After the first rental property purchase or two—or perhaps after turning your former residence into a rental—many landlords realize they would like to grow their real estate investment portfolio. As you add properties to your portfolio, one of the questions that everyone seems to ask is how to build this portfolio into a profit-yielding company—ideally one that doesn't require repetitive work and late-night maintenance calls. So, how do you start the process?
Research, Research, Research!
The way that people acquire excellent properties that appeal to long-term tenants is through knowing what your "audience" is looking to rent. Get to know the local market and competition:
- What kinds of features do your competitors pounce on for purchase?
- What are the reasonable prices, and which properties are poorly priced?
This evaluation is also a time to take stock of your skills. You may have enough experience with construction or renovations to be able to do an excellent job on a fixer-upper and do so for cheap. If this is the case, you can open your search for fixer-uppers and still turn a profit relatively quickly. The goal is not to dive into the market head-first—but rather to know a lot about the market you're interested in. You want to know enough that when that perfect property comes along, you can make an offer without hesitation.
Choose a Legal Entity to Keep Your Investments Protected
Using a Limited Liability Corporation (LLC), or another business entity like a C Corp or S Corp may be the right path forward for your investment portfolio. It's important to talk to your tax accountant about your current revenue and tax burden, as well as how quickly you want to grow your investment portfolio. If you plan to bring in a Carlsbad property management company, that's a different scenario than if you work for yourself and contract out with vendors. The nuances of your situation should determine which legal entity you need—but make sure you are protected in case of future lawsuits.
Start with a Solid Investment—Not a Risky One
If this is one of your new properties, attempt to be less risky than you might be in other circumstances. If there is a particular neighborhood that tends to have 100% occupancy and a home comes up for sale there, try that one if it is in the right price range. What you want to avoid is a "money pit" investment: projects that will consume a lot of cash flow and will take a long time to realize a positive return. The more clear-cut the positive cash flow is at the outset, the better.
The goal, early on, is to get properties that will turn a reliable profit. Once you've established yourself with a couple of properties and have a decent cash flow, there is more room to consider riskier opportunities that have a high-profit potential. The goal, usually, is to have enough reliable income that the time it takes to get riskier investments ready will be absorbed and not felt so acutely.
A Property Manager Can Make Tasks Easier
As you get your real estate investment portfolio off the ground, the day-to-day tasks can become much more time-consuming. One way to free up time to continue looking for the next great opportunity is to hire a transparent, communicative, and expert property manager in Carlsbad.
A great property manager is going to work hard for you on the aspects of your business that you want to outsource, providing services that are informed by years of experience in the industry. Property managers in Carlsbad more than pay for themselves in how they free up your time to work on the elements of your business that you are uniquely good at.
- Your property management partner would take the late-night maintenance calls and handle the tenant screening.
- They can create a plan for how they will communicate with you and streamline your investing—while keeping you in the driver's seat.
Add to Your Portfolio as Each Property Attains Profitability
One of the most exhilarating moments in real estate investing is when you realize that you are now "in the black" on a particular property, bringing in what you need for expenses and the mortgage with room for profit. These profits can be used in a variety of ways, but it makes sense to reinvest them. Use the profits from the first few properties to be the down payment on potential investments you've had your eye on.
What's great is that, even as your company grows and your portfolio gets more stable, you attain greater levels of capital and can choose larger, potentially more lucrative properties. However, never lose your drive for market research. The research at the beginning of the process truly is what makes or breaks a real estate investment portfolio.
If you're finding it challenging to allocate the time you need to conduct thorough research, a property management company in Carlsbad can help you with that too! Reach out to the experts at Raintree Property Management: we use cutting-edge technology to help you accurately analyze potential properties. We can even run the numbers on your current investments and make sure you are maximizing their potential!
