How to Build a Real Estate Portfolio

Real estate investing has been one of the most reliable ways to generate long and short-term income. Since every person needs a roof over their head, it’s an asset that will always have value. With the right strategy, you can create an excellent real estate portfolio that’s diversified against risks and designed to produce the best cash flow possible.

So how do you go about building a real estate portfolio? Today we will provide some tips for investing in real estate and taking your portfolio to the next level.

Choose The Ideal Market

You have a world of possibilities when you start from a blank slate. What kind of an investor do you want to be? A wholesaler, house flipper, or landlord? Or, do you want to do a bit of each? 

You may want to stay local and be completely hands-on with your investments, or you may want to diversify your portfolio and use a national property management company to keep track of your rent and tenants. No matter what you prefer, choosing the markets for your real estate portfolio is one of the most critical steps to success.

It would be best if you spoke with local real estate agents to understand the market in which you invest. They will show you the types of properties available and if they offer advantages to real estate investors. For example, distressed properties in your target market are some of the best real estate opportunities because they are often sold below market value.

Also, does the market in question have growth potential, or is it a place in decline with a lot of vacancies? What are the local trends that residents gravitate towards? Are there any local laws related to renting or flipping properties that you should be aware of before committing to the area? Familiarizing yourself with the market will help you find the right properties that fit your budget and goals.

Start Small & Learn

When you first get into real estate investing, your real estate investment portfolio should be small. Learning to manage a property portfolio takes time and patience. Though it can be tempting to take on larger projects, you need to temper your ambition and ensure that you are navigating your real estate business carefully. As you develop more experience and capital, you can make larger property investments with greater potential returns.

It’s important to start small, so you don’t overextend yourself financially — or emotionally. This is your passion and your livelihood, so many feelings will be in play as you look for renters, conduct renovations, make offers on properties, and decide on the types of real estate you want to add to your portfolio in due time.

Note: Don’t bite off more than you can chew

Every investor starts somewhere, so don’t worry about being a beginner. It’s important to start slow as you learn the ropes. Start out by purchasing one or two rental units, or just one house to fix and flip. Hire a property manager to offload the lion’s share of communication and customer service to free your time.

If you prefer to flip houses, it will also take time to find contractors you trust who can perform work at acceptable prices to make a decent return on investment possible. Through practice with your first property, you will get better at what you do, and you can keep on building upward. Then, when you have a few successful projects under your belt, you can move on to use even more complex investment strategies.

Diversify Your Investments

Diversification is a tried-and-true hedge against the whims of market ups and downs. Since every investor’s journey is unique, diversifying your portfolio may look different compared to another investor. For instance, you may prefer to stay local but then reduce risk by investing in other real estate assets like real estate investment trusts (REITs) or diversity by property type, like owning single-family homes and multifamily properties.

Or you may be able to have properties in multiple states and choose to diversify by location. Another option is to invest in residential and commercial properties to reduce the risk if residential goes down in your area, but commercial stays strong.

Work With a Real Estate Agent

And finally, it can’t be stressed enough how important it is to work with a realtor. Building a real estate portfolio requires research and planning ahead for success— and that’s much easier when you work with an agent who understands the real estate market. Agents can show you what makes an excellent rental property vs. a flip, introduce you to their trusted lenders, make crucial negotiations, help you understand every line in a real estate contract, and much more. When you tell your agent your investment goals, they will help you reach them!

Learn How to Build a Real Estate Portfolio & More

By starting small, researching local markets, working with an agent, and diversifying your investments across asset classes like single-family homes and commercial real estate, you can build a strong portfolio. With the right business plan, your investment properties can provide long-term financial freedom for years.