Buying your own house is an emotionally uplifting as well as great investment decision most of the time. However, buying and maintaining a home isn’t easy. With the benefits of owning a property come challenges that double when you buy a second one.
If you are planning to buy a second house in Canada, check this page by Paradise Developments. And look at these advantages and disadvantages of owning multiple properties to make informed decisions.
Advantages of owning more than one property
Many people invest in multiple properties hoping to trade in the housing market. Some for short-term buying and selling and others capitalize on the rental income.
Here is how investing in more than one property can be a winning move:
Rental income- Rental income is one of the most desirable sources of passive recurring income. And if you have more than one rental property, you can continue to earn a steady income from them for a long time. With vacation rentals in demand, you can earn good money if your property is in a tourist location that attracts high rental occupancies.
Equity building- With your tenants paying for your mortgage, owning multiple properties allows you to build robust equity over a period. As your mortgage shrinks, your net worth grows. And with more properties, you can improve your net worth rapidly in a short period.
Property appreciation- With time, the value of your property appreciates, allowing you to build more equity and expand your net worth faster. In future, you can sell your property at a much higher price to pay for your retirement.
Vacation home- If you buy an additional home in your favourite countryside or bay area, you can use that property as your vacation home rather than renting out homes or hotel rooms.
Business opportunity- You need not rent all your property for residential occupancy. They can be rented out to business owners too. Businesses may pay a higher rent if your property suffices their needs.
Tax advantage– Many property-related expenses such as mortgage interest, property insurance premium, depreciation, attorney’s fees, and maintenance costs are tax-deductible.
Risk mitigation- Real estate investments are low-risk investments. And a better way to diversify the risk further is by investing in multiple properties. By buying houses in different markets, you can minimize the impact of the housing market crisis.
That said, buying a property isn’t a cakewalk. It is one of the major investments that you will ever make. And when you buy more than one property, you pull up your stakes, responsibilities, liabilities, and risks.
Disadvantages of owning multiple properties
Down payment- One of the biggest challenges of owning multiple properties is down payments. You may have to shell out around 20% of the second property’s price from your pocket while you are still paying the mortgage for your first property.
Closing costs- Every time you buy or sell a house, you have to pay registration charges, attorney fees, mortgage fees, insurance expenses, and other closing costs before taking ownership of the property.
Unguaranteed rental income- Rental income from your property depends on various factors. You may have a property in a specific location that isn’t desirable to tenants. Thus, you will struggle to put it on rent and let it remain vacant. Each vacant day will add to your property investment losses.
Maintenance costs– Managing multiple properties is challenging and costly. You are required to maintain each of them. Hence, incur significant maintenance costs. And if your property is unoccupied, it becomes a liability than an asset. As the owner, you either have to pay a property manager or do it all yourself, which can be highly demanding and exhausting.
Managing tenants- Non-supportive tenants and their tantrums can be a headache. Some tenants don’t pay rent on time, and you may have to pay for maintenance, insurance, taxes, mortgage, and other expenses yourself. Many times tenants don’t evict the property easily and create unpleasant scenarios for the landlord.
No liquidity- You build equity by acquiring a house but not liquid assets. Real estate investments don’t give you immediate access to the capital you lock in it. If you need the equity in an emergency and have to sell your property, you may not be able to do that quickly.
What should you consider before buying multiple properties?
Investing in many properties can build up your net worth in no time. It indeed is a wise investment strategy. However, consider the following factors before deciding to buy a new property:
Budget-You need not buy multiple houses at once. Keep a check on your outflows in terms of mortgage payments and other expenses on the current property and ensure that you have enough savings to afford a new house. Real estate experts advise investing in a new property every 2 to 3 years so that you get enough time to save for the next down payment.
Market analysis- Don’t buy an additional property just anytime and anywhere. Do thorough research of the real estate markets and invest in a property type and location that could fetch you good rental income and appreciation in the future.
Insurance costs- Not considering the home insurance cost is a big mistake that many people make while making the second purchase. Insurance costs are unavoidable. Therefore, once you have finalized the second house, start collecting insurance quotes to understand if the property falls into your budget.
Your availability- A house demands care and maintenance. If you own multiple properties, you have to pay attention to all of them. Consider hiring a property manager if you cannot manage your time and manage each property. Or don’t invest in another property until you are sure about taking care of it.
As long as you can afford the time and money, investing in multiple properties is one of the best ways to create wealth. With proper planning and guidance from a real estate expert, you can overcome all the challenges of buying and renting more than one property and make a great investment portfolio for yourself.