Insula Capital Group


Starting and Growing a Real Estate Portfolio the Right Way

Real estate has something for everyone, so there are multiple ways to invest in it. Investors spent billions on their investment just in 2021. But for those that want to accumulate their investments and grow their wealth, the first step is to make a real estate portfolio. Then they can work on growing it.

Building a real estate portfolio the right way will lay the foundation for not only understanding your approach to investing but will also help you track all your investments.

Let’s see how you can build and grow your real estate portfolio but first, a look into what exactly a real estate portfolio is.

What is a Real Estate Portfolio?

For those investing for the first time, the words real estate portfolio might seem foreign. You might ask, “Don’t I pick a property and just invest?”. Well, you can, but the right way to go about it isn’t just to pick a property and invest.

Simply put, this portfolio is a collection of all the real estate assets you’ll invest in. Think similar to a resume that has your details, a real estate portfolio will include all rental properties, commercial or residential properties, Real Estate Investment Trusts (REITs), etc., that investors own.


How to Start Your Real Estate Portfolio

To be a successful real estate investor, you can start by making a portfolio of investments. It doesn’t just have details about the assets; it’s a marketing arsenal that can help secure funds in the future.

A well-maintained portfolio underlines your goals, strategies, and success/failure rate. You can take it a step further and add testimonials from lenders you worked with. Here’s how you should start one.

Step 1: Set Clear Goals

Different investment properties can vary in the return they provide and will act differently at different points in time. What do you hope to achieve from your investment properties? You need to have an end goal before deciding on an asset to invest in.

The combination of your investments, including the risk factors, matter, although one bad investment will not impact the bottom line. What investments you choose can play a significant role in helping you achieve your objectives.

Remember that assets have can varying impacts. Wholesaling and rehab investments are for short-term gains. Similarly, rentals and multifamily properties can be used for a passive income.


Step 2: Get Your Finances in Order

Real estate investment portfolio hinge on numbers and finances. They’re the foundation and serve as the element of truth for potential lenders. With numbers, the real estate portfolio will have transparency, and investors can know whether their strategy is good or not.

The portfolio should be broken down by various numbers and have factors such as purchase cost, transaction price, repairs, and sale price. After you’ve figured out your numbers, focus on your finances.

Financing includes details on how investors financed their purchases and how they found the buyer for them. Any financing-related question should be answered here, such as if you’d obtained a bank loan or a hard money loan. The portfolio also needs to have all or any improvement and operating costs.

Numbers and financing will give lenders an idea of how you leverage the money and earn a profit and associated costs spent on the projects. If you’re looking to build an efficient portfolio, don’t forget to add after repair value costs to your projects.

Step 3: Decide on an Investment Strategy

There are multiple ways you can invest in real estate. The assets are sometimes too much to decide when just starting out. Keeping focused on your objective and goals and figuring out your finances will go a long way in helping you find the perfect investment strategy.

You can pick the fix-and-flip strategy, where you buy properties, fix them up, and sell them for profit. You can also buy raw land, break it up, and either sell it to a developer or lease it to renters. The possibilities are endless.

Step 4: Management

The last thing you need to know about starting a real estate portfolio is to decide how your property is going to be managed. Lenders often want the answer to this question before they provide the financing. Even if they don’t, your portfolio should answer how the properties will be cared for.

How to Grow Your Real Estate Portfolio

A real estate portfolio isn’t something anyone can build overnight; a successful one is built up strategically and over time. Now that we’ve covered what a real estate portfolio is and how you can get started with one, let’s discuss how you can grow it.

Method 1: Leverage Your Portfolio

Once you have your grasp on investing, you can learn how to leverage your assets to grow your portfolio. Leveraging a property means using that asset to your advantage by establishing your credibility as an investor when closing deals or acquiring private money financing.

When investors talk about leveraging their portfolio for investments, they mean leveraging the equity you’ll obtain on your investment. Let’s look at an example. You managed to snag a property at $200,000, and after you upgraded the property, its appraised value came out $300,000. That’s $100,000 now in equity.

The equity can be accessed by selling the property and then investing that money in more properties, or you can even get hard money loans against that equity. However, in traditional loans, borrowing money can be capped at 80% of the property value. Moreover, you also need to maintain a positive cash flow to repay equity loans.

Method 2: Diversification

The most effective way of growing a portfolio is diversifying it. No matter what kind of investment strategy you pick, whether it’s for real estate or stocks, there’s always some sort of risk associated with it.

With diversification, not only will the portfolio grow, but you can also mitigate the risks. If you invest in stocks and the stock market crashes, you only lose. Real estate is one of the most stable investments you can make. But no investment is without its risks. That’s why it’s important to diversify your portfolio.

This way, investors also avoid putting all their eggs in one basket. There are a few ways you can diversify your real estate portfolio:

  • Diversity in Location:

Many people tend to stick to what they know. As such, they invest in the neighborhoods they know as well. If you have invested in locations closer to each other or in one neighborhood, consider exploring and investing in other markets. Because if one property in a close location you invested in falls in value, it’s likely the other will follow suit.

  • Diversity in Asset Class:

You can diversify asset class as well. If your objective is rental properties, try branching out in commercial properties after you’ve acquired a few residential ones. This is usually considered the next step for investors.

Commercial properties have high-profit margins and are a great way to diversify. They include office space, retail properties, and even industrial buildings. This way, you can be sure of a positive cash flow while protecting yourself from any trouble in rental properties asset class.

Similarly, there are multifamily properties as well. They have either units or are mixed-use. It’s also a great way to bulk up your portfolio. While investing in multifamily properties, investors can protect themselves from the factors that impact the profitability of single-family homes.

  • Diversity in Investment Strategy:

Change up your investment strategy. If you’re only buying investment properties, i.e., residential and commercial properties, try investing in a real estate mutual fund, REIT, or exchange-traded fund. Some real estate investors prefer exchange-traded funds because it lets them own stakes in several REITs with one investment.

REITs or Real Estate Investment Trusts are also another way for investors to reap the benefits of investing without actually purchasing a property. In these trusts, companies will purchase income-generating properties and then pay their investors dividends.

Method 3: Use Tools to Automate Research

The real estate world is huge, but the inventory seems to be decreasing if the 2021 market analysis is any indication. When you invest, you want to invest in the right properties that will give you good equity. To purchase that right property, the first step is always research.

You need to find a way to cut that research process in half so you can actually get to investing. This is where automated tools can help. There are unsuspecting homes in various locations, but you need someone who has an in with that community to find it.

Real estate automation will help reduce manual work and let the tool do it for you. There are several options available to choose from, and those choices are growing every day.

Method 4: Networking

Networking is important if you want your hands on lesser-known gems. With the right networking, you can also get your hands on “off-market” properties. These properties are the ones that have not been advertised for sale.

With these properties, brokers try to create interest with verbal advertising or only letting their private network know about it. Often these homes are undervalued and have motivated sellers. You can get some diamonds in the rough at great prices.

That’s why investors network, attend real estate auctions, and build connections with brokers directly so they can get their hands on such properties.

Method 5: Hire a Property Management Team

As you work on growing your portfolio, you’ll have less time to manage all your properties. You came this far; you can’t drop the ball here. Even if you thought at first you’d manage it on your own; it will become increasingly difficult.

Investors who try to manage it all themselves find their ability to scale their investments and business limited because property management can take up a lot of their time. It’s recommended that you hire a property management team, accountants, and attorneys to handle your investments.

The team will handle the daily operations, and the investors can have their time to conduct research, network, and buy additional properties.

Method 6: Don’t Hesitate to Walk Away

Often, the greatest skill you’ll need to grow your investment portfolio is when to walk away. Not every investment will be profitable or may take too much time with too little in return. These investments are likely not worth holding on to.

Don’t purchase properties to save face or prove a point. Walk away and spend your energy on opportunities that will give you something in return.

Measure the Success of Your Portfolio

Investors should always assess their real estate portfolios to see if the investment strategies they’re using are correct. It will uncover any areas where they can improve and any upgrades that slipped through the cracks.

Net cash flow, cash-on-cash return, and appreciation are used to measure the success of a real estate portfolio. Net cash flow is the income generated from the property after the expenses. Are all properties providing positive cash flow? If not, what can you do for properties with negative cash flow? These are the questions possible lenders will ask as well.

Once you have a handle on net cash flow, you should be calculating your cash-on-cash return. Simply divide the net cash flow with the initial investment you made. This is to check the performance of investment over time. Lastly, check for appreciation.

Appreciation in real estate is the value of a property observed over time. This will show the value of your property in the local market and help you decide whether it’s beneficial to hold onto its long term.

Learn More About Real Estate Investing

It’s important to make real estate portfolios to make the most out of your investments. Consider working with reputable and reliable lenders to start and grow your portfolio the right way. When obtaining private money financing, you want to pick the right lenders. They will make the process smoother and use their experience to help you make the right decision for your investment. Let Insula Capital Group be the right choice for you!

Insula Capital Group, based in NYC, is a private money financing and real estate investment company. Our investment firm offers fast funding and an effortless application process for those looking to invest in the real estate market. Our experienced professionals will help make the process quick and easy to get hard money loans for real estate investors, refinancing loans, fix-and-flip loans, and much more. Get in touch with us to find out more.