This is the second part of the comprehensive Real Estate Guide here at Simple Financial Freedom. In this part, we will focus on accumulating a second piece of property for purposes of investment and/or cash flow.

Borrowing Money

If your goal is to acquire a second property in addition to your primary residence, then the amount of money to borrow is an important question. If you don’t have the cash to complete a 100% cash buy (which most people don’t), you will need to be very cautious in your approach.
Your mortgage on your primary residence is an important factor. If you still owe above 50% on your primary residence, most people will be better off by focusing on paying off their first mortgage prior to buying a second property (or at least paying down a larger portion of the mortgage). My favorite approach and one that I think most people should pursue is to fully pay off the primary residence mortgage, then look for additional opportunities. By doing so, you can keep your debt levels manageable.
You will also need a sum of cash to be used as your down payment on the second piece of real estate. In today’s credit environment, you might need 10-20% at least in order to receive a loan. For non-primary residences, the down payment is typically even higher. For best rates and keeping your costs low, you’ll want to have 20% as a bare minimum for your down payment.

Fix Em Ups

Many people like to buy an investment property as a “fix em up”. While it’s very possible to make money on such a project, the days of certain appreciation are definitely behind us. If you can’t do much of the work yourself, it might be hard to recoup your investment. Unless, the home is an absolute steal, you might want to focus more on the homes that are move-in ready.

Other Things To Consider

If you’re looking to buy a home in order to rent it out, you need to consider the effort required to manage a tenant. Don’t underestimate the headache of acquiring a quality tenant. An important question to ask yourself is how long you can hold out without a tenant? What if you can’t find one? How long can you hold on to the house? This is another reason why it is great to have your primary residence paid off.
Furthermore, maintenance costs will be important to plan for. The amount each month or year will depend on the home, but be conservative in your estimates.
I would recommend against buying an investment home in another location. Travel time and distance might be a huge barrier to your successful management of the property. If you have a second property down the street, on the other hand, you can handle the management much easier.