How many rental properties makes sense for an investor to buy? Well, it really comes down to your specific requirements and market conditions.
If you’re like most real estate investors, you’ve probably asked yourself this question at least a few times. For some landlords, owning just a few units is perfect. For others, managing a large number of rentals feels right.
There’s no one-size-fits-all answer; after all, everyone’s circumstances are unique.
But real estate investors consider several factors when deciding how many rental properties to buy, such as financial situation and goals, time constraints, and personal real estate strategy.
Read on to learn how many rental properties are too many and find solutions for when you’re simply stretched too thin.
Basic Rental Property Considerations
Let’s start with the basics: legal considerations. Many states regulate how many properties you can manage. Laws vary from state to state, so ensure you’re within your state’s legal limits.
For instance, Illinois state law says that if you have five or more units, you must hold security deposits in an escrow account, return deposits within 30 days, and provide detailed receipts within 45 days of move out. Violating such laws puts you at risk of being sued.
How Much Time Do You Have?
Time constraints are another important consideration. How much time do you have to spend managing your rental properties? Perhaps the real question should be how much time do you want to spend?
While renting may be known as a passive source of income, in reality, it’s not a passive endeavor. Depending on the types of property you own and the types of tenants you rent to, being a landlord can be extremely time-consuming.
From showing units and finding new tenants, to dealing with maintenance and repairs, from collecting rents to trouble-shooting, owning rentals takes a lot of time. Consider whether you want your rentals to be a part- or full-time gig.
Team size is another consideration. Do you have enough help? Would hiring more staff be a cost-effective move?
Consider Your Financial Situation and Goals
While real estate investing is often treated as a business, your own personal finances are on the line.
You’re on the hook to purchase rental properties, keep them maintained, update units to attract quality tenants, and deal with turnover costs.
Review your personal financial situation, starting with a focus on debt. For those who treat rentals like a business, a certain “comfortableness” with debt is key.
A bigger portfolio means you must take on debt and feel confident you can pay it off.
Are your total expenses sustainable? Some investors sacrifice monthly cash flow in order to continue acquiring properties and attain a larger income later.
Your answer to this question also underscores another important consideration: how much do you expect to make?
Decide if you’re interested in making passive income now, or focusing on building for retirement later.
What Can Go Wrong When Managing Too Many Properties?
If you own too many rental properties, you’ll find yourself stretched too thin. For many, finding time to spend on anything other than landlord duties is a huge challenge.
For others, the passive income simply doesn’t outweigh the cash outlay required to keep units maintained and occupied.
If you need to get rid of rental properties, there’s an easy solution: Sell your rentals to HomeGo. You’ll receive a transparent offer that closes quickly, often within 7 days.
We even purchase homes occupied with tenants, so there’s no need to worry about waiting until the property is vacant. HomeGo makes it easy to skip the hassle and get your business back in balance.