There comes a time when every investor must grow their portfolio from one investment property to two. Portfolio growth is the path to passive wealth! No one can expect to build worthwhile passive income with only one investment property. But how do you know it’s time to scale up – and when you’re ready, what do you do?
Before you start, there are two things you need.
What You Need First
1. Clearly Defined Goals
Clear targets guide good decision-making. What is it you want to accomplish with your investment portfolio? How many properties do you want, and how frequently will you acquire them? Where do you want to invest? What are your short and long-term financial goals? Investing without goals leads to blind, unfocused decisions. If you’re unsure where to start, sit down and discuss it with your portfolio advisor.
2. A Reliable Team
Though some investors will try to step into the role of landlord, it’s not advisable. One property to manage can quickly become a full-time job, whereas multiple is impossible. If you want to reach a higher capacity, you’ve got to rely on a management team. This team can manage your properties and preserve your passive income across multiple markets and at a much larger scale than you could handle on your own. They ensure the right systems are in place to mitigate risk and keep your rentals running like well-oiled machines.
7 Steps to Scaling Your Real Estate Portfolio
Step 1: Evaluate Your Finances
Review your current financial situation to understand how much capital you can allocate toward property acquisitions. Consider factors such as available cash, borrowing capacity, and risk tolerance. You also want to mind your safety net and review potential and existing expenses associated with purchasing and operating your rental property.
Step 2: Refine Your Criteria
If you haven’t, nail down specific criteria for selecting properties that align with your investment goals. Consider location, potential for appreciation, rental demand, cash flow, and property condition. Don’t accept opportunities that don’t fit these criteria. It’s more important to stick to the properties with clear roles in your portfolio versus expanding for the sake of it.
When you know what you’re after, you can efficiently identify and rule out opportunities.
Step 3: Leverage Financing
Leverage is one of the best advantages you have. Look for financing options to maximize your purchasing power. We recommend lenders with experience working with investors, as they will be more amenable to drawing up terms that make sense for you. Analyze the terms, interest rates, and repayment options to select the most favorable option for your investment strategy. Don’t rule out unconventional options, either. Ultimately, leverage is there so that you use less of your money to acquire investment properties.
Step 4: Seek Opportunities to Add Value
Before you look for new properties, consider your current portfolio. Added value from smart renovations and excellent management maximizes your cash flow while minimizing ongoing costs. Enhancing existing properties’ value can generate higher rental income or increase their market value. No matter how many properties you own, you want to get the most out of each one.
Step 5: Diversify
Consider diversifying your portfolio by investing in different locations. This helps mitigate risk and reduces the impact of localized market fluctuations. Other metro areas have various risks and advantages, so carefully evaluate the pros and cons. Strategic diversification sets your portfolio up to reap significant long-term benefits.
Step 6: Reinvest Profits
Are you using your passive income effectively? You’ll likely be using most of your profits to pay back your lender. The magic here is that you’re paying mortgages back with someone else’s money – so you only really have to fork over a downpayment. But if you can, work to reinvest profits. Use your passive income to fuel future property purchases. The more quickly you can safely scale, the more time your wealth has to build.
Step 7: Monitor and Adjust
Regularly review your portfolio’s performance and market conditions. Stay updated on real estate trends, rental market dynamics, and economic indicators. Consult with your portfolio advisor frequently to ensure your current properties are still performing and filling a purposeful role in your portfolio. Remember, due diligence is ongoing.
Remember that scaling a real estate portfolio requires patience, persistence, and a long-term mindset. It’s essential to stay focused on your goals, adapt to market changes, and continuously educate yourself about the industry. Leverage your team’s expertise – they’re there to facilitate your success!
Our dedicated team of portfolio advisors are standing by to help guide you to your financial goals.