How to Build a Property Investment Portfolio:
The Ultimate Guide
Knowing how to build a property investment portfolio, then putting that knowledge into action, is key to succeeding as a professional real estate investor. Whether you’re interested in making it a career or are simply thinking about investing in real estate after retirement, the strength of your portfolio can make or break your intentions by either supporting or undermining your ability to grow your business. So, how do you build a property investment portfolio that reflects your professional real estate investing objectives and provides for sustained financial growth?
How to Build a Property Investment Portfolio to Grow Your Business
In short, you build your real estate investment portfolio by taking calculated risks. But, if you’ve already done the research and have decided that you’re right for real estate investing, you know this. You also know that there are some risks of residential property investment, these don’t necessarily outweigh the potential rewards–otherwise, investors everywhere would be out of a job. But what you might not know is that there are specific steps you can take to balance the risks with rewards to build your portfolio as deliberately as the pros do.
Let’s dive into the details of these steps to get you started on the right course.
Invest in Training
Before you start building your portfolio, invest in your real estate investing education. Yes, on-the-job training is important and you’ll certainly get this chance once you get out into the investing field. But, you’ll reduce your learning curve, and the potential for making career-ending mistakes, by training with professional real estate investors in a proven investing program. A good program will cover everything you need to know about finding, buying, and renovating property successfully, including how to find leads on distressed houses and rehab smartly to ensure good returns. A great program will also teach you how to communicate with homeowners, build a network, and market your property. But, because every investment opportunity is unique, the best programs out there will also offer continued guidance, either through a mentor or a professional network, or both. The quality of your training and access to ongoing support will be instrumental in your ability to invest confidently.
Plan Your Future
After your training, it’s not a bad idea to create a real estate investment business plan to get your professional objectives down on paper. Entrepreneurs, small businesses, and large corporations alike all rely on their business plans to hold their feet to the fire and help them avoid complacency. This holds true for real estate investors too. If you know where you’d like to go, how you plan to get there, and when you’d like to arrive, you have a better chance of building your investment portfolio with laser-sharp focus. Of course, you can refine your plan as you hone your investing skills. But having a clear, detailed strategy in place in the beginning, with deadlines you’re accountable to, can keep you from straying too far, or for too long, from your career goals as time goes by.
Find the Deals
When you’ve got a plan in place for building your portfolio, you’ll need the right tools to help you get and stay there. One of the most important tools you should have in your toolbox is a real estate investor lead generation system. In order to find the best opportunities to help grow your portfolio, you’ll need leads. There are a number of ways to do this, but the most effective systems find motivated sellers and bring them to you. But many real estate investors instead choose to attend sheriff and probate auctions, chase bank foreclosures, bid for government-owned properties, and even pound the pavement with lead lists. They often spend as much time spinning their wheels as they do actually buying property. Streamlining the process of finding distressed homeowners who are willing to sell at below-market rates is a better way to buy homes and build your portfolio with confidence.
Strategize Your Endgame
Planning the exit strategy for each property you buy is as critical to your portfolio’s future as your business plan is. Formulating a real estate investment strategy will help you in deciding how much to pay for a property and how long you should keep it. There will be some houses, depending on the neighborhood and on current market conditions, that make for a better buy-and-hold strategy. If the property is located within an up and coming Chicago neighborhood, for example, you might want to take on renters after the rehab and sell later when the potential returns are at their highest. But, if you find a good fixer-upper in an area where rents are depressed because the demand for homeownership is strong, then buying with the intent to renovate and sell is going to give you more bang for your buck. Each exit strategy has the potential to contribute to the health of your portfolio by providing cash flow for either the short or long term.
Focus Your Efforts
Strategizing, however, doesn’t necessarily mean diversifying. The prevailing line of thinking among many real estate investors is that diversifying helps mitigate risk. However, learning to specialize in a specific market niche, exit strategy, and one or two neighborhoods can hold more potential to reduce your exposure. The short time horizon of buying, renovating, and selling houses, in particular, allows you to take advantage of current market conditions without the worry of contending with an uncertain future. Of course, buy-and-hold deals will occasionally present themselves and there’s no reason to pass on them when they do. But, when you can get in and out of a project in three to nine months, you have the freedom to put your returns to work on another project just as quickly. And, by focusing on a couple of neighborhoods at a time, you have the opportunity to become an investor that the community gets to know and trust. So, rather than squander your time and energy by running around town or trying to take on too many investment strategies at once, focus your efforts–at least in the beginning–to accelerate your expertise.
Protect Your Properties
Protecting an investment property during the renovation and after, whether you’re holding it as a rental or selling it immediately for a profit, is another critical step to take when building a real estate portfolio. Too often investors skip over this step either out of ignorance or in an attempt to reduce costs. But, getting the right real estate investor insurance for your properties can save you from losing your future potential returns, and maybe the properties themselves, by helping you recover costs if disaster strikes. Events such as inclement weather, vandalism, fire, and flooding can happen anytime and anywhere. But, these events don’t have to have a catastrophic effect on your individual properties, or your portfolio as a whole, as long as you’ve got coverage in place to account for potential problems. In order to safely build your portfolio, you’ve got to build in protection for your assets–or risk losing them.
Work With Experts
Speaking of expertise, when you start investing in real estate, you’ll find it immediately becomes clear that building a property investment portfolio is a team effort that involves the hard work of several dedicated individuals. With a little luck and a lot of know-how behind you, every attempt at buying and renovating a property can go smoothly from start to finish. More likely than not, of course, there will be bumps in the road on your renovations. But, as long as you haven’t made the mistake of hiring an uninsured contractor, an unlicensed electrician, or a friend-of-a-friend who needs a side gig, the problems shouldn’t put your property, or your profits, at risk. Yes, you may have to learn some hard lessons along the way toward making a career out of real estate investing, but you can certainly keep the odds in your favor by surrounding yourself with the best professionals in their respective fields.
So, to make things easy, get recommendations for experts from your network wherever you can. If you don’t yet have a strong network in place, get multiple professional quotes on the desired work and always check references. Whether you need roof repair, an updated electrical system, or a kitchen renovation on your investment property, research conducted in the beginning can save you from financial regret in the end. This goes for getting a home inspection too. A licensed, professional home inspector can keep you from diving too deep into a money pit, so choose one wisely before doing any renovations.
There’s no fast track to success when it comes to building a property investment portfolio that helps you create and sustain a real estate investing career. You’ve got to put in the effort and the time. You’ve also got to take some risks. But, there is an effective course of action you can take to increase your chances of succeeding as a professional real estate investor–now and in the future.
Build Your Business With an Established Brand
When you become an independently owned and operated HomeVestors® franchisee, you’ll join a class of real estate investors who’ve been building their portfolios better and faster than many investors who attempt to do it alone. From the moment you finish your week-long comprehensive training, you’ll have access to the nationally-known lead generation marketing campaign, “We Buy Ugly Houses®”, and ValueChek®, a proven software property valuation tool you’ll need to build a growing portfolio into an enduring career. Even if a contract or renovation gets complicated, as they sometimes do, you’ll also have easy access to a large network of other franchisees, in addition to your own Development Agent, to lean on for expert advice anytime.
So, when you’re ready to build your portfolio and establish yourself as a professional real estate investor, let the HomeVestors® team help. Give HomeVestors a call today!
Each franchise office is independently owned and operated.