Many people invest in assets to generate cash flow. The cash flow can make life simpler and give you more flexibility. Investment properties offer excellent cash flow and the potential for appreciation. While you can get started with rental properties, some investors scale up to large investment properties. These investors buy apartment complexes and fill units with tenants. Large investment properties can provide reliable passive income, but these investments have steep barriers to entry. We’ll cover how to buy a large investment property on your own.
What Is the Difference Between Rental Property and Investment Property?
Rental and investment properties each provide cash flow, and the assets can appreciate over time. However, investment properties have more scaling and responsibilities. Investment properties have several units located on the premises. You can have several tenants in an investment property instead of a single tenant in a rental property.
Many new real estate investors start with a rental property. These properties require less capital for the down payment. You’ll learn lessons about managing tenants and collecting cash flow. These lessons will help if you invest in investment properties.
Reasons to Buy Large Investment Properties
Buying large investment properties provides general real estate advantages. You can generate cash flow, obtain tax write-offs, and have room for appreciation. However, large investment properties have unique perks that separate them from rental properties.
- You need fewer deals to hit unit goals: Some real estate investors set objectives such as adding 10 units to their portfolios by the end of the year. You can accomplish this goal by purchasing 10 rental properties or buying a 10-unit investment property. You will spend less time analyzing deals and contacting sellers since you can select from a smaller pool.
- Property management gets done in one place: We believe rental properties are a great way to get started. As you buy more rental properties, it becomes more challenging to manage them all. You will have to commute to multiple locations and stay up to date on every property. A large investment property concentrates your holdings. You can visit a 10-unit complex and see how your property is doing. This setup is far easier than visiting 10 rental properties.
- You save money: This simplicity keeps money in your pocket. You can get a better deal from a property manager if you give them a 50-unit complex instead of 50 rental houses. You’ll also have to travel between homes less often, helping you save on gas and other costs.
- You save time: You won’t have to drive to several properties to address various issues. Solving problems at a large investment property positively impacts all of your tenants. You only have to fix the plumbing for a 10-unit property instead of 10 rental homes. Consolidating your real estate exposure with a large investment property can save you a lot of time.
- You want to retire sooner: Any profitable real estate investment gets you closer to retirement. Large investment properties scale the process and provide more rental income. You’ll have a higher mortgage, but your rental income can cover the difference. Eventually, the mortgage will get paid off, and you can occasionally raise the rent to expand your cash flow. Passive income is the key to an early and smooth retirement.
Is Investing in Large Properties for You?
Investing in large properties streamlines the work. It’s easier to manage a single large property than several rental properties. Large properties provide more cash flow and can accelerate your path to retirement. Some people are worried about investing all their resources into a single large property. You could take a large property’s down payment and spread it across several smaller properties to diversify your risk.
Some large property holders got started with rental properties. Once they got comfortable, generated some cash flow, and discovered a great opportunity, these investors switched to large investment properties. If you can diversify your portfolio while acquiring a large investment property, and you want to scale your real estate cash flow rapidly, large properties are for you.
How to Get Started in Buying Large Investment Properties
A large investment property can transform your finances and generate enough passive income to help you retire. In addition, some people can become part-time workers sooner because of their real estate investments. We’ll share the process for buying these properties and building your real estate portfolio.
Use an Investment Firm
Buying a large investment property ties up a lot of your money into a single asset. This one disadvantage discourages many people from pursuing this type of real estate.
Research Market Trends
Market trends impact a property’s future value. Investors should look at a location’s population growth, schooling, changes in crime rate, and other trends before deciding on ideal locations. Location is an essential part of real estate. A great property in a bad neighborhood may struggle to appreciate and generate cash flow. Narrowing your locations based on optimal market trends helps you find better deals.
Assess Personal Financial Situation
A large investment property is a significant undertaking. Rental income can cover the mortgage, but some months are better than others. You may have to deal with more vacancies than expected in some months. You’ll also have to raise enough money for the down payment. You should consider your financial health and determine if you can afford the property. It’s better to settle for a smaller property that you can confidently afford than risk defaulting on the asset.
Prepare Capital and Down Payment
Large investment properties require substantial down payments. Depending on the property’s valuation, your credit score, and other factors, you may have to raise well over $100,000 to secure a large investment property. So accumulate funds now, even if you don’t want to buy large investment properties. More capital gives you more choices if you decide to go on this path.
Choose Your Location
Researching market trends helps you narrow your criteria, but you must eventually settle on a location. Most first-time buyers start with a drivable location, but some investors look beyond nearby counties.
Decide How You Will Manage the Property
You can either manage the property yourself or hire a property manager. Doing all of the work yourself saves money, but it also requires more time. Managing a large investment property can feel like a second job, and not everyone has the time or desire to make that commitment. You can hire a property manager to handle the responsibilities. Investors should frequently contact the property manager to ensure the property is managed effectively. Property managers reduce cash flow, but they give you time to make money in other ways and look for other deals.
Calculate Your Margins
Homeowners assess a property based on its living condition. They look for great features and a home that matches their personal tastes. Investors primarily focus on the numbers. They look for properties with reasonable margins of safety and great potential. You can eventually own the property debt-free if your rental income exceeds the mortgage payment and other expenses. However, investors who lose money on a property each month may have to default.
You should review a property’s total monthly expenses and income opportunities before making an offer. Buying the property at an excessive asking price can wipe away your profits. Instead, decide on an acceptable margin and calculate each deal’s margin before making an offer.
Determine Your Return on Investment (ROI)
Every investor buys an asset to achieve a positive return. Your monthly cash flow and expenses help determine your return. For example, if you spend $10,000 per month on a large investment property and generate $11,000 per month in cash flow, you have a 10% ROI. Some investors are happy with a 10% ROI, while others want a higher number. Investors seeking higher returns often pursue riskier assets that can become negative. Some real estate produces a low ROI but is more stable.
Consider Taxes and Other Expenses
A large investment property has many expenses. While the mortgage is the largest expense, you’ll also have to pay taxes and have enough money for incidentals. In addition, you’ll need to invest in supplies, contractors, and other assets. Setting aside some capital for other expenses will help you navigate slower months. Budget for each expense instead of only focusing on the mortgage and property management.
