Our investments are infinitely valuable. That might sound like we're overselling it a little bit, but think about how much people really put into their investments. When people choose to pour their time, resources, and money into investing, they are striving to build up financial security and resources often not only for themselves but for their families.
For those of us who invest, doing so successfully is a big deal. It's not enough to have a mediocre investment portfolio. So what makes a worthwhile portfolio—and how do you build it?
Memphis Invest is here to help you identify and build up a real estate investment portfolio that you can enjoy in the present and leave behind for your family.
6 Aspects of a Well-Crafted Real Estate Investment Portfolio
One of the key aspects of a strong and healthy investment portfolio is its diversity. What diversity does is hedge against risk, whether it's environmental, economic, or something else entirely. When you populate your portfolio with properties across multiple well-curated markets, you are ensuring that in the event of an economic downturn or natural disaster in one market, you will not be left with a portfolio that ceases to produce cash flow and value.
Related Article: Portfolio Diversification Strategies for Real Estate Investors (And Why They Matter)
At times, investors are guilty of overlooking the individual purpose in their investment properties. We can have a tendency to collect and acquire because that is what we are supposed to do. However, every piece of your portfolio needs a purpose in your overall strategy to be of real worth.
For example, to be primarily invested in single-family homes and to suddenly buy commercial real estate because you found a great deal doesn't really make sense in the scheme of your portfolio unless you already knew you wanted to head in that direction.
Instead, focus on properties that have an individual purpose rather than impulse. While you can be tempted by a great price or a picturesque dream, you have to ask yourself how your acquisitions really work together as a whole. We need a reason and a purpose for buying what we buy, particularly when it comes to the potential outliers in our portfolio. Think about the role being served, and whether or not that role is really being fulfilled.
As the owner, it is your job to orchestrate the vision behind your portfolio on the whole. Every investor will have a different overall goal, and this, in turn, affects how they invest. You may acquire properties more quickly or slowly, in fewer or more markets, and with different emphases. You may, for example, want to prioritize the maximization of your equity and cash flow by acquiring many investment properties quickly.
What is critical in the success of your portfolio—in the development of a strong, healthy investment strategy—is communicating your desires and needs to your portfolio advisors and management team.
A portfolio can be built out of fantastic investment properties in key, world-class markets, but if it does not have the structure to support it, it may not be worth all that much. For passive real estate investors, high-quality property management is absolutely essential. Your property managers enable the long-term success of your investments by not only maintaining the quality and equity of the property but by ensuring tenant retention.
When you have these ingredients: an ideal investment market, a great location, and a property with potential, it can seem like you are guaranteed a win. However, having all of these factors lined up does not ensure your success. For real estate investors, you must value an ideal debt-to-income ratio, or, in some circumstances, a cost-to-income ratio, depending on whether or not you pay with all cash or go through your bank for a loan.
When it comes to rental properties, you want to be in a place where you are not buying the cheapest of the cheap, but not overpaying either. There must be a balance in what you buy and quality in your renovations so that you maximize your subsequent cash flow and tenant retention. If you balance this properly, you will find you get the most out of your investment properties.
A too-pricey property won't yield a good ratio to justify its costs, while a cheap property will encounter more problems and suffer more in the area of tenant retention.
So how do you strike the balance? It brings us to our last point.
A truly successful passive real estate investment portfolio is built through the guidance and resources of a trusted turnkey partner. At Memphis Invest, we have over 15 years of experience, teams in world-class investment markets across the nation, and we've cracked the code on maximizing investment property potential in terms of cost, rental income, and tenant retention.
For you, the investor, this means that you don't have to use your portfolio as an experiment. You don't have to suffer through the same mistakes that inexperienced investors wrestle with. Instead, you can start on the right foot, with the right resources, with the best people behind you.
A turnkey approach is a surefire way to build your passive real estate investment portfolio the right way. The best part? All it takes is a phone call.