Establishing and growing your rental portfolio, Guide, Building Design Tips, Online Advice
Tips for Establishing and Growing Your Rental Portfolio
22 Jun 2021
With the U.S. economy rebounding strong after last year’s calamitous, pandemic-driven recession, it’s a great time to invest in rental properties. People are once again on the move, relocating to new states and cities and eager for satisfactory rental housing. But while a healthy rental property portfolio can generate a steady revenue stream, don’t assume you’ll be reaping profit right off the bat. To establish and grow a profitable real estate portfolio, you’ll need a focused, responsible, realistic, and informed plan of attack; otherwise, you’ll fall behind and struggle like so many other would-be landlords.
Investment real estate isn’t cut-and-dry. Don’t be fooled by the hype; if you’re not sure what you’re doing, you’re just as likely to saddle yourself with a costly property as you are likely to purchase something that gives back every month while steadily appreciating in value.
Before you do anything, create an investment plan. Compose a list of viable candidate properties — properties that are demonstrably profitable — and use them as a reference when determining what type of financing you should look for.
It’s important to understand the legal habitat of real estate in the area where you plan to invest. State and local real estate laws will hurt you if you’re not familiar with them, but if you know the rules, you’ll play better.
As a landlord, you might have to weed through dozens of potential tenants. It’s never good to be lazy in this department. When you have a property in mind and lined up for purchase, start thinking about your financial standards for renters. Do some research on how best to screen prospective tenants and which background check services meet your needs.
Work With an Agent
Regardless of how informed you are, or how informed you think you may be, it’s always better to employ a real estate agent than it is to dive headfirst into the process of securing an investment property.
A real estate agent who holds a state license and can provide a record of successful investment acquisitions will help you make the right moves as you expand your portfolio. Real estate agents will usually have the experience and training to navigate the formal side of property deals, likely giving you access to more favorable contracts.
Some of the most diverse and lucrative real estate portfolios are the result of investment partnerships. Real estate investment requires much more up-front capital than other investment types, and even if you have a system in place to funnel profits from one property into another, your growth will be slower alone than with a helping hand.
Partnering on an investment portfolio will not only increase the amount of available startup cash, it will also reduce your individual responsibility as a property owner. Being a landlord can be tough, with new problems poking their head up every day; if you spread that burden across two investors, you’ll have less stress and more time for yourself, your family, and your other occupations. If you can, forge a partnership with an experienced investor who can serve as a mentor as you begin your investment career.
Hire a Property Manager
It’s not uncommon for beginner investors with one property under their belt to avoid hiring a property manager. It may seem tempting. After all, it’s just one property — how bad could it get? But as it turns out, things can get bad, and they can get bad quickly. At the end of the day, you’re one person, and if you’re out of town, at work, or otherwise incapacitated, your tenants won’t have anyone to call when faced with a repair issue or other problems.
That’s why you should hire a property manager. Property managers come in all shapes and sizes, from one-man armies to massive agencies operating in multiple states. Larger firms like Utopia Management who span 4 states on the West Coast, handle portfolios big and small with ample resources and infrastructure to suit investors.
A good property management firm will handle the tenant-facing end of the business so you don’t have to: screening prospective tenants, holding interviews, drafting leases, and addressing any tenant complaints or requests. When things go irreparably south, your property manager will be the one to enforce lease violations including evictions. With a property manager, you won’t have to personally worry about labor time for repairs and regular maintenance, freeing up more of your time. And when it comes to filling vacant units, large property management firms often have the means and the know-how to effectively market your rental online and in the community.
Diversity is King
As you begin to grow your portfolio, start to think outside the box. While it’s always best to stay within a familiar area when breaking into real estate investment, you can still thrive and diversify without expanding too far outside your comfort zone.
Instead of racking up several of the same type of property, try venturing into something different. Single family homes are usually in demand, but if you own three or four, why add another? Use that investment cash on multi-family housing, future-proofing your portfolio in the event an economic downturn makes apartments more appealing than houses in your area.
You can take it a step further for your next investment and forego another residential property for a commercial one. Commercial rental properties are an underrated form of real estate investment that most beginner investors ignore completely. Commercial tenants, most of them business owners, are more likely to sign leases with terms longer than the standard 12 months of a residential lease. At a time like now, with the U.S. economy poised for significant rebound, business owners are once again confident and eager to return to full operation, and that means they need commercial space.
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