Are you new to the world of real estate or looking for real estate investment tips? If so, it’s important you know how to build a successful real estate portfolio. However, you can’t build a real estate empire simply by buying up any available properties. Instead, there’s a methodical process you should follow when building a portfolio of investment properties. For those looking to get started in investment real estate, follow these five steps to building a real estate portfolio.
1) Take the Time to Understand Real Estate Investing
We get it — investing in real estate is an exciting venture. Maybe the perfect property caught your eye and that’s what got the wheels in your head-turning. To be successful in this market, you need to understand the ins and outs of the job. Consider all that goes into it — from sourcing tenants and increasing property value to managing day-to-day operations.
There are a variety of ways you can learn about real estate investing. Get started by reading real estate blogs, joining local real estate investing groups, or listening to commercial real estate podcasts. Understanding common real estate jargon and market trends can help you make smarter investments.
2) Build a Real Estate Portfolio Business Plan
The goal of any real estate investor is to drive profit from your various real estate investment properties. Because your goal is to build wealth, you need to treat real estate investing as a business. Take the time to create a business plan that outlines your process and plan for success. Your business plan should include:
- Goals and Objectives – What are you trying to achieve with real estate investing? What goals do you have for building and diversifying a real estate portfolio? Do you plan to be an active investor or take a more passive approach? How many investment properties would you like to obtain within your portfolio? Ask yourself these questions and create clear goals and objectives for yourself that you can work towards. All your goals should be specific, measurable, achievable, realistic, and timely. If they aren’t, you may not be setting yourself up for success.
- A Financial Plan – How do you plan to finance the investment properties? Put together a plan for how you plan to raise enough capital to begin building your real estate portfolio. Do you have access to enough liquid funds to buy the properties outright? Will you need to finance the properties through a lender? You will also need to factor in any costs associated with managing, maintaining, and improving the properties. Having a clear understanding of your financial plan is of the utmost importance for successful real estate investors.
- Strategy – Now it’s time to piece together the strategy you’ll use to hit your financial milestones. Turn your investments into profits by laying out how and where you will be spending your time. Understanding the different investment strategies allows you to create a game plan for growing your real estate portfolio.
3) Purchase Your First Investment Property
Your first real estate investment sets the tone for your entire future real estate portfolio. Choosing the right property, in the beginning, can set the stage for additional real estate opportunities moving forward. It’s time to start looking at properties on the market in the area you’d like to invest in.
As a first-time investor, we recommend starting small with your first property. Don’t jump in headfirst and purchase a large multifamily property or sizable commercial asset. Instead, you should start with a small single-tenant property. Doing so will allow you to get your hands wet without getting too far in over your head. When making an offer, you need to consider the list price, monthly mortgage payments, improvement costs, insurance costs, and the negative impact of vacancies. Focus your efforts on a small-scale property that will allow you to get confident in the real estate world.
A commercial real estate broker can assist you in finding a property that best fits your needs and investment goals. They have the local market expertise to help you determine what will be a wise investment decision.
4) Acquire Additional Investment Properties
Eventually, you will want to begin acquiring additional investment properties. You will need to secure funding to purchase promising investments as they appear on the market. Use one of these methods:
- The Snowball Method – Use the cash flow from your initial investment property and use it to acquire more investment properties. Calculate the amount of cash being generated each month from your property. When you find a property that you want to purchase, use the profit you’ve saved to make the purchase. You can also plan how long it would take for you to reach a down payment using only your profits.
- The BRRRR Strategy – Using the BRRRR strategy, you will Buy, Rehab, Rent, Refinance, and Repeat. To do this, purchase a property under market value and fix it up. Then, lease it at a rate that pays your monthly bills and earns a profit. Eventually, you can refinance the property and get back your original capital to purchase another property.
5) Diversify Your Real Estate Portfolio
Once you begin adding more investment properties to your real estate portfolio, you want to make sure you consider diversification. By repeatedly making the same types of investments, you may face consequences as the real estate market fluctuates. Protect yourself from market fluctuations by diversifying your portfolio. Do this by purchasing properties in different locations, investing in various asset classes, and investing in REITs.
Work with Our Team of Trusted Commercial Real Estate Brokers
Investing in commercial real estate is a big decision. It can be a great choice for many investors looking to diversify their portfolios and avoid stock market fluctuations. Since commercial real estate investing is a much different process than investing in companies, having a specialized real estate broker on your side is critical.
Luckily, you can have a Price Commercial Properties realtor by your side to walk you through the process. We can help you learn and understand the important aspects of commercial real estate investment. We will help find properties to support your investment portfolio and your future goals. Here at Price Commercial Properties, we support investors of all sizes and experiences. We know this opportunity is an important part of your plan to secure your financial future and we can provide you with the information you need to make the best decision. Ready to get the inside scoop on investing? Contact us today!