans.
- Invest in positive cash flow property. Some lenders will count 80% of the rental income towards the serviceability of the loan (and some won’t). By investing in positive cash flow properties you are showing the banks that even if you lost your job you can afford to service this loan.
- Get experience and present a financial case. Get experience investing in property and when you go to your lender present a financial case as to why you are a good investment and the success you have had in the past.
- Consider purchasing property so big that no income from a job could cover it. In some properties the banks will look at the income that the property generates NOT the personal income of the buyer. This usually happens when it is such a large investment that no one person could afford to pay the mortgage. Obviously only consider this once you have a lot of experience and success in property investment.
Limiting Factor #4: Time
If you are working full time (like I am) and you have a family (like I do) then you will quickly find that you do not have limitless time to spend growing your portfolio by purchasing more real estate. Therefore the amount of time that you have will be a factor into how many properties you are able to own.
Great investment opportunities don’t just walk up to you screaming “BUY ME! BUY ME!” they have to be sought out and found. This often takes hundreds of hours searching through properties you don’t want to buy in order to find one you like. Then there is due diligence to ensure the property is a good investment and I haven’t even mentioned getting finance or dealing with real estate agents.
Finding and investing in real estate (good real estate) is time consuming.
Ideas on How to Find More Time and Get More Done
- Cut back on wasteful time spent on useless tasks (eg. watching TV and surfing the internet). Yes that YouTube clip is funny, but is it moving your towards your goal of financial freedom?
- Set manageable targets that you can work towards (eg. I want to do analysis on 100 properties, view 10 properties and make offers on 3 in the next 3 months).
- Enlist the help of your partner or spouse and make it an activity you can do together.
- Purchase the help of a buyer’s agent who finds property for you (can be expensive).
- Look at doing a joint venture with a friend or business partner who is time rich but money poor (Steve McKnight did this and purchased 130 properties in 3.5 years)
Limiting Factor #5: Opportunities
Finding great investment opportunities is like trying to find a needle in a haystack…it is super easy is you have an incredibly strong magnet. On a more serious note great investments can be hard to find.
You may find yourself limited in how many properties you can own due to a lack of opportunities that fit your requirements.
If I am to invest in a property it has to tick a certain amount of boxes (eg. Growing area, right price, good rental yield, structurally sound etc) and there are a lot of properties on the market that just aren’t a great opportunity for me. You may find the same thing when you are trying to grow your portfolio.
However, it isn’t a lack of opportunities that is stopping you from growing your portfolio but a lack of knowledge as to where those investments are. At any one time there are thousand killer investments available for you to snatch up all over the world, the limitation is on the amount of opportunities that you can find and any one time and the ability that you have to quickly act on those great opportunities.
How to Find More Opportunities
- Know exactly what you are looking for a create a system where you can quickly weed out the bad properties and quickly get to the (potentially) good ones.
- Use a tool like Real Estate Investar that gives you more search options to allow you to find potential deals quicker and easier.
- Invest in a buyer’s agent to do the looking for you and to bring properties to you
- Get chummy with local real estate agents in the area you are looking to invest and tell them exactly what you want. They will often bring you purchasing opportunities before they release them to the general market.
So, How Many Investment Properties Can I Own
The short answer to this questions is: as many as you want and you can get your hands on.
There are some factors that will limit the amount of investment properties you can feasibly own but all of these have solutions. It may require you to get creative and think outside of the box but anything is possible.
I will leave you will the following quote:
Success is all about resourcefulness, not waiting until you have resources