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Being your own boss has never been easier!

Investing in real estate could be the best decision you’ve ever made.

Not only do real estate investments provide you with a passive income and steady cash flow, they also generate long-term wealth and, subsequently, financial security.

What is a real estate portfolio?

A real estate investment portfolio is a collection of property assets owned by an individual or group, also known as real estate investors. It is a strategic profile that outlines the investor’s total real estate holding and their financial goals. 

Finding two of the same real estate portfolios is not common. Each one is generally unique and personalized according to the investor’s goals and achievements. However they all serve the same purpose. They pave the way for investors to reach financial freedom through real estate.

If your goal is to save  up for retirement, having a real estate portfolio could be a huge benefit to you.

How to build a real estate portfolio

Whilst real estate investment portfolios are unique, they all follow a similar structure.

Listed below are several steps to guide you when building your real estate portfolio.

Remember having a well put together portfolio is crucial for your success.

Have a clear goal in mind

The purpose of a real estate investment portfolio is to help you achieve your goals, but in order to do that you need to first have a clear vision of what you want to achieve.

A clear goal will help put you on the right path and make your decision making process a whole lot easier! It will help you determine what to invest in and how long you should keep your investments for.

A great tool to help set your goals is using the SMART (Specific, Measurable, Achievable, Realistic, and Timely) strategy.

Choosing a long-term or short-term rental portfolio

When choosing rental properties to invest in, it is important to take the following into consideration: The amount of income you want to receive and  how much  time you are willing to spend on your investment.

Long-term and short-term rental real estate portfolios come with their own benefits which I have highlighted below. As an investor you need to be aware of both investment strategies before you make a decision.

Long-term rental

Long-term investments consist of tenants who rent on a long-term basis. It is common for these tenants to sign an annual lease but month-to-month rental is also permitted.

Because tenants live on the property, you are guaranteed a consistent rental income. You won’t need to worry about experiencing high and low seasons, as you will be getting a set income every month. Another benefit, which is a common concern for many investors,  is that you won’t have the headache of looking for tenants.

Tenants also usually pay the utility bills such as water and electricity, so it doesn’t come out of your pocket. 

These rentals are also easier to manage and can save you a lot of time. For example, you don’t need to spend money on advertising your property for rent.

If you’re looking for an investment where you can sit back, relax, and reap the benefits, then long-term rentals are for you.

As an added bonus – property management company fees are generally minimal because there is less turnover, maintenance and marketing costs involved.

Short-term rentals

A Modern A Modern House Near the Green Grass with Green Plants Under the Blue SkyHouse Near the Green Grass with Green Plants Under the Blue Sky

The benefits of short-term rentals can be intriguing to investors who want to yield a higher income.

If you have a property in a holiday hotspot you could bring in more rental income over a short period (like a week) than a long-term rental could bring in over a month. That said, this rental does come with higher property management costs, but the higher income far outweighs the additional expense.

A property manager also has additional benefits. For example, maintenance issues are identified and dealt with on time before they become more costly and concerning. This is a big advantage for investors, because maintenance costs can become overbearing.

The best part of short-term rentals, however, is the ability to change the price as you deem fit. For example, raising rent during peak seasons like Christmas and lowering it when it gets quieter in February.

Best of all, because you don’t have permanent tenants on your property, when the property is empty, you can take your family on vacation free of charge!

Short and long term rentals at the same time

A third option is that investors could also combine the two to bring in more rental income. For example, with short-term rentals you could offer long-term periods of rent during the off peak season. This helps to maintain a consistent income throughout the year!

Develop a real estate investment business plan

Once your goals are clear and you know what type of investment strategy you want, you need to create a real estate investment business plan.

A business plan sounds like a lot of work, but don’t underestimate the value of having one. It is your map to success and will become a step by step guide to reach your real estate investment goals.

Business plans attract and retain investors, because it provides them with a clear detailed outline of where you are heading. So it’s great to have one if you plan on getting investors on board in the future.

Buy your first investment property

You’ve gained some real estate knowledge and you have a business plan on hand, now it’s time to start investing!

It’s always best to have real estate professionals to guide you, with their extensive knowledge and experience. 

If you’ve set your eyes on a property that you feel is a great investment opportunity, conduct an investment property analysis first to see whether it is feasible.

There is nothing wrong with starting small. You may want to first buy a single family house or a small apartment.

Don’t forget to budget for all the costs that come with an investment, like management fees, improvement costs and home insurance.

Keep in mind that your first property is the key that opens the doors to other investment opportunities in the future. So choose wisely.

Accumulate more properties over time

To create a real estate investment portfolio, it is important that you continue to buy investment properties over time. Be an active investor. You need a steady monthly cash flow  coming in so that you can grab an investment opportunity as soon as it becomes available.

Below are three ways you can generate money from your first investment to buy more properties.

The Snowball Method

This is a tried and tested method that has helped new real estate investors all over the world create and maintain a steady real estate portfolio over time. 

It works by using the cash flow that your current rental property generates and putting it towards buying more rental properties to help grow your wealth.

The 1031 Exchange

When real estate investors sell properties they often have to pay hefty capital gains taxes, this means having less money to put towards your next property investment.

However with the 1031 Exchange you can build your real estate portfolio by trading one property for another, completely free of real estate taxes.

The BRRRR Strategy

BRRRR (Buy, Rehab, Rent, Refinance, and Repeat) is a process to build your real estate portfolio from scratch.

You buy your first investment property and then renovate it. Then you rent it out and it generates a monthly income to help cover the mortgage payments. You can then refinance your property to buy your second property. You can repeat this process as many times as you like.

Diversify

Putting all your eggs in one basket is risky, especially in the real estate industry.

The real estate market constantly fluctuates. To prevent yourself from hitting rock bottom in the event that the market crashes, it’s best to create a diversified portfolio with different types of property investments.

I’ve mentioned two ways real estate investors can diversify their real estate portfolios. Here are several more.

Invest in various locations

Don’t only invest in the location you stay in, look at investment opportunities in other profitable real estate markets in surrounding areas. For example, you live in Orlando, Florida and you buy an investment property because the housing market is thriving. To diversify your real estate portfolio you should look at investing in Naples, Florida for your second property, because their market is at its peak and they have plenty of pet-friendly places.

Invest in different asset classes

When the real estate market suffers a blow often the whole market doesn’t sink. More often than not only one asset class will be affected. This is why diversifying your investment portfolio in terms of asset classes is extremely important. For example, instead of only investing in multifamily apartments, try looking at investing in retail real estate or commercial real estate properties as well.

Financing your investments

Do you need to have money on hand to invest in real estate?

No. There are a number of strategies investors use for financing their real estate investments. You need to see which works best for you.

Some real estate investors prefer to pay everything in cash, while others prefer to take out a mortgage.

A mortgage is a type of loan that you pay back over a period of time. It requires you to pay a certain percentage of cash as a down payment and make regular payments thereafter.

Federal Housing Administration (FHA) Loans and 203k loans are government loans that require a down payment of only 3.5%.

There is also hard money that is obtained from private money lenders. They do not require any income verification but have a high interest rate of 8 to 15%. To find a hard money lender, speak to your real estate agent or property manager.

These are just a few of the many ways to finance your investments.

Natural spring landscape on background of old building

Measuring the success of your portfolio

The best way to measure the success of your real estate portfolio is to get a portfolio manager on board.  They will do an initial investment audit and provide you with tips on how to make your portfolio stronger.

That said, you can also measure the success of your real estate portfolio by yourself.

Below are a few ways you can calculate your portfolio’s success.

Net cash flow

This is basically your property’s annual profit. It’s the annual income minus the annual expenses. When you’re subtracting the expenses, be sure to include your debt service payments.

In a nutshell, the net cash flow will tell you whether your property is successful or not.

Cash-on-cash return

To calculate this, take your net cash flow and divide it by your initial investment. This calculation will show you your property’s performance in real time. You can also use this to compare your property to other properties on the market.

Appreciation

If properties in your area are appreciating at a good rate, then it is better to keep your property instead of selling, even if your income is limited. In the long-term the value of your property will increase.

Ideally the appreciation rate should match, or be more than, the national average. 

Real Estate Investing Risks to Avoid to Protect Your Finances

Real estate investments are very attractive but it is important to be aware of the risks.

An unpredictable market

The real estate market is constantly changing and that is why it’s important to diversify your portfolio. Invest in different asset classes and  locations, this will protect you financially. In most cases properties appreciate, but there is a chance they may depreciate as well which often occurs during an economic downturn.

Troublesome tenants

While it is important to fill up vacancies, sometimes having no tenant at all is better than having a problematic one. Bad tenants can financially and mentally drain an investor by not paying on time, being destructive, or annoying the neighbours.

Negative cash flow

Cash flow refers to the remaining money after paying all the expenses, including mortgage costs. So how does it become negative? This happens when your expenses exceed your income. You start losing money when you have a high vacancy rate, your rent is too low, and the maintenance costs are too high.

Conclusion

Building your own real estate empire can help you reach your financial goals. Start generating long-term wealth now by browsing our breathtaking properties.

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