Real estate investment comes in different forms. However, if you are looking to gradually grow your long-term investment from a single property to several, then you first have to learn how to build your real estate portfolio.
What Is A Real Estate Portfolio?
A real estate portfolio is a collection of real estate investments, mostly in terms of fixed assets that are purchased and managed by a single group/person for the main purpose of achieving a financial goal.
They could also include a catalog containing all of an investor’s real estate investment deals, both past and current.
One could say that a real estate portfolio is like a resume that shows how much a real estate investor has accomplished over time.
No two real estate portfolios can look alike, but they all perform the same function: to help real estate investors achieve their financial goals. A real estate portfolio could include the following:
- Real estate investment trusts (REITs)
- Real estate mutual funds
- Real estate rehabs
- Rental properties such as single-family homes, apartment buildings, commercial properties, etc
Benefits of Building A Real Estate Portfolio
Are you an aspiring real estate investor? Or perhaps you have been investing for a long time, but just never saw the need for a portfolio?
Here are a couple of reasons that might convince you to start building your own portfolio:
A Comprehensive Track Record
A real estate investment portfolio could serve as a window through which people could see into your past successes, and even failures.
It serves as a track record of sorts, a tool through which your credibility as an investor can be built.
Funding Opportunities
Real estate investment does not come cheap, and that is why you do not have to use your personal funds as capital.
Using money from other sources to fund a deal is possible. The only problem you might face is getting a source to provide the funds you need, and this is where your investment portfolio comes to play.
If you have a well-crafted portfolio, it could establish your trustworthiness with a money lender. Rather than you having to convince them by word of mouth, you could simply let them go through your portfolio and see for themselves.
Sellers’ Trust
Sellers that have gone through loss on property sales could be skeptical about putting their property in the care of just anyone.
Not only do they want to ensure that they are getting a good deal in terms of price, but they also want to be sure that their property will be safe in your hands.
While you may not be able to quell all of their concerns, it is possible to give them an amount of assurance by providing them with your investment portfolio so they could evaluate you based on properties you have bought in the past.
This could ensure that you close deals more easily.
Buyers Trust
For investors looking to sell an asset or two, the same concept from gaining a seller’s trust applies to buyers too.
You could gain a buyer’s trust by providing him with your portfolio, showing records of your past sales. This promotes a quicker closing.
Best Strategies To Start Building Your Real Estate Portfolio
It could be quite difficult to begin building a portfolio for new investors who have not even purchased a single property yet.
Likewise, if you have numerous real estate properties, but no portfolio, this is for you as well. Here are a few guides to help you build a comprehensive portfolio:
Start Small
Investing in real estate is not a walk in the park. To be successful in it, you have to take your time to gather knowledge on a lot of things, such as steps to buying property, how to increase a property’s value, how to manage tenants, how to find investment opportunities, etc.
This knowledge will help you to understand every aspect of the game and play it like a professional.
Create A Real Estate Investment Business Plan
Having a business plan for your real estate investment will help keep you on track to achieving your objectives. It involves planning your purchases and rentals way ahead of time.
This plan also helps you foresee possible problems that could come up along the way and create mitigation plans.
Your business plan should include the following:
Investment Goals
Getting clear on what you want to achieve with your real estate investment is important as it directly influences the kind of properties you acquire.
Achieving your financial goals is, of course, the main point of investing, however, are you looking for a source of monthly income, and are you investing to achieve financial freedom in the long run?
Knowing the answer to these questions will help you focus your investment in the right areas.
A Financial Plan
As a real estate investor, you need a financial plan to help with your Real Estate Finance.
This plan details how you plan on financing your purchases, including your financial goals and how your property investment will deliver them, and also ensures that you don’t encounter financial challenges.
Investment Strategies
This has to do with choosing the right strategy, out of the numerous real estate investment strategies, that would help you to achieve your goals quicker.
Buy Your First Property
The next thing to do is to buy your first real estate property. Bear in mind that the performance of this property, whether negative or positive, has a large influence on the success of your portfolio.
It also makes subsequent purchases easier to go through. Ensure that you work hand-in-hand with real estate agents that can identify the best deals for you.
Get A Real Estate Accountant
Calculations such as rental income, cash on cash return cash flow, cap rate, and many others are important for the success of a real estate investment portfolio.
If you are not great at the math, hiring a professional Real Estate Accountant will make the job easier and ensure your expenses, profits, and losses are well documented.
Start Acquiring More Properties
For it to be a portfolio, it has to contain several properties that belong to you. Therefore, to grow your portfolio, you must start buying more properties.
However, the more properties you acquire, the harder it could get to keep tabs on all of them. This is where Real Estate Systematic Property Management and Bookkeeping comes into play. Keeping an up-to-date inventory will help you better monitor your properties.
Diversify Your Portfolio
The real estate market, due to some factors, usually fluctuates, and if all of your properties are of the same type, you would experience a major hit if the market drops.
Diversifying your portfolio has to do with purchasing different kinds of properties in different real estate areas.
This ensures you have reduced exposure to these risks because if one market dips, another high-performing one could keep you above.
You can diversify by:
- Purchasing properties in different locations
- Purchasing properties of different asset classes
- Investing in REITs, real estate mutual funds, or real estate exchange-traded funds.
Conclusion
As a real estate investor, building your portfolio does not have to be such a difficult task. With the right knowledge and team of real estate professionals, you could have yourself a well-crafted portfolio in no time.