Build Real Estate Portfolio
Real estate investments can bring you passive income, but if you want to build actual wealth, it’s crucial to look proactively for ways to grow your portfolio and maximise your profits. The more you research about real estate investing, the more ideas you’ll get about possible progression paths.
Read on to discover our top tips and tricks to expand your real estate investments portfolio. Whether you’re a new investor with a single property or a seasoned investor with an already-large portfolio, you can benefit from implementing these strategies. Let’s delve into it.
1. Knowledge Is Your Power
To make excellent decisions as an investor, you need foresight. However, this is only possible when you have a sound education in all aspects concerning real estate investing. You need to know the key terms and be able to assess the benefits and the risks of each major decision.
You also need to be familiar with housing market trends, read real estate blogs and local news and be up to date with everything that happens in this area. This will help you form intuition and make confident decisions whenever you want to purchase a new property in a good location, at the right price.
2. Swapping Properties Is an Efficient Growth Strategy
Selling your investment property to buy another property in a better location, or multiple cheaper properties, sounds like the most intuitive step when looking to expand your real estate portfolio. Except it’s not. A sale followed by one or multiple purchases is a long process that involves a lot of taxes. The best course of action if you want to give up your property for something more aligned to your investment goals is to do a 1031 exchange.
Named after Section 1031 of the IRS tax code, a 1031 exchange refers to swapping one investment property for one or several other properties, the main advantage being the deferment of capital gains taxes to a later date. There are multiple benefits you can profit from, depending on your current portfolio and long-term goals.
3. Implement the Snowball Method
The Snowball method is based on a simple concept: save your net income from current investment properties and use the money to acquire more investment properties. This method is more effective if you repeat the process every time your rental savings allow you to purchase a new property.
If you stick with this method for many years, your cash flow will gradually increase over time and you will build significant equity. This is a slow but sure way to increase your real estate investment portfolio and even include larger, luxurious or better-located properties.
4. Diversify Your Real Estate Investments
In real estate, it’s risky to put all your eggs in one basket. If you want to grow as an investor and have a larger and more profitable portfolio, diversifying can be the strategy you are looking for. Diversifying means buying different types of investment properties in different locations. By analysing the performance of each property in your diverse portfolio, you can determine which type of property brings the best cash flow. You can then use this information for further expansion.
Since housing market fluctuations and trends are difficult to predict, a diverse portfolio will ensure stable profits even in times that cause other investors great distress. A housing market crash is unlikely to affect all types of properties at the same time, so diversifying is a good way to mitigate risk.
5. Consider the BRRRR strategy
Buy, Rehab, Rent, Refinance and Repeat, or BRRRR, is one of the most common growth strategies in real estate investing. It means to buy a property, pay the mortgage and, as you build equity over time, refinance the property so you can purchase another one.
Just like the Snowball method, BRRR works well if you repeat the process across several years. Your portfolio will gradually expand to include multiple rental properties. However, unlike the Snowball method, there are a few risks here. If a property stays vacant for an extended period, you still have to pay the mortgage. Besides the risk of lower cash flow from time to time, investment property financing can bring positive results in the long-term.
If you have an investor’s mindset, you’re always thinking about growth. An initial cash investment and large capital can make a huge difference in how profitable your property investments will be. But there are ways to expand even without instant access to large sums of money. The journey might be slower, but the destination is the same: financial independence and passive income.