A real estate portfolio is a strategic catalog of current and past real estate deals, whether rental properties, flips, or REITs (Real Estate Investment Trusts), to earn monetary returns. Although not every portfolio will look the same, the items considered part of your portfolio would generally depend on a combination of factors such as your objective, time horizon, and risk tolerance. Investors should consider the amount of time they intend to invest and the risk versus reward approach they aim to take to obtain it. Risk and reward are inherently intertwined with real estate investment, consequently risk tolerance is determined by an investor’s willingness to lose some–or all in pursuit of their financial goals.
A well-maintained portfolio will showcase your personal investment goals and strategies, the inner workings of completed deals, as well as your success/fail rate. Your portfolio can also include your buying philosophy and testimonials from other lenders you’ve worked with . When building a new real estate portfolio, investors need to pay special attention to the following aspects:
Your Objective
What do you want to achieve from your real estate assets? It is crucial investors understand their end goal before selecting assets. That said, the types of real estate investments you have in your portfolio will play a significant role in achieving your goal. The two main types of real estate investments are short and long-term investments. Short-term investments are the quickest way to increase your capital. When it comes to financial gain, the fix-and-flip method is ideal. Within 8-12 months you should see an impressive ROI depending on the scope of the project. It is important to note that this strategy requires a high degree of time-management.
The alternative is the opposite of the fix and flip model but can be just as effective. The long-term rental (30 years) is an efficient way to build passive income and typically requires less work up front than your typical fix-and-flip project.
Available Partnership Opportunities
Asset Allocation
Another essential part of learning how to build your real estate portfolio is asset allocation. For investors, this includes determining the appropriate asset allocation model for your goal. Although a complicated task, real estate investors should select a combination of assets that possess the highest probability of meeting their goals at the risk-level they desire.
As mentioned earlier, the appropriate asset allocation factors into account your overall strategy, as well as risk tolerance. Looking for larger returns? Investors will need to select riskier investments to achieve those results, while others seek safer bets, bypassing bigger gains for consistency. That said, the greater the risk the more aggressive your real estate portfolio will be.
The Numbers
Building a propety investment portfolio hinges on one simple aspect: the numbers. These numbers are the foundation of any real estate investment. Therefore, your real estate investment portfolio should comprise of your investment assets broken down by purchase price, transaction/holding cost, profit, repair cost, and sale price.
The next aspect of building a real estate portfolio is financing. How did you source the financing of your deals? How did you find a buyer for the property? These are important answers lenders want reflected on your real estate portfolio.
Finally, including the improvement costs, as well as monthly operating costs provides lenders with a snapshot of the affiliated costs of each project. This also demonstrates how you leveraged that money to earn a profit. As an investor, documenting all repairs and improvements made to the property ensures an accurate, up-to-date real estate investment portfolio.
Property Management
Lastly, when holding onto properties, investors will have the option to either hire a property management company to oversee the investment or become the landlord themselves. Whether you have a designated property manager or not, your real estate investment portfolio should include how your investments are being cared for, as well as the added cost associated with their management.
Benefits of Building a Property Investment Portfolio
There are multiple benefits associated with building a real estate investment portfolio to anyone who wishes to build their wealth. Many long term real estate investments provide a consistent cash flow. By adding a rental property to your portfolio, you can utilize the passive income to pay down the mortgage debt that was used to purchase the property. With time, properties added to your investment portfolio appreciate in value and help hedge against inflation. Additionally, Expanding your portfolio can help diversify risk while allowing you to have a sense of control while doing so. Finally, building a real estate investment portfolio offers many tax benefits.
