Imagine earning steady rental income while your assets quietly appreciate in value—this is the power of building a rental portfolio. And with the help of a private lender like ABL, you could grow your portfolio faster than you might think.
ABL has helped countless real estate investors nationwide expand their rental portfolios with flexible DSCR loans that require minimal documentation and close in as few as30 days.
What Is a Rental Portfolio?
A rental portfolio is a collection of properties owned and managed to produce steady cash flow and long-term wealth. It can include single-family or multifamily rentals.
At ABL, we offer loan programs for all of the above, including 1-4 unit townhomes and condos and 5-8 unit multifamily properties.
Benefits of Building a Rental Portfolio
Building a property portfolio is a great way to grow and preserve your wealth. Here’s why:
Cash flow. Whatever’s left over from your rental income after paying property expenses is cash flow. As your rental portfolio grows, so will your cash flow, allowing you to reinvest into your business or finance your lifestyle.
Appreciation. Though real estate values can fluctuate in the short term, they tend to go up in the long term. As a result, building a rental portfolio is a great way to store wealth.
Tax benefits. Rental owners qualify for many tax benefits. For example, you can deduct property expenses, mortgage interest, depreciation, and other business expenses. Plus, you can defer capital gains taxes with 1031 exchanges. Consult a tax professional to learn more.
Diversification. Real estate has a low correlation with the stock market, making it a great way to diversify your investment portfolio. Plus, you can further diversify your investments across markets, property types, and investment strategies.
Inflation hedge. Real estate is a good hedge against inflation since property values and rents tend to rise with overall price levels. This means you can offset rising costs by increasing rents, preserving or even improving income streams over time.
Tangible asset. Unlike stock shares and digital assets, real estate is physical. As a result, it will always retain some inherent value as a space to live or work.
Leverage. You don’t have to buy a rental property outright to invest in it. With a DSCR loan from ABL, you can finance up to 80% of the purchase price but still benefit from 100% of the appreciation and cash flow, after covering mortgage payments and expenses.
How to Build a Rental Portfolio From Scratch
Now that you know the benefits of building a rental portfolio, let’s dive into how to build a rental portfolio:
1. Set Goals
First, set some goals. For example, do you want to create passive income to retire or achieve financial freedom? If so, how much cash flow would your rental portfolio need to generate?
You may want to break your long-term goals into short-term goals, too. For example, how many cash-flowing rental properties do you want to own in one, five, and ten years from now?
At ABL, we’re your investment partner. Even if you’re a beginner, you can talk to us for help developing smart investment goals and a plan that works.
2. Choose an Investing Strategy
Next, choose a rental investing strategy that best fits your goals and financial situation.
For example, you could focus on turnkey properties that are ready for tenants or already have them. This requires the least amount of upfront work and can result in immediate cash flow, especially if you work with a DSCR lender like ABL who can help you close quickly.
Alternatively, you could target distressed properties that need to be rehabbed before being rented out. If you follow the buy, rehab, rent, refinance, and repeat (BRRRR) method, ABL can help you finance the initial purchase with a fix-and-flip loan and refinance with a cash-out refinance loan once renovations are complete.
Short-term rentals (STRs) are another option. They require more management but may yield higher profit margins and can also be financed with ABL’s DSCR loans.
Lastly, what property type will you invest in? Single-family and multifamily are both great options covered by ABL’s rental loans.
3. Select a Market
Your success as a landlord will depend heavily on where you invest. Some markets offer better returns than others. Look for areas with promising rental demand, low vacancy rates, high job growth, and a growing population. For guidance tailored to your market, connect with one of ABL’s local experts—we currently lend in 42 states.
4. Analyze Properties
Once you’ve selected a market, start finding and analyzing deals. Pay attention to purchase price, operating expenses, and expected rental income. Then calculate return metrics like cap rate and cash-on-cash return to determine if a property has potential.
5. Secure Financing
Before you can buy a rental property, you’ll need to secure financing. At ABL, we offer flexible DSCR rental loans with rates as low as 6%, loan-to-value (LTV) ratios of up to 80%, rate locks, and minimal documentation requirements. Contact our rental loan experts today to learn more!
6. Buy Your First Rental
After pre-qualifying for a mortgage, make an offer to buy a property that meets your investment criteria. If your offer is accepted, you’ll need to complete your due diligence with a property inspection, appraisal, and title review before closing on the deal.
At ABL, we guide you through gathering and preparing all necessary loan documents to ensure a smooth transaction.
7. Rehab and Manage
Depending on your investing strategy, you may need to rehab the property to make it rentable. A short-term bridge loan from ABL can finance up to 100% of the renovation costs, so you can focus on the work. Plus, if you get done early, there’s no prepayment penalty.
Once the property is ready for tenants, you can list and market it online, accept applications, screen tenants, and sign a lease to start collecting rental income.
8. Reinvest and Scale
Over time, you can use your rental income and growing equity (from paying off the mortgage) to buy new rentals. Get a cash-out refinance loan from ABL to replace an existing mortgage with a larger one and keep the difference as cash. Then use those funds to reinvest in your business.
Start building your rental portfolio today with an ABL loan. With our fast, flexible financing, you can secure deals and grow your portfolio faster than ever. Pre-qualify today!