Owning multiple homes is a great way to build wealth and earn a second income. You can rent them out to vacationers or just plain old-fashioned tenants while you’re not there.
Managing second and third homes, though, isn’t always straightforward. For many people, dealing with one property is time-consuming enough, let alone two or three.
Fortunately, this post is here to help. We discuss how to take proper care of your real estate portfolio and, hopefully, craft a profitable enterprise for yourself.
Ask Yourself If You Can Afford It
Firstly, you should ask yourself whether you can really afford to own a second or third home. Remember, if you take out a mortgage, you will have to pay it back in installments – and that could reduce your return on investment.
Consider Your Tax Advantages
Naturally, tax advantages will depend on where you live. However, usually, you can deduct things like mortgage interest, insurance and taxes from the property’s income. You can also get breaks for deprecation.
When you subject these costs, it reduces the size of your taxable income. As a consequence, your tax bills are lower.
Prepare Yourself For Being A Landlord
Being a landlord isn’t the same as earning passive income. You have to be active to stay on top of tenant needs (assuming that you don’t hire a property management company to work on your behalf).
In many states, you have a duty to ensure that the properties you own remain safe and habitable. Consequently, you’re liable for callouts in the evenings and at weekends when things go wrong (which they inevitably will do).
If you really don’t want to manage your own rentals, you can always get a property management company to do it on your behalf. These professionals essentially take over the job of running your real estate empire for you. In return, they take around 10 to 15 percent of the rental income. For many landlords, this is a price worth paying.
Make Links With Local Contractors
When things go wrong in the middle of the night, you don’t want to be the one getting out of bed to solve the problem. Moreover, you probably don’t have the necessary skills to fix issues around the home, either.
For that reason, it’s a good idea to forge links with local contractors. These are people who you can call upon in an emergency, such as plumbers, electricians, boiler engineers and dumpster rental services. The more of these people you have on your team, the easier your job will become.
Always Run The Numbers
Sometimes, it can be hard to work out whether your second and third homes are making you money or not. There are so many costs involved in their upkeep that your actual profit margins often remain a mystery.
Double check that you’re not operating at a loss. Add up all of the income and expenses from your property and work out how profitable the capital is. Ideally, you want to be making around 10 percent a year to compensate you for the risk and hassle involved. Don’t forget to include property value appreciation in your calculations (if it applies in your area).
Get The Whole Family Onboard
Running a second or third home is rarely something that you do by yourself. Instead, it’s something that requires the involvement of the whole family – and not just from a financial perspective. When you view a second or third home as part of your empire, other members of the family step in and take up the slack. For instance, you could ask your children to live in one of the properties and act as minders, ensuring that they remain safe and secure.
Be Clear On Your Budget
There are numerous costs associated with running a second home. Many financial professionals recommend purchasing them with cash (and avoiding a second mortgage). However, if you do decide to take out a loan, then you’ll need to budget for this.
You’ll also need to budget for other items. These include furniture and appliances, HOA fees, homeowners insurance, property taxes, utilities and so on.
Once you have a clear budget, you can begin to define the value of owning additional properties. You can then compare this to, say, putting money into a mutual fund for five years or more.
Work With Somebody You Trust
Lastly, you’ll want to work with an agent or mentor you trust. They’ll be able to provide you with shortcuts you can use to ensure that you’re managing your property correctly.