Check out these smart ways to increase your rental income

As a real estate investor, your goal is to acquire properties that generate a nice income. This happens when you collect rent from your tenants each month. You can be satisfied with just one property and collect enough rent to cover your expenses plus a little more, or you could leverage that rental income to expand your investing business and make virtually limitless profits. Here are three ways to multiply your rental income and grow your real estate investing business.

1. Use The Equity You Already Have

If you own just one investment property, you more than likely have plenty of equity built up that you can use to multiply your rental income. Here’s how it works.

You have several options for using the equity you have built up in your first investment property to finance the down payment on a second investment property. You can take out a Home Equity Line of Credit (HELOC), a home equity loan, or do a cash-out refinance on the first mortgage to get the funds you need to purchase another investment property.

While this tactic is a great way to make the most of your initial investment capital, a word of caution is necessary here. The risk of foreclosure on both properties is higher using this method. This is because it’s very easy to over-extend your wallet without realizing it since no actual money passes from your hand to the bank.

2. Put Your Debt-To-Income Ratio To Work For You

As far as the bank is concerned, if your first investment property is generating an income every month, or has the potential to generate an income every month, it is probably worth borrowing against for purchasing another investment property.

The bank uses a formula to figure your debt-to-income ratio (DTI), or rather, the percentage you can comfortably afford to pay using the income you generate each month. Ideally, banks like to see two years’ worth of Schedule E income forms from your current investment property when considering your DTI for future loans. If you haven’t owned your property that long, they will estimate the property’s ability to generate an income using a 75 percent value based upon rent you expect to collect on verified leases.

At its highest point, banks may allow a 43 percent DTI. This means your current and future rental income earnings, multiplied by 75 percent, factors to about 1/3 of your earnings. This is how much the bank feels you can comfortably pay back on your next investment property.

3. Increase Your Investment Portfolio

The two tactics mentioned above bring us to this final method: increasing your investment portfolio. It stands to reason that the more you add to the number of investment properties you own without overextending your finances, the more rental income you stand to collect. If you play your cards right, you can conceivably continue adding to your portfolio indefinitely to amass great wealth.

Another word of caution is warranted here as well. Keep in mind that delegating capital to personal expenses instead of your real estate investments severely hampers your borrowing power for future investment opportunities.

Once you enter the world of real estate investing and begin seeing the potential for profit, it becomes important to continue growing that business exponentially. You can multiply your rental income to do just that using the three methods above.