How to Choose a Second Rental Real Estate Property to Buy

Second Investment Property

A successful initial foray into real estate investing does several things. Firstly, it vindicates your beliefs. You have now proven that you could indeed do what you had believed you could do all along. It also gives you valuable experience which you can take forward into your next property investment, making that even more likely to succeed than the first one. Finally, it provides the capital, or at least the promise of capital, with which to fund your possible expansion.

There is always an instinctive belief amongst investors that a more expansive and highly leveraged investment always carries more risk. This is not necessarily the case in real estate. The conservative investor, who uses a lot of his own money, borrows very little, and then has occupancy problems for an extended time, is a good foreclosure risk for the lenders. There is plenty of equity in the property which they can instantly take back. A more aggressive investor, with a highly leveraged system, is actually more likely to survive an economic downturn, since there is little point in the lender seizing back a property which will give them a loss.

If they work with the investor through the downturn, they can still make significant long term profits. With this in mind, it is strongly advised that you leverage your investment. The downside is limited, and by having more than one property you are moving away from the situation where your entire portfolio is either 100% occupied or 100% empty. All the time, you are reducing the amount of risk which your business is subjected to. Your long term goal of a stable and dependable income.

It is also a good idea to build on the success of the first property by staying very close to it geographically. You will save money on maintenance and administration by reducing the distance between the properties, and you could also find that the good tenant in the first property has friends of a similar age and interest group, who would make ideal tenants for the other property. Anything you can bring to the new project which has worked with the old one increases your chances of success.

One of the greatest benefits of all has yet to be mentioned, and that is the reputation you should now be building up with the banks or lenders who financed the original investment. Having borrowed money and created one successful project, you will now be able to negotiate better terms with the lenders who will be fighting to help with the next one.

This is not limited to institutional investors, either, as you now have a proven case to show a private investor who is looking for a tax efficient, but still profitable, investment. You can even arrange to locate and manage properties for these investors in exchange for commission, bringing in extra income without risk. This can then be re-invested back into leveraging further properties, helping you to build your empire as soundly as possible.

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