Anyone who invests in real estate is essentially looking for one thing— solid returns.
If you are new to real estate investing you might assume that leveraging your initial investment property to buy more homes or commercial buildings will automatically result in proportionately more net income. If you buy and then lease, it will definitely allow you to increase your monthly cash flow. But the interest payments on the equity loans to acquire those additional properties can have a significant impact on the money they’ll be generating.
So how can you get a true sense of how much money will be coming in? Well, the answer to that is kind of a moving target. When looking at multi-property scenarios, the total amount of rental income from your portfolio will vary depending on how much financing is being serviced. In other words, how many times have you drawn equity out of your existing properties to acquire new ones?
Many novice real estate investors assume that a portfolio of three properties means they’ll be able to triple their net rental income. This assumption is unfortunately false.
Let’s come back to reality. Refinancing is never “free money.” In fact, your rental income increases only fractionally with the addition of more properties. If you have one property that provides a cash flow of, say $375 a month, at your 12th year of investing a threefold increase in investment properties would generate only a 20 percent increase in net rental income.
So the message here is that real estate investing is still a good thing. It’s a vehicle that can definitely generate some revenue. And adding more properties will boost the flow of income you have coming in. But be realistic in your expectations.
Effective real estate investing is a lot like building a house. You start with a foundation and then add the framing, roof, electrical system and plumbing. And by the time it’s all done … you have a solid structure!