Real estate has shown some resilience against the pandemic of 2020 and is seen to be a valuable investment as many people shifted their livelihood into their homes. You may be excited to fill your real estate portfolio right away, however, it can be challenging to determine the right way of doing it especially if you haven’t had any experience of purchasing a property of your own. A real estate portfolio is essentially a collection of real assets both held in the past and currently under your name. Portfolios can include rehabs, investment properties, or real estate investment trusts (REITs) or mutual funds. The properties can also vary from residential homes, buildings, or commercial properties.
Building a real estate portfolio is a great way for investors to make their money work and earn more money.
With so many things to consider, it’s understandable that you’ll feel intimidated by all the terminologies and ideas that experts throw around. To get you started, here are useful things to consider:
1. Goal Setting
It’s important that you stick to one strategy when you’re still learning the ropes of the real estate industry or any business for that matter. That is why you should first determine what are the objectives of your portfolio. Ultimately, forming your own real estate business is a great way to build your wealth but it is essential to your future decisions on what you want your portfolio to achieve. You can either create a reliable revenue stream to shoulder some of the bills or obtain financial freedom with it.
Having a clear goal will help you plot out your strategy in achieving them as there are a number of ways of investing in real estate. You can buy-and-hold a property and get the profit from the rent. Or you can do a fix-and-flip strategy where you purchase properties and have some work done before you sell them at a higher price. You can also gain passive income if you invest in REIT just as how you invest in stocks.
2. Business Plan
Goals are just dreams without the right plan in place. Creating a real estate investment plan may seem daunting, but it is critical to your immediate success or failure. It helps you determine short-term goals or milestones to reaching your objectives. This is also the time to refine your strategies and cover some gaps in your initial plan.
One of the things to consider at this stage is financing. Your portfolio will have to address questions about how to seek financing for the properties, either through banks or private lenders. You will also have to determine the structure of financing for your deals and how to attract buyers for your properties.
3. Know the Numbers
The numbers are the bedrock of any real estate investments as well as it holds the entirety of the portfolio. You will have to indicate the deals you’ve made regardless if they’re good or bad. Your portfolio will have to contain details of your assets including the purchase price, holding costs, repair costs, sale price, and profit.
As part of your business plan, your lenders would want to see the associated costs and projected profits from the investment. You will need to make a summary of all the repairs and improvement costs along with the After Repair Value. Your portfolio must be able to address financial questions and must have accurate details on all figures of each investment.
4. Purchase Properties
It can be exciting to finally purchase your first real estate property. As an investor you’d want to properly allocate your assets based on the strategy you’ve set out in the beginning. You will need to fill your portfolio with the right combination of properties that will help you achieve your goals with the right amount of risk you’re able to take. This takes into account your main strategy and the risk tolerance you have. If you want to get greater results, you may want to take more risks but if you want to make safe bets, you’d want to go with consistency rather than taking big swings.
When you’ve got enough properties in your portfolio, it’s time to consider spreading out the risks. You can either diversify your real estate market by investing in different areas, diversify your asset class by including other types of real estate properties, or diversifying your investments. By doing one or all of these, you reduce your risk while maintaining a steady flow from other sectors or areas.
Managing your portfolio means managing each of your assets, especially if you’re holding on to them. You may want to hire property managers to take care of your assets or you can do it yourself. It’s important that your portfolio indicates how your properties are taken care of and what are the associated costs in maintaining them.
Building a portfolio is a great way for investors to make their money work and earn more money. Real estate provides a steady cash flow with minimal action required. Over time the properties will appreciate and increase in value which by then you’ll have to make another decision of whether holding on to them longer or if it’s time to reap what you sow.
Have you considered investing in a real estate portfolio?
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