A real estate portfolio is a way to compile your experience as a real estate investor and present it in a single document that displays the list of your past and current real estate assets. It’s a resume that gives other people a quick overview of your unique approach to investing in real estate.
Every property investor needs a real estate portfolio as it tracks your real estate investment journey. Your real estate resume puts your competence on display for anyone – potential partners or lenders – to assess.
How do you put together a real estate resume?
It’s not as hard as it sounds. If you are a longtime property investor, you already have the materials; they just need to be assembled into a usable document. On the other hand, new investors have the fortune of being able to start the process from the start of their investment journey. You can check out this property management and investing glossary to learn more about the topic.
Tips for building your real estate portfolio
1. Keep detailed records and notes
A saying goes, “the longest memory is shorter than the shortest pencil, and the bluntest pencil is sharper than the sharpest memory.” The point is to make a habit of documenting things. But it is not enough to simply record facts and figures. The path you take to reach a decision is also important.
Take down notes that explain your observations and point of view on any investment; this is what tells the stories behind the facts. You can easily track your growth as an investor by going back to those notes.
2. Pay attention to your local market
Local insight is invaluable for assessing the viability of a property before you buy it. Your local real estate market is your best chance to see a housing market up close and come to grips with the realities of owning an investment property.
Here, you will see how different factors interplay to determine the overall performance of your investments. You will be able to identify vital sources of up-to-date information about the forces that influence the market. This information will give you the tools to stay one step ahead of changes.
3. Start small
If you are a new investor, this is good advice regardless of your competence in other areas. Managing an income property is a multifaceted endeavor that requires you, the investors, to wear various hats in a single day.
It takes some time to acquire the know-how to manage multiple rental properties effortlessly, and there will be inevitable missteps along the way. Starting small helps you minimize the impact of these unexpected events.
4. Understand real estate financing options
At some point, you will need to talk to lenders. It helps to have options when you do this. The more you know about financing options, their approval requirements, and the cost of that capital, the greater your negotiating proficiency.
When trying to finance an investment property, the usual options are conventional bank loans and hard money loans. These have very different terms, with one option being more suitable for short-term borrowing than the other. Knowing which financing option to use for each investment will help you make the best use of the money.
5. Know your numbers
The numbers tell the story. The location and physical appearance of a property can fool you. It is possible to go wrong when you base your judgment on these two. But you can never go wrong looking at the financials of a potential investment such as:
- The 1% rule measuring a property’s price against its projected income.
- The potential return on your investment, whether it be cash returns or appreciation.
- The property’s economic occupancy; the potential versus actual rental income.
- Its monthly operating cost: what it costs to keep the property operational
- The cost of improving the property.
6. Prioritize exponential growth over linear increases
When the value of an investment increases exponentially, its price experiences spurts of growth over a relatively short period. This is different from linear increases, where the value of the investment grows at a steady pace over a longer period. The problem with investing in locations that offer exponential growth – like the coastal markets of California or New York – is they are subject to boom and bust cycles. But they can dramatically increase your profits in a short time, unlike markets where growth is smooth without major spikes or declines.
7. Buy, Rehab, Rent, Refinance, Repeat (BRRRR) vs. The conventional path
In the conventional path, you buy a property using cash or mortgage financing and rent it out to earn rental income. To buy another property with this method, you must apply for another loan or save enough cash to invest. But the BRRRR method is different. Here, you find a distressed home, buy and rehabilitate it, rent it out, and then refinance it to repeat the entire process. This method lets you grow your portfolio of properties at an accelerated rate.
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