Every rental property investor’s portfolio is going to look a little different and has unique characteristics that require customized management efforts. But, in general, there are a few best practices worth noting if growing and improving your portfolio is a goal you have for 2022.
1. Setting Clear Goals and Expectations
With any investment or project you take on, you’ll want to establish clear goals for yourself. Setting goals in the real estate investment industry also means having a clear understanding of expectations. Whether you’re just preparing to purchase your first property or want to take a fresh approach to an existing portfolio, goal setting starts with impeccable research.
Start by investigating your target markets. Explore the real estate market data in your area with a keen eye for buying and selling metrics, property value, days on the market, and rental trends. It’s also helpful to look at community stats too, including the job market, economic growth, and population. For example, some suburbs are seeing an increase in residents. Other communities are experiencing record job creation. Alternatively, you might spot trends of people moving out of a particular neighborhood at a higher rate. Or certain home styles remain on the market for much longer than others. Whatever the data tells you will be helpful in setting investment goals and knowing what to expect before you buy or sell.
2. Identifying Cash-Flow Positive Opportunities
One of the most effective suggestions for growing your real estate portfolio involves identifying cash-flow positive opportunities. Of course, the surge in cash flow makes it easier to buy new properties and improve existing properties. But it can also be the quick surge of improvement to the performance of your whole portfolio. The positive cash flow property investment approach entails looking for properties where monthly income is greater than holding expenses. Proponents of the positive cash flow methodology tout the benefits of having income-generating assets, such as having an additional month-to-month source of funds. And not all of your properties may necessarily be cash-flow positive. However, adding one or two can help offset the margins of others.
3. Find Ways to Infuse More Value to Your Properties
Look at your existing portfolio with an eye for opportunities to add value. You might be able to refinance, for example, to make renovations or improvements. Having a more marketable space will reduce vacancy times, and it can allow you to charge higher rent. It’s also worth exploring smaller added-value efforts too, including curb appeal upgrades or aesthetic improvements.
4. Exploring Cost-Reduction Efforts
On the flip side to adding value, improving your real estate portfolio might involve cost-reduction efforts. Don’t be afraid to review your statements and revisit your expenses to see if there are opportunities to negotiate better rates or reduce costs. For example, you might have a contractor you routinely use for maintenance that might be overcharging for services. Upgrading a property to smart thermostat technology or energy-efficient lighting could reduce monthly utilities. And don’t hesitate, either, to take advantage of refinancing opportunities that might reduce your interest rates, as well.
5. Diversifying Your Property Portfolio
One of the more commonly known ways to ensure your real estate portfolio does well in any market is with diversification. Avoid putting all your real estate investment eggs in one property basket. Whether you explore new communities in which to invest or diversify with the type of rental property you own, there are advantages to having variety. Maybe it’s time to look at investing in commercial properties to diversify your residential portfolio, or it could be you’re ready to browse the market to buy your first multi-family residential property. Ideally, if one of your properties takes a loss in some way, the others can provide income and stability with your portfolio.
6. Methods for Portfolio Expansion
There are plenty of methods for expanding your real estate portfolio. Here are a few different strategies many property investors find to be successful when growth, revenue, and portfolio scaling are the objectives.
The Fix and Flip
If you watch enough DIY shows on television, it might seem like everyone can be a house flipper. But in reality, there are some “fix and flip” strategies that really can help investors grow their real estate portfolios. Identifying a buying opportunity that can be quickly fixed or quickly renovated for a fast sale will always be a sound way to go. There are more significant risks, though. Buying a property that has far more condition problems than anticipated is a big one. Many veteran investors suggest allowing yourself at least a 30% margin with an after repair value (ARV) to help reduce those risks.
The Snowball
Just like the name implies, the snowball method for growing a real estate portfolio involves starting small and rolling revenue into the next investment. Beginning with one property investment, set aside a benchmark of income over a period of time and with fund goals in mind. Once you have reached that saved dollar amount, take those funds to then roll into another investment property. Your savings budget and timelines might vary depending on your market. But ideally, the snowball method allows for an ongoing strategy for portfolio growth.
The BRRRR Method
This acronym might imply cold, but your investment revenue could be hot! It stands for “Buy, Rehab, Rent, Refinance, and Repeat.” This is a great strategy for those who may not have a surge of liquid cash upfront. Over time, following this method will help you build equity in your properties and provide the leverage you might need to make more significant growth moves.
Leveraging Home Equity
Understand and employ leverage. This is an absolutely crucial aspect of real estate investing. Leverage is the use of other funding methods to acquire property, borrowed or otherwise. You will have an improved chance of increasing your profits on the property by using other sources of funding rather than your own cash flow or reserves.
People use leverage for real estate purchases for two main reasons: they don't have the cash to buy the property outright, or they want to put less money down and get a higher return on their investment.
There are several methods to using leverage. You may take out a traditional or an investment loan, for example. Alternatively, you might consider utilizing the equity in your property to improve NOI with remodels or new purchases. It’s definitely worth exploring your options for home equity loans or home equity lines of credit to see what buying or renovating power you might have right now to make significant growth moves in your portfolio.
7. Adding the Right Team to Your Efforts
Another significant step in growing your real estate portfolio involves assembling the team of support and resources to help. With one property to manage, you might be intent on managing the strategy and operations yourself. But as you add properties, you’ll want professional guidance across the board to ensure your tapping into best practices and asset preservation. These “helpers” might include better tradespeople and contractors. It definitely includes an accounting or bookkeeping professional and legal representation. But more importantly, a reliable property management partner can be an incredible partnership for portfolio and operational management.
No two real estate investors will have the same portfolio dynamics. So, it’s important to remember that while most of these suggestions are sound, a more customized approach to portfolio management should apply. And if you need help taking your real estate portfolio to the next level of success, let Axel Property Management show you the way! Contact our team to discuss your real estate portfolio questions, and we’ll help you structure and strategize for best results in an ongoing and customized partnership.
