A real estate portfolio collects assets chosen to achieve specific financial goals. T-Square Real Estate experts say the investors’ objectives, time horizon, and risk tolerance are the factors that determine the kind of real estate investments included in the portfolio.
Why should you build a real estate portfolio?
Building a real estate portfolio is an effective strategy for investors who want to build long-term wealth through real estate, starting with a single investment and eventually growing that one asset into several. The immediate and remote benefits of building a real estate portfolio include:
- Diversification: A real estate portfolio helps to reduce risk by preventing over-concentration in one type of real estate asset. Investing in different property types in diverse locations creates a buffer against market crashes or other problems.
- Guarantee your income: Having several rental properties in your portfolio is good for cash flow. The income from those assets can be used to pay the mortgage, as a down payment on a new property, or it can cover your bills.
- Leverage: A profitable real estate portfolio gives you an edge during negotiations. It helps to establish your credibility. Those assets are a testimonial to the strength of your financial position and business acumen.
In short, a solid real estate portfolio makes it easier to reach your financial goals. But this is if you build that portfolio in the right way. There are right and wrong ways to build a real estate portfolio. The wrong way will leave you with a portfolio that lacks depth and resilience.
How NOT to build a real estate portfolio
You are guaranteed to fail if you do the following things while building your property portfolio.
1. Treat investing as a hobby
A hobby is something you do for fun and in your free time. Real estate investing might involve fun activities like attending auctions or open houses, but real estate investing is not fun. Property investing is a business. It benefits from proper business practices like other businesses.
2. Have unrealistic expectations
Some people view property investing as a pathway to becoming an overnight millionaire. They assume property investing is easy and think they can build in a few months what others have taken years to accomplish. This kind of attitude can only be described as arrogance. You need lots of education and patience to succeed as a property investor.
3. Not creating an investment plan
The reality is that plans don’t always go as expected. So why plan if things won’t go according to plan? People think a plan is an attempt to predict the future, but it is not. A plan is a guide that helps you navigate the future, regardless of what goes wrong or right. It ensures that you stay on course with your goals and objectives.
4. Not consistent or wrong strategy
Your investment strategy must align with your goals, financial capabilities, and other situation details. Trying to build a real estate portfolio without an investment strategy or on the back of a wrong strategy will lead to failure. If your investment strategy constantly changes, it is the same as not having a strategy.
5. Failing to understand the power of locations
80% of the work of ensuring the success of a rental property is done by investing in the proper location. Consistent, profitable real estate investors know the parameters that define a viable investment location. Mediocre investors, on the other hand, choose their investment location based on emotions, what the media says, or friends’ advice.
6. Failing to buy investment-grade properties
A good property investor should know what makes a rental property profitable. Not all properties can qualify as “investment grade.” Does the property have the potential to be appreciated? Is it in high demand? Will lenders be willing to give you money to buy it? These are a few questions you should ask before buying a rental property.
7. Ignoring potential cash flow from the investment
The properties you buy should be able to generate enough cash flow to let you hold onto them until they have appreciated. If a rental property is not generating sufficient cash flow predictably, you cannot keep it. Successful investors pay attention to the asset’s cash flow potential before investing.
8. Not building a competent team
Real estate investing is a team sport; investors who go it alone struggle. The solo investor will make mistakes that having the right people around could easily help to prevent. Some of these mistakes can even lead to permanent termination of their investment journey. A team of competent people helps to compensate for your weaknesses.
A portfolio of diverse real estate assets is a time-tested strategy for building lasting wealth. Is this something you have been dreaming of doing? There is no better time to get started with that aspiration than today. Our team of financial planners can help you get started in the right way.
We are pledged to the letter and spirit of U.S. policy for the achievement of equal housing opportunity throughout the Nation. See Equal Housing Opportunity Statement for more information.