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second income with rental properties

Today I’m going to share with you how to have a second income with rental properties.

With mortgage rates at an all time low and prices of home still not quit at equilibrium yet.  This may be the best time to have a second income with rental properties.  Today I will share with you some insightful information about investing in rental properties and how to make it into a second income stream.

second income with rental properties

First lets discuss how much you will need.  Typically you can start a second income stream with rental properties for as low as 10,000.  How did I come up with this number?  Well, the typical 3 bed 2 bath home in America costs around $80,000 and usually nowadays your mortgage company will require a 20% down payment.  You may say but 20% of 80k is 16k, why do I only need 10k.  The reason is because you should go into this purchase with a partner.  Your partner will come up with 8k and you the other 8k leaving 2k for repairs and maintenance.

Having a partner is not such a bad idea considering your return on investment really comes out to the same but it lowers you risk by half.  You see, even if I had 20k, I’d rather have a partner and buy 2 80k homes rather than use the 20k and buy 1 80k.  With a partner it reduces my risk, without a partner I assume 100% percent of the risk yet, when you look at the return on investment it is the same.  2 10k earning 10% vs 1 20k earning 10% equals the same.

Now that you understand how much you’ll need in order to start a second income stream with rental properties:

lets talk about what you should kind of properties you should look for.

Here is a ratio you need to be ware of.  It is called the GRM and stands for Gross rent multiplier.

When you buy a piece of property for rent the GRM should not be more than 8.  This means that you should not pay more than 8 times what you will collect in rent annually for a piece of property.

For example if you can collect $1,200 per month for rent.  It would be $14,400 per year ($1,200 x 12).

To be smart about having a second income with rental properties, the most you can spend on this particular investment property would be $115,200 ($14,400 x 8 GRM)

Of course the lesser GRM number you get the better.

Now as for the income stream if we consider this example you would be cash flowing close to $600 per month with this property.  How I came up with this number is simple $115,200 loan at 4% mortgage loan comes out to be around $549, add around 1% for taxes and insurance and the total monthly payment will be around $645.  If you are renting this out for $1,200 per month you net cash-flow will be $555 per month.

Get two properties going and you are on your way to having an extra $1000 per month in residual income.  There are other factors involved to when it comes to investing in properties but I’m not going to go over it here.  My goal is really to just give you a simple yet very realistic idea on how to make extra income.

One last thing, the window of opportunity for real estate investing maybe closing soon.  I’m no expert but my  resources tell me we may have just one more year left before prices of homes start to rise above that 8 GRM mark.  As matter of fact 8 GRM is not as easy to find as in 2 years ago but they are still out there.

As always I wish you the best and hope you do well in having a second income with rental properties.

 

 

second income with rental properties

 

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