6 Tips For Building Your First Investment Portfolio

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There is something for everyone. There are various ways through which you can invest in real estate. But if you’re looking to accumulate long-term wealth through rental property investments, learning how to build a real estate portfolio is the first step. But what is a real estate portfolio?

It’s a collection of various investment assets that are held and managed to achieve a financial goal. It’s a strategic catalog of current and past real estate deals to earn monetary returns.

Keep in mind that not every real estate portfolio will look the same. The items considered as part of your portfolio will generally depend on a combination of factors such as your objectives and risk tolerance.

When consulting financial property management companies such as Techvestor, consider how to build a real estate portfolio for your short-term rentals. Think of the expected amount of time you intend to invest. This will help you to think of the risks versus reward approach that you aim to take in achieving your goals.

Risks and rewards are intertwined with real estate investments. So the risk tolerance will ultimately be guided by someone’s willingness to lose some or all of the original investment in pursuit of their financial goals.

Building an Investment Portfolio 

Setting up a sustainable long-term investment portfolio is not as easy as picking a few blue-chip stocks. The process is a thoughtful and holistic endeavour. One that requires you to weigh many variables in your life circumstances. You also need to plan out which assets to select and then insert some ground rules for success.

Let’s guide you now on how to build your first investment portfolio.

  1. Choose Your Primary Real Estate Portfolio Strategy 

It’s advised that you have six months’ worth of mortgage payments saved up when buying rental properties for investment purposes. If you go for conventional financing, your lenders will need this.

Having an emergency fund will also protect you from vacant positions. That’s especially if you are investing in short-term rentals as a beginner.

Regardless of the rental property investment strategies you choose, you must be able to evaluate deals. And what do you think makes a good deal? You must put population growth into consideration.

We recommend that you partner with techvestor.com or any other property management company to manage your property. You can also choose to handle the management of your rental properties by yourself. You must, however, note that, with financial advisors, your property will generate an annual return on investment of 20 percent.

Keep in mind that while property managers add to your costs, they also eliminate the stress of property management. 

  1. Use Leverage to Build equity 

Remember that purchasing properties for investment requires a significant cash outlay. But the good thing about real estate is that an investor can use leverage instead of paying the purchase price yourself. You can get funds from my lender. You can also get people in your network to finance the deal.

Let’s assume that you put 20 percent down instead of 100 percent to buy a rental property using a conventional mortgage. If you have a cash flowing property, you can easily build equity in the event that your rental income keeps paying down your mortgage. You can show you can start building equity. That’s considering that you already paid off the interest. You also continue to earn a profit at the same time from the difference left after paying a mortgage.

Note that investments are assessed based on the cash on cash return. It represents your return on investment after accounting for all the expenses and loan payments.

  1. Diversify Your Portfolio for cash flow and Appreciation 

Historically, corrections and recessions happen in cycles. That means that if we are not in one now, we will be in one at some point in the future. Then there will be recovery after the correction. Considering that markets are hard to predict, diversification is very necessary. It helps you to maintain a healthy portfolio and reduce volatility.

A lot of people understand diversification in terms of minimizing risks. You can do this by having different asset classes such as cryptocurrency, gold, and real estate. But you can also diversify your real estate portfolio by spreading risk across several real estate property types.

You can, for instance, employ a buy-and-hold strategy for multi-family properties. At the same time, you can use the BRRRR (Buy, Rehab, Rent, Refine, and Repeat) strategy for a single family property. This will enable you to profit from both cash flow and appreciation while growing your real estate portfolio. 

  1. Nail down your expenses 

Some of your expenses as an investor will include:

  • Insurance
  • Budgeted repairs
  • Real estate taxes

Remember that the above kinds of expenses will apply to each rental property in an area. It’s important that you deduct some of these expenses. But it’s even better that you reduce them overall.

Note that a mistake in estimating expenses is just as bad as getting locked into a below-market rent and throwing away the profit.

The condition of the actual properties you’re considering is a separate thing. Though you may need a budget for the obvious repairs needed in an older property. 

  1. Keep Adding to Your Real Estate Portfolio

After finding your niche and honing your skills, you’ll need to keep doing the same thing over and over again. Thus, adding to your rental portfolio.

As you pay down on your mortgage, you may want to leverage it with equity. But do so carefully and do not over-extend. A lot of investors have gone under before because they were over-leveraged and couldn’t maintain rents to keep paying mortgage payments.

You can also look into a 1031 Tax-Deferred Exchange to sell profitable properties. You can then find larger or more properties to grow your rental portfolio. 

  1. Get Real Estate Knowledge

Real estate is a very complex subject. That’s considering that there are a lot of ramifications demanding specialized expertise.

If you’re a beginner in rental property investments and are not experienced yet, it can get intimidating. Reality television shows can make short term rental investing seem easy. But that’s rarely the case in real life.

That’s not to say that you must be an expert before you invest in short-term rentals or any other type of investment. But you need to hone your skills and stay informed when building your portfolio.

You may have some time and interest to dedicate to your quest for knowledge and take advantage of the benefits of real estate. In that case, your best bet may be to start with managed funds like real estate investment trusts. Here, you will provide funds but have limited decisions to make on a daily basis.

But if you want to get into the real estate investments career, you have to educate yourself on the local market. You also have to understand real estate laws and any related field. This will enable you to start more evolved forms of real estate investments like house flipping and renting properties.

Conclusion 

It’s crucial that you understand the importance of a real estate portfolio. That’s because it will help you manage and grow your long-term wealth. How to start a rental estate portfolio comes down to an investor’s overall end goal.

You may not hear about long-term rental investments in reality television shows. It is, however, a great way to generate wealth. So think about where you want to be financially several years from now. You may realize that, indeed, rental property investment is one of the ways to get there. And as such, building a rental property portfolio is a great way to start.