How to Build an Impressive Real Estate Portfolio
Even if the concept of building your own investments resume sounds pretty foreign at first, it doesn’t matter if you’ve been in the business for years now or you’re only just starting out. Portfolios aren’t only for the big players, and, with the right knowledge and careful planning, virtually any investor can handle the challenge of building their own real estate portfolio. In the world of real estate, there’s something for everyone, and there are many different ways to invest in it.
Real estate is often called one of the most lucrative ways to generate passive income, with most of it focused on reaching the financial goals that allow you to fund further investments. Smart and thoughtful investing is a way to create your own money-making machine that can later allow you to enjoy true financial freedom. While this task may seem daunting at first, it can also prove to be an incredibly rewarding and valuable thing to have.
With that being said, let’s explore the general steps any investor can follow when building a real estate portfolio.
What Exactly Is a Real Estate Portfolio?
A real estate portfolio can be compared to a resume that acts as a compilation of assets. It’s a collection of all the property investments that are owned by either an individual or a professional group. It can be an excellent way to document and hold all your career achievements in one place.
There are various specific methods you can follow to build your own real estate portfolio, and some examples include the different variations of the BRRRR method or even real estate wholesaling. You can also choose to follow less specific yet still incredibly helpful guidelines to determine what’s best for you.
Why Do You Need a Real Estate Portfolio?
Putting the work, time, and effort into building your own real estate portfolio can prove to be really lucrative and there are various benefits you should see as soon as you start completing the first steps of this challenge.
Anyone who wants to start building their wealth and securing their financial future should consider creating a steady and reliable stream of passive income in the form of real estate investments.
Once the money starts flowing in, you can use it as you please, but some of the smartest moves include, for instance, paying down the mortgage that you used to buy a certain property. As you start adding more properties to your portfolio, you will be able to protect yourself against inflation and use the money that’s coming into your account to meet your financial goals. Also, the individual values of properties that you already bought are likely to increase over time, so it’s an excellent way to ensure that no matter if you decide to sell or rent, there will always be a way for you to profit from your investments.
Expanding your portfolio is also a great way to diversify the risk that, whether we like it or not, is an inseparable part of investing in real estate. A diversified portfolio can give you more peace of mind and help you feel a greater sense of control over your assets as well as your other business endeavors.
Your real estate portfolio can also bring you different tax benefits. After all, it’s no secret that there are various tax benefits associated with expanding a portfolio for your properties, especially when they’re rentals. Of course, you’ll need to remember the importance of saving all your receipts and documents related to the transactions you make, but this shouldn’t be a problem.
While the specifics can vary depending on your particular situation, usually you can claim the deductions for the exact year in which you paid the rental property expenses listed below. Keep in mind that these are not all the possible deductions and, in the end, everything depends on the state you live in as well as other contributing factors. Here are the expenses you can deduct:
• Cleaning,
• Maintenance,
• Utilities,
• Legal fees,
• Interest on your mortgage,
• HOA fees,
• Taxes.
What Are Your Responsibilities as a Real Estate Investor?
Bear in mind that while buying and renting properties is an excellent investment and a great way to secure your financial future, it requires a lot of work and attention. As the investor turned landlord, you’re the one that’s responsible for advertising, finding tenants, maintaining the property, and handling any issues that may arise.
You’ll also need to find responsible tents and determine a fair price for your property. If you price it too low, you’ll find tenants right away, but end up losing money; if you price it too high, finding tenants might prove challenging. Doing research is absolutely necessary before putting a price on your property.
As the owner of a property, you’ll also need to be prepared to face many different scenarios. For instance, you might happen to find tenants who will rent from you for a few years in a row. But once they move out, you may also stumble upon people who stop paying the rent for one reason or another. This can put you in a difficult position, but with a diversified portfolio that’s made of various properties, you should be able to deal with all the issues and find a solution.
Steps to Grow Your Real Estate Portfolio
While there are various different ways to invest in real estate, there are a few general steps you can follow to build and grow your portfolio.
Learn About Real Estate Investing
In order to become successful in the real estate field, you truly cannot underestimate the power of learning about every aspect of the industry. Luckily, there are plenty of resources, such as real estate blogs, YouTube channels run by experienced individuals, or even podcasts that you can use to your advantage.
You can study up on the crucial steps that need to be followed to buy a rental property, learn what drives the growth of property prices, and make sure that you’re always staying on top of the current trends that rule the housing market to know what’s likely to affect your future investments. There’s no way around it: you need the basics to determine which investments will be the most profitable and allow you to grow your portfolio.
Aside from learning about real estate investing, you should also gather some background information about the real estate industry. Other than taking a closer look at the latest trends, it might also be a good idea to read different sources that talk about the industry’s history so you can have a full picture of how it evolved over time. This way, you will be able to better assess what changes may come in the nearest future and think about how to approach them.
Write Your Business Plan
In general, it’s advised to approach building your real estate portfolio with a detailed business plan written down. This way, you’ll have a solid foundation to rely on when setting and achieving future goals as an investor.
A solid and thorough real estate business plan should start with your investing strategy. Here, you need to decide whether you’re interested in flipping and renting properties for a long-term stream of passive income, if you want a less binding solution such as wholesaling property, or if you prefer to go with a completely different approach.
Next, it’s vital to think about your investment goals. Do you want to be an active investor or rely on passive income? Are you focused on short-term profit, or maybe you’re looking for a way to secure your financial future? Last but not least, think about your financing plan. There are plenty of different options, ranging from investing with partners to using property loans, and you need to know which one you’ll focus on.
Remember What Makes a Good Rental Property
Today’s housing market is not an easy field to navigate. Investors need to keep in mind that not every property will make for a good investment. As such, they must learn how to recognize it. You can base your judgment of a good area and property on a few simple signs such as:
• nearby amenities,
• job market,
• rent growth,
• location,
• crime rates,
• neighborhood ranking,
• property taxes.
It’s also important to bear in mind that, as an investor, you’ll need to cover numerous expenses, such as maintenance, or perform some fixes before the house is ready to be used for making money.
Pay Attention to Your Finances
Evaluating your current financial situation is one of the most important things you should do before indulging in the real estate world. This includes assessing your personal finances and considering the costs associated with running such a business.
This means that if you’ve never been good at keeping your finances organized or they tend to always be in disarray, you might need to think twice about whether a career in real estate is really for you. Real estate can be extremely profitable if done right, but it also carries a lot of risks that you need to be financially prepared for. This involves having enough money to cover the costs of buying land or properties. Therefore, before you make any vital decisions, your finances must be in order. You need to ask yourself questions such as:
• Are you in any debt?
• What’s your monthly income?
• How much do you spend in a month?
Having a clear idea of the amount of money you’ll need to kickstart your business and make the first investments is crucial. You should also think about your short and long-term plans to finance your business.
Determine Your Legal Structure
Another thing you should do before investing in your very first property and starting to build your portfolio is to decide on the structure of your business. You can choose from several different options, but, as with most things in life, they all come with their own pros and cons.
Many real estate investors begin their journeys as sole proprietorships or partnerships, but just because “most” people do so, it doesn’t mean that you should feel obliged to follow in someone else’s steps.
For instance, in general partnerships, the liability for expenses or debts falls on everyone involved. This means that if someone in your general partnership gets sued, the same will apply to you. On the other hand, limited liability companies (LLCs) can protect you in such situations. They also have the ability to designate managers without giving up any control. Overall, it’s best to consult with a lawyer before making any decisions. You can never go wrong with the right legal advice.
Expand Your Portfolio
Once you have your eyes on a perfect property, you need to be quick to secure it before others. This involves putting together a down payment, making sure that your credit score is good, and getting pre-approved for a mortgage (especially if it’s your first investment). Then, you’ll also need to negotiate with the seller and make the best offer possible, find a trustworthy and reliable home inspector, get the house appraised, and tie all the loose ends, so the whole investment comes together nicely.
You cannot allow your portfolio to get stale. Therefore, it’s essential that you don’t rest on your laurels after a few good investments and keep working to generate more cash flow that you’ll later be able to use as down payments for further properties.
In Conclusion
To sum up, building a real estate portfolio comes with its own set of unique benefits. Besides allowing you to create a steady stream of passive income, adding different properties to your portfolio is also a way to protect your assets against inflation.
It can also help you to diversify the risk, should your wealth ever be in danger. And because the vast majority of rental home expenses are deductible, expanding your portfolio is also a way to enjoy many tax benefits. Don’t wait up and start building your own portfolio today by following the steps outlined above.
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