When you’re interested in growing your real estate portfolio, you need to understand that it’s not as simple as gathering more acquisitions into your portfolio. There are other ways to increase the size and strength of what you own.
It starts with your investment goals. Have you met them all? If so, it may be time to think more strategically about what you want to do next.
Your real estate investment portfolio, whether it’s growing or stalled, has the potential to continue earning wealth, as long as you make the moves that are necessary to keep it profitable. Smart investors will always be thinking about the next best move.
We work with new and growing investors all the time, and we understand that there’s no single piece of advice that will immediately take you to the next level. We do have some insight, however, on how to grow a real estate portfolio in a way that’s smart and sustainable.
Here are some tips.
Remember You’re Running a Business
Even if you own only a single investment property, you need to think about that property like a small business.
Real estate can sometimes be emotional, and even experienced investors can often find themselves raging or weeping because of property damage, evictions, and deals that never closed.
But what you really have to remember is that your real estate portfolio is a business. If you want to continue growing, you need to treat it that way.
Look for the Right Investment Properties
Smart investors grow by investing in the right properties. When you decide you want to increase what you own, it’s tempting to grab at anything and everything. That’s not a good strategy for growth, and you’ll probably end up losing money.
Instead, consult your investment goals and find the right investment that will bring in some great short term cash and long term returns.
The right investment is a home that tenants will be interested in renting.
Look at every potential acquisition from the standpoint of your ideal renter. Make sure you’ll be able to charge the amount of rent you need to ensure the investment makes sense. Consider your expenses; will a lot of work be needed? Are there cosmetic improvements only, or will you spend months making repairs before you can even list it on the rental market?
Growing by acquisitions should be about quality, not quantity. You’re building a portfolio of value, not simply a portfolio full of properties. Forget trying to keep up with other investors and make strategic decisions that reflect profitable growth and high-performance outcomes.
Can You Leverage Your Current Assets to Grow?
Equity is pretty powerful, and if you already own a profitable rental property, you can leverage the equity in that property to acquire another.
Use the wealth you’ve already created to buy more property and increase the value of your combined assets. When you borrow against the equity in the home you already own, you don’t have to spend the cash you have available to buy the next property. Your down payment is the equity you already own.
Don’t waste time acquiring properties that won’t increase in value. The faster you can earn on the real estate investments you already own, the faster you can continue growing your portfolio.
Diversify Your Real Estate Portfolio for Optimal Growth
Whether you’re investing only in real estate or in stocks and bonds as well, you’ve likely heard this advice before: diversify.
When you diversify, you eliminate risk. It’s also easier to encourage growth when you’re working with a diverse real estate portfolio.
Diverse real estate assets allow you to take advantage of strong market trends in specific industry sectors and regional markets. For example, moving your investments from high-priced coastal cities to second-tier markets like Memphis, Phoenix, or Austin can result in a much stronger portfolio simply because you can buy more with the money you’re spending. Instead of putting all of your investments in downtown San Diego, look further inland to some communities that might make great investment opportunities.
Never be afraid to step outside of your comfort zone, whether we’re talking about property type or location. As long as you’re supported by experts like local property managers, you’re setting yourself up for success.
If you have traditionally invested in single-family homes only, a great way to both diversify and grow your portfolio is by looking for opportunities to invest in multi-family properties or even an entire building. Perhaps some commercial real estate will help you grow. Look for a different geographical region, or diversify how you finance a property purchase.
Try the 1031 Exchange
Grow and diversify your portfolio by working with a 1031 exchange. This is a lucrative way for investors to earn more money, defer some taxes, and grow their investments.
Under the 1031 exchange program, you can sell one property and then defer the capital gains taxes on it by investing the proceeds into another property (or several properties) that are similar. By “similar,” the IRS simply means that it has to be another income producing property.
This is a great way to unload an investment that may not be performing the way you want it to. Or, you can increase the size and strength of your portfolio by selling one single-family home, for example, and buying a couple of duplexes. There are a lot of options, and you can find yourself in a much stronger position after completing a 1031 exchange.
Always work with a qualified intermediary and make sure you’re aware of the timelines and restrictions.
Increase Rental Values by Improving Properties
There’s another way to grow your real estate investment portfolio with the investment rental properties you already own. Consider increasing the value of those homes.
This might mean doing a total renovation to add some bedrooms or finish a basement. It might mean making smaller, cost-effective upgrades that will increase rental value. These updates and improvements will increase both the value of your property and the rent you are able to earn.
If you’d like to hear some ideas that are specifically tailored to your current investment portfolio, please contact us at North County Property Group.