Why Your Second Property Is Often Harder Than Your First

When you look back at buying your first property, it probably wasn’t exactly a breeze back then, but it seems like it was now. 

You found a nice little place, got the financing all sorted out, and you had a tenant in there within a week. And, sure, it may not’ve been all cupcakes and rainbows 24/7, but you got through it. The guy was late with his rent a few times, and fixing the water heater wasn’t exactly cheap, but you managed to take care of everything. So, naturally, you’re thinking of yet another investment property. And why wouldn’t you? If you can do the same thing again, you’ll double your money.

But what you may not understand is that the first property had a bit of an advantage. 

Let’s say your mortgage rate was a little higher. You wouldn’t have given up on it, right? 

If you had to replace the roof sooner than you thought, you wrote a check, and that was it. Whatever financial risk you had was contained in one place.

But once you add a second property, what happens in one affects the other and vice versa.

The Math Changes With the Second Property

The first investment property was a piece of cake. It may not have seemed like that back then, but compared to the second one, it was much simpler. 

The deal made sense, so you went ahead with it. The math was straightforward, which is why you probably assumed that the same would happen with buying the second property. But that’s not really how it goes.

Before, you had one single investment to think about. Now, you’re thinking of having 2. 

What that means is that, from now on, every new property you buy has to be weighed against what’s already happening with the first one. That doesn’t mean that you should walk away just because the mortgage rate is a little higher, because that might be manageable IF you factor in the cash you’re getting from property number 1. You now have property taxes for 2 places instead of 1, as well as potential repairs and possibly late rents.

What happens is the question goes from “Does this deal work?” to “Does this deal work when I factor in the first one, and can my finances handle both?”

Things get complicated in a whole new way, and many investors aren’t prepared for that. Where are your priorities now?

When you had 1 property, whatever disposable income you had could go towards that investment. But with 2, you have the same pool of money that has to serve both sides. 

So, if you’re saving for a down payment for the new property, it might mean that you can’t afford to replace the roof on the first one.

If you want to have some money set aside in case the new place is vacant for a few weeks, there’s a chance you won’t be able to fix the furnace your tenant has been complaining about. It’s like every dollar that goes to one property somehow takes away from the other, which is pretty stressful.

Financing complicates the situation even more. 

You’ve probably been researching the best investment property lenders and comparing your options, but don’t forget that the terms of the loan should support your financial strategy; they shouldn’t define it.

How to Plan for Growth Instead of Chasing the Next Deal

At some point, every successful investor stops buying new properties and starts thinking about building something bigger. 

That’s a really important shift, and even if it doesn’t feel like it now, you’ll get there, too. At this moment, you probably think that looking through listings is your best bet, but have you ever thought about what kind of portfolio you want to own? If you haven’t, then you’re just keeping yourself busy when you should actually be strategic.

Be clear on your criteria for acquisition.

What type of properties do you want? Do you want to own family homes or buildings with several units? How much money does each property have to generate to make sense? How much debt are you willing to be in? Which market is right for what you want?

Those are all the questions you need to have answers to before looking at listings, so when a deal does come along, you can easily see if it checks your boxes or not. It becomes much easier to pass on deals that don’t work for you, which is a hard lesson for many new investors.

It rarely feels easy to walk out on a deal, but it’s much better than having complications in the future.

Conclusion

You have to realize that there’s a big difference between owning 1 and 2 investment properties. 

1 is an investment, but 2? 

That’s a business. 

And that means you need to change the way you think. Don’t fall into the trap of wanting to own as many properties as possible because that’s a good way to go bankrupt. That’s not to say that people who own many properties can’t build wealth that way because they absolutely can, but the only way to build wealth is to be strategic. 

And acting too fast, before you’ve done the math properly, isn’t a good strategy.