Many websites and magazines focus on building a real estate portfolio, but the average person can’t conceptualize creating a real estate portfolio like the one Patrick Carroll built. According to Atlanta Business Journal, when Carroll sold it to RMR Group, its value stood at $7 billion. You don’t have to have billions of dollars to build an income-generating real estate portfolio.
Start Small and Add Holdings Gradually
According to Rocket Mortgage, many people start their portfolio with their home. They build equity as they pay off their mortgage and use a method called house hacking to rent out a portion of the home. AirBnB offers a common way to do this. By saving the rent paid to them, they fund future home purchases.
Learn How To Invest in Real Estate
Redfin suggests taking a class or studying under an experienced investor. Start by contacting your state’s Real Estate Investors Association (REIA). This industry organization provides education for real estate investors of all experience levels, promotes ethics, and builds community. If the REIA doesn’t have an ongoing class, it can provide recommendations for where to find one.
Set Realistic Goals
Choose whether you want to grow your portfolio linearly or exponentially. If you grow it linearly, you purchase one new property per cycle that’s similar to your existing property. You set the cycle length, such as every three years, and use your saved rental income. If you grow it exponentially, you use the same purchase cycle and criteria but leverage your existing property’s equity and your saved rental income to fund purchasing two properties.
Fast growth isn’t necessarily the best. If you can’t yet afford to hire someone to help manage the properties, slow growth works better. Regardless of how you rent the properties, you must upkeep them.
Learn Your Market
Most people buy in their local market, so get to know yours. Do your real estate interests lie in residential, commercial, or industrial properties? What size residential property do you want to own if you choose it? Decide what you’ll specialize in, and then study local sales of that type. Determine the best neighborhoods, and where to find the top homes for flipping, and developing areas.
Research Financing Options
In real estate, loan types and terms become complex. Building a portfolio typically involves more than regular mortgages. Learn the difference between a HELOC and a hard money loan before you begin. Protect your initial purchase, usually the home you live in, at all costs.
While it might seem anal to plan all of these steps before renting your first room out, think of it as a business plan. Ultimately, that’s what a real estate portfolio amounts to—a business. Every business needs a business plan before it opens. The investing course and networking with experienced professionals prepare you for planning your portfolio and starting your real estate venture.