We have all heard the same investment advice. If you want to diversify your portfolio, get into real estate. From veteran stock traders to recent retirees looking for a steady income stream, purchasing residential and commercial properties is becoming the safe and stable avenue toward financial wealth.
For some investors, they are not interested in the single property flipper craze where they just purchase a fixer-upper and renovate it to rent the home out to relatives. Instead, you want to develop a real estate investment portfolio where you buy and hold numerous properties for a time until the real estate market heats up to where you can get a significant windfall at the closing table.
While there are significant gains in creating a property portfolio, there are also mistakes to be avoided to keep your sanity and your finances afloat. Here are top 4 problems you should know about so you can build the real estate portfolio you desire:
1. Not Deciding on an Investment Strategy
One mistake is simply going in blindly all because you saw someone on a real estate show make a success doing it. Building a real estate portfolio requires time, research, and financing. It also requires having a set strategy in mind.
Are you getting involved in residential investment properties, commercial properties or mixed use? Do you plan to do short-term rentals with the option to purchase or long-term rentals? Perhaps you want to do a mix of long-term rentals and flipper properties?
There are numerous investment strategies out there for people who are just starting to build their portfolios. Figure out the right one that will fit your present finances and your future goals.
2. Having No Secure Backup Financing
Most people look at investment properties as a way for the real estate to pay for itself, but these kinds of purchases are a lot different than the average buyer’s purchase. Many oversimplify the process: Buy a rental, get income, use part of the income to pay for the mortgage and maintenance while using the rest of the funds to purchase another property. Do this same step 5 times to build enough equity where the first two rental property incomes or sales can go directly into your pocket.
Yet anything can happen to where you run out of money trying to build your investment portfolio. You can underestimate resale values or rental values, pick a bad location to purchase property, not factor in large repair bills, or not saving enough for future capital expenses like a furnace system or roof. Not only should you ensure that you have great financing when you start purchasing investment properties, but that you also have a backup financing option or savings to bail you out for unexpended emergency costs.
3. Moving On to the Next Investment Opportunity Too Soon
Hot real estate tips can come to you at any second. The sooner you jump on the opportunity, the better your chances are of getting the deal before anybody else. Unfortunately, jumping too soon into that next opportunity before the ink is dry on the last one can lead to significant problems.
Too often, a new investment property can sit forgotten because the investor is dealing with many other properties at the same time. They always mean to go back and perform repairs, get started with marketing, or find tenants for the property. However, weeks can turn into months and years without anything being done to get a return on your investment. In time, you could actually start losing money on the property as it falls further into neglect.
4. Not Having the Manpower in Place to Maintain Your Investments
Unless you are in the construction or property management industry before you get into personal property investments, you probably don’t have the knowledge or experience to handle all the day-to-day upkeep tasks of maintenance, renovations, rent collection and bookkeeping.
Many people try to save money doing it themselves, and managing two or three properties that are close to your location can be doable. Yet the further you expand, the harder the task becomes. Consider outsourcing the work to professionals who can maintain the properties at the level you desire while you work to continue building up your portfolio.
Building a real estate investment portfolio can be accomplished if you take the proper steps of researching the market and making the appropriate deals. Also, keep in mind these 4 mistakes to avoid so you can make profits from your investments for the long term.