Learning how to create and manage a real estate portfolio is essential for real estate investors to become successful. A real estate portfolio is an assortment of various investment properties that are detained and managed to accomplish a financial goal. Generally, a portfolio can be taken as a resume that tells about the achievements of a real estate investor but if we have an in-depth look, there is more to it.
Growing a healthy real estate portfolio requires cash flow, equity growth, diversification, leverage, and appreciation. The rental property acts as a barrier against inflation and these benefits multiply with additional investments. However, most people who want to expand their real estate portfolio don’t know exactly where to start.
61% of landlords only own a single rental property which makes adding to the real estate portfolio a real challenge. Just like starting a business, a real estate investment requires having a plan before investing, defining your objectives and stating clear goals before diving in. Here we will talk about strategies for building a real estate portfolio that you may not know about.
Identify Your Personal Goals
Before investing, you need to be clear about your goals and you need to define clear objectives. When it comes to choosing an investment strategy, it is important to know what you are expecting to achieve long term. Having specified goals and the right plan for making investments will benefit you. Understand that as an investor, what is good for you might not be ideal for other investors. For instance, if you plan to create $2 million in value in the next 5 years, the specific tactic you use will be not the same for an investor who is looking to make $250,000 in the next 5 years.
When you have solid goals and objectives in your mind, you can make the right decision about what kind of property is best for your investment, how many assets you should invest in, and which market will best assist you to accomplish your goals.
Diversify Your Portfolio
In today’s environment with high demand for multi-family housing, you can be tempted to buy several apartment buildings on the same street or general area. If the apartments provide an acceptable rate of return, buying assets in the same area may seem to make sense.. But if the business climate changes for multi-family housing and you are unable to find residents for your property; all your investments can be at risk. However, if you invest in properties in different areas or with different types of property, the potential for loss is diversified and this strategy can lead to healthier financial growth.
Creating and developing your real estate portfolio can be much easier if you have assistance. It will benefit you to build connections with commercial real estate brokers or professionals who understand the market and investment opportunities.. Networking with real estate agents, property managers, and other investors will help you by giving a good piece of advice related to investment. Further, your connections can also tell you about any potential real estate investment when they hit the market, thus offering you the opportunity to move swiftly to possibly secure a better acquisition value.
Avoid Costly Mistakes
Investing is a learning process, but you need to be careful as there are many mistakes you can make that you must avoid by learning from the experience of others. The mistakes you need to avoid include not having a management plan, investing too much of your investible assets in one property, not diversifying your portfolio, and underrating the costs of maintenance or repair costs in your capital reserves..
Selecting a Strategy
When growing a real estate portfolio, you have various strategies you can use. Here are some of the methods that real estate investors use while investing:
Fix and Flip
This method has become popular in recent years thanks primarily to HGTV. The fix and flip method is based on finding a property that is available below the market price because it needs significant upgrades.. When you repaired the property, you sell it at full market value and gain a profit. It can be a profitable strategy, but it doesn’t come without some risks. Profits with such properties depend mostly on timing the market so you need to make sure that it is the right time to purchase property before investing. On residential or small properties, it seems most of the profit comes as a reimbursement of your labor effort. Under this scenario, hiring contractors for the entire renovation effort often depletes any profit margins.
The Snowball Method
This method is used by most investors with great success. The snowball method is a slow and steady way towards victory. Though not without risk, this method is predictable and direct. The main idea is leveraging the financial benefit from one property and moving into the next one. You keep moving forward and just like a snowball, your real estate portfolio will continue to grow, gaining speed as you move forward.
The BRRRR strategy
The BRRRR strategy refers to Buy-Remodel-Rent-Refinance-Repeat. When done carefully, it is a great way to create and grow a real estate rental portfolio when cash is tight as is usually the case when early in your investing career.
It involves searching for properties that need repair or renovation and buying them below their full price. You make use of financing or short-term cash to purchase the property and then fix it and recapitalize it with long-term debt.
Creating and growing your real estate portfolio and to generate long-term fortune is usually a slow and steady process. Using the right strategy combined with patience, you can invest in commercial and residential rental properties that will assist you to accomplish your long-term goals.