8 Financial Tips for Property Investors

By: Donna Erf, Owner & Principal, MTD Property Management, Inc.

June 17, 2021

Estimated Reading Time: 6 minutes

8 Financial Tips for Property Investors

Buying investment properties can be a solid long-term investment for some investors. Real estate investments add an element of diversification to an investor’s portfolio while positioning them for the opportunity to generate passive income. But, when considering investing in real estate, it can be easy to overlook the risks associated with owning property.

Many property investors start with dreams of making it big, but after a few years, they wind down their investments and exit the market. Why?

“They don’t educate themselves about the potential pitfalls of the business,” warns MTD Property Management in Chicago, “but rush into it and invariably get burned.” You can help boost your chances of successful property investments by following these top financial tips for property investors.

1. Decide on Your Focus & Define Your Niche

There are many ways to invest in real estate. Without a clear-cut property investment strategy, an investor can waste time and money without making real progress. Examples of possible areas to focus on are:

• Rehabbing houses
Live in and flip
• BRRRR (Buy-Remodel-Rent-Refinance-Repeat) investing
• Short-term or long-term buy-and-hold rental property

In addition to choosing your strategy, you should decide the type of properties you want to invest in. Are you more interested in owning single-family homes, small apartment buildings, condos and townhouses, commercial retail, or commercial office? While there is no “right” answer, defining and operating within a niche can help build a property investment strategy that targets your unique financial goals.

2. Have a Plan and a Timeframe

Conduct a thorough analysis of your particular real estate strategy, detailing how much capital you need to start, how you will finance the properties, a cash flow analysis, an estimate of how long you will keep a property, and how you will grow your portfolio.

Having these details on paper will help you see the big picture and can help reveal potential problems with your chosen investment strategy.

3. Start Small and Grow Gradually

There are many intricacies to owning a property that may remain unknown until you are neck-deep in an investment, which is why one concept real estate investors tend to lean on is the idea of starting small. Starting small gives you the chance to learn without over-exposing yourself to risks.

With a smaller investment, you can become more familiar with the financing process, learn the ropes of managing a property, and come to a fair understanding of the property market in your area. Then, focusing on growth may be more achievable.

4. Find an Experienced Mortgage Broker, Preferably Specialized in Investment Properties

As a beginner to property investing, you need a mortgage broker with experience in your area of interest because there may be financing opportunities a beginner real estate investor may not be aware of.

A mortgage broker with experience will not only provide you with a list of financing options, but they may also recommend strategies that may better suit your long-term objectives as they relate to your investment properties. Additionally, they will help you keep up-to-speed with the constantly changing realities of the financial world.

5. Avoid Over-Leveraging

The intelligent use of leverage can be a strong tool for growing and maintaining rental properties. It can help you buy and finance more properties than you would be able to pay for with your current capital. But, if overused, leverage may negatively affect your property investments.

Over-leveraging creates more debt on a property than its cash flow can handle. This results in a situation where the rental income from a property is insufficient for the monthly payments on the property.

6. Consider Adding Multiple Lenders as You Grow Your Property Portfolio

The advantage of using a single lender versus multiple lenders, as your portfolio grows, is that a single lender can offer volume discounts. By staying with one lender, you may pay less in interest and fees.

On the other hand, using multiple lenders allows you to borrow more money than a single lender would typically loan you. Additionally, using multiple lenders allow you to diversify some of your risks, rather than concentrate them with one entity.

7. Invest in an Accountant to Help Control Costs and Taxes

Without a seasoned investment property accountant to guide you, you may be surprised by the tax consequences from your rental properties. Unless you are a certified accountant or financial expert, we recommend contracting a CPA or other tax professional to help you manage the income and tax consequences that may come from your rental properties.

Sometimes, having a good accountant can make a significant difference in an investment that is relatively more profitable and one that is less profitable (or even unprofitable). An accountant will help you learn about which types of properties to buy or which corporate structure you may consider forming in order to reduce tax payments.

8. Avoid Shared Mortgages and Cross-Collateralizing Securities

Regardless of how it is marketed, a shared mortgage does not give you ownership of the property. It is a more expensive (and often uncertain) way to buy properties. Cross-collateralization or a cross-collateral mortgage, on the other hand, allows you to secure one or more mortgages using one or more properties.

The problem with cross-collateralization is that you give the bank greater control over your investments and expose yourself to unnecessary risk. Given that a successful investment strategy takes risks into account and uses various strategies to mitigate or minimize any potential risks, a cross-collateral or shared mortgage may not be optimal for your current investment situation.


Important Disclosure Information

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Chicago Partners Investment Group LLC [“CP”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from CP. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. CP is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the CP’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request or at www.chicagopartnerslls.com. Please Note: CP does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to CP’s website or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please Remember: If you are a CP client, please contact CP, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently. Please Also Remember to advise us if you have not been receiving account statements (at least quarterly) from the account custodian. Please also note: the views expressed in this guest blog may not expressly reflect the views of Chicago Partners or its advisors.

June 17, 2021

Estimated Reading Time: 6 minutes

8 Financial Tips for Property Investors

Buying investment properties can be a solid long-term investment for some investors. Real estate investments add an element of diversification to an investor’s portfolio while positioning them for the opportunity to generate passive income. But, when considering investing in real estate, it can be easy to overlook the risks associated with owning property.

Many property investors start with dreams of making it big, but after a few years, they wind down their investments and exit the market. Why?

“They don’t educate themselves about the potential pitfalls of the business,” warns MTD Property Management in Chicago, “but rush into it and invariably get burned.” You can help boost your chances of successful property investments by following these top financial tips for property investors.

1. Decide on Your Focus & Define Your Niche

There are many ways to invest in real estate. Without a clear-cut property investment strategy, an investor can waste time and money without making real progress. Examples of possible areas to focus on are:

• Rehabbing houses
Live in and flip
• BRRRR (Buy-Remodel-Rent-Refinance-Repeat) investing
• Short-term or long-term buy-and-hold rental property

In addition to choosing your strategy, you should decide the type of properties you want to invest in. Are you more interested in owning single-family homes, small apartment buildings, condos and townhouses, commercial retail, or commercial office? While there is no “right” answer, defining and operating within a niche can help build a property investment strategy that targets your unique financial goals.

2. Have a Plan and a Timeframe

Conduct a thorough analysis of your particular real estate strategy, detailing how much capital you need to start, how you will finance the properties, a cash flow analysis, an estimate of how long you will keep a property, and how you will grow your portfolio.

Having these details on paper will help you see the big picture and can help reveal potential problems with your chosen investment strategy.

3. Start Small and Grow Gradually

There are many intricacies to owning a property that may remain unknown until you are neck-deep in an investment, which is why one concept real estate investors tend to lean on is the idea of starting small. Starting small gives you the chance to learn without over-exposing yourself to risks.

With a smaller investment, you can become more familiar with the financing process, learn the ropes of managing a property, and come to a fair understanding of the property market in your area. Then, focusing on growth may be more achievable.

4. Find an Experienced Mortgage Broker, Preferably Specialized in Investment Properties

As a beginner to property investing, you need a mortgage broker with experience in your area of interest because there may be financing opportunities a beginner real estate investor may not be aware of.

A mortgage broker with experience will not only provide you with a list of financing options, but they may also recommend strategies that may better suit your long-term objectives as they relate to your investment properties. Additionally, they will help you keep up-to-speed with the constantly changing realities of the financial world.

5. Avoid Over-Leveraging

The intelligent use of leverage can be a strong tool for growing and maintaining rental properties. It can help you buy and finance more properties than you would be able to pay for with your current capital. But, if overused, leverage may negatively affect your property investments.

Over-leveraging creates more debt on a property than its cash flow can handle. This results in a situation where the rental income from a property is insufficient for the monthly payments on the property.

6. Consider Adding Multiple Lenders as You Grow Your Property Portfolio

The advantage of using a single lender versus multiple lenders, as your portfolio grows, is that a single lender can offer volume discounts. By staying with one lender, you may pay less in interest and fees.

On the other hand, using multiple lenders allows you to borrow more money than a single lender would typically loan you. Additionally, using multiple lenders allow you to diversify some of your risks, rather than concentrate them with one entity.

7. Invest in an Accountant to Help Control Costs and Taxes

Without a seasoned investment property accountant to guide you, you may be surprised by the tax consequences from your rental properties. Unless you are a certified accountant or financial expert, we recommend contracting a CPA or other tax professional to help you manage the income and tax consequences that may come from your rental properties.

Sometimes, having a good accountant can make a significant difference in an investment that is relatively more profitable and one that is less profitable (or even unprofitable). An accountant will help you learn about which types of properties to buy or which corporate structure you may consider forming in order to reduce tax payments.

8. Avoid Shared Mortgages and Cross-Collateralizing Securities

Regardless of how it is marketed, a shared mortgage does not give you ownership of the property. It is a more expensive (and often uncertain) way to buy properties. Cross-collateralization or a cross-collateral mortgage, on the other hand, allows you to secure one or more mortgages using one or more properties.

The problem with cross-collateralization is that you give the bank greater control over your investments and expose yourself to unnecessary risk. Given that a successful investment strategy takes risks into account and uses various strategies to mitigate or minimize any potential risks, a cross-collateral or shared mortgage may not be optimal for your current investment situation.


Important Disclosure Information

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Chicago Partners Investment Group LLC [“CP”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from CP. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. CP is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the CP’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request or at www.chicagopartnerslls.com. Please Note: CP does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to CP’s website or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please Remember: If you are a CP client, please contact CP, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently. Please Also Remember to advise us if you have not been receiving account statements (at least quarterly) from the account custodian. Please also note: the views expressed in this guest blog may not expressly reflect the views of Chicago Partners or its advisors.