How to Expand From One Property

Your first property has started you off on the right foot in the landlord world. You have a great tenant, you have maintenance issues handled almost as soon as they're reported, and you enjoy the income stream coming from that property. You want to expand from your first property so you can continue growing your success, but you aren't exactly sure where to go from here. You have several considerations to keep in mind when expanding your property management business beyond the first house, such as securing financing for subsequent houses, scaling your maintenance services, and keeping your properties filled.

Financing New Rental Properties
It usually takes more than one property to achieve financial independence from a property management revenue stream. Figuring out how to finance new properties is one of the biggest barriers to entry for an expansion. Taking out a mortgage on a rental property is a possibility, but since this is a second home you are not personally living in, the rates are higher and you may have more stringent credit and down payment requirements. If your first rental property was a paid-for house or your first home, dealing with the difference in mortgage payments may be eye opening. Another financing option is using the proceeds from your first property to fund your second, or using its equity for a line of credit. You may be able to catch the eye of an investor or a partner who is looking to enter the property management business so you avoid issues with mortgages.

Handling Maintenance
It's not a particularly difficult task to handle property maintenance on a single property. When you expand to 2, 3, or dozens of properties, it becomes humanly impossible to get everything done on your own. An essential part of expanding from a single property is making contractor connections so you have responsive maintenance companies on hand no matter what problem occurs. You don't want to have your tenants without heat in the middle of a blizzard because you have too much on your plate. Talk with other landlords and property management companies in your area to get recommendations for worthwhile companies.

Administrative Issues
It's not much trouble to swing by and pick up the rent check from a single tenant at the beginning of the month. When you're handling 20 tenants, this becomes a much bigger issue. You need an efficient property management system in place to handle multiple tenant issues, automation of rent collection, and other financial matters. You don't want to spend most of your day dealing with the administrative side of the business, so get a system in place before you start expanding.

Tenant Acquisition and Retention
As the amount of properties you have on hand grows, you spend more time making sure the units are filled and the tenants stick around. You need to increase the amount of time you spend marketing to bring in new potential tenants, paying attention to what your competition is doing, and keeping your existing tenants happy. It's a balancing act that you may outsource in part or whole as the amount of properties you manage grows. As you get more experience dealing with tenants, you'll find that you develop instincts on who will be a good tenant from the second you show them around one of your properties.

Posted on Dec 29, 2014


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