How to Create a Profitable Property Portfolio
Know why you’re buying., Learn about the various types of real estate investments., Decide whether to flip or hold the property., Obtain statistics on the town in which you are considering investing., Research online or take a course., Work with a...
Step-by-Step Guide
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Step 1: Know why you’re buying.
Before you buy an investment property, you need to consider your investment strategy.
Put some thought into what type of investment interests you and meets your needs.
Perhaps you would like to diversify your holdings besides stocks and bonds.
Maybe you would just like to build your wealth or improve your cash flow.
Whatever your reasons are for wanting to invest, it is good to be clear on them before you start.
A few common reasons for investing in real estate include the following:
You want to increase your current income.
Getting a monthly rent check, for example, can give your income a boost.
You're interested in capital gain — buying a property and later profiting from its sale.
You want to take advantage of the tax write-offs that come with real estate investments. -
Step 2: Learn about the various types of real estate investments.
Ask yourself how much time you are willing to invest in managing the property, and whether you have the necessary skills to manage the property.
Different types of investments have different risks and rewards, so it's important to consider which type of investment best meets your needs.
Consider these investment choices:
Raw land investments.
Raw land requires little management and has the potential for big appreciation if it's in an area that becomes attractive to developers.
However, there is limited cash flow from this investment through leasing to farmers/ranchers short term, mineral royalties if included in purchase, or appreciation.
Also, government restrictions on how the land may be used can impact its value.
Residential real estate investments.
Fixing up a residence and "flipping" it is a popular type of investment.
The profitability of this type of investment is dependent on the state of the local housing market; location is very important.
Commercial real estate investments.
Investing in commercial real estate, such as an apartment building, office building, or retail building, can yield a steady flow of cash, since you'll be getting a regular rent check from your tenants.
However, the property requires significant upkeep to make sure it's up to code.
You also run the risk of getting bad tenants who damage the property or do not pay rent on time. , "Flipping" generally applies to residential properties that are purchased, improved, and sold for higher price.
Most real estate requires long term holding, and is not conducive to short-term trading.
When considering what type of investment to make, determine which situation works best for you.
Consider whether you need additional income now or in the future.
Review your short- and long-term financial goals and if bringing in income now makes sense for you.
Factor in your income tax bracket and how that could be adversely affected by bringing in more income.
Consider the real estate market and if it is rising or falling at this time.
Evaluate your financial situation and see if you have other income that you can tap into if your rental properties become vacant.
Think about your available time and capabilities to manage or improve properties.
Using third parties for such services may decrease expected return. , Check the local state government website about the area you are targeting to see how it compares to other locations.
It is important to have as much information and knowledge as possible on property investing before you dive in.
Find out the local median income.
Research the population growth of the area.
See what the unemployment statistics are in the area.
Check to see if the community is continuing to grow.
Find out what the real estate taxes are compared to nearby towns.
See if there is a supply and demand of rentals in the area.
Check out the schools to see how good they are. , A lot of research can be done online, but you may also check your local directory and sign up for a reputable real estate investment course or seminar.
Make sure you bring some paper and a pen so you can jot down notes as you listen to the experts speak. , Someone who has been investing on his own will know the pitfalls from his own first hand experience.
A realtor with substantial knowledge in investing can teach you as you go along and help make you feel more comfortable with the process.
However, remember the money you are investing is yours, not the realtors, so trust your intuition. -
Step 3: Decide whether to flip or hold the property.
-
Step 4: Obtain statistics on the town in which you are considering investing.
-
Step 5: Research online or take a course.
-
Step 6: Work with a local realtor
-
Step 7: property investor
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Step 8: or developer who also invests in real estate.
Detailed Guide
Before you buy an investment property, you need to consider your investment strategy.
Put some thought into what type of investment interests you and meets your needs.
Perhaps you would like to diversify your holdings besides stocks and bonds.
Maybe you would just like to build your wealth or improve your cash flow.
Whatever your reasons are for wanting to invest, it is good to be clear on them before you start.
A few common reasons for investing in real estate include the following:
You want to increase your current income.
Getting a monthly rent check, for example, can give your income a boost.
You're interested in capital gain — buying a property and later profiting from its sale.
You want to take advantage of the tax write-offs that come with real estate investments.
Ask yourself how much time you are willing to invest in managing the property, and whether you have the necessary skills to manage the property.
Different types of investments have different risks and rewards, so it's important to consider which type of investment best meets your needs.
Consider these investment choices:
Raw land investments.
Raw land requires little management and has the potential for big appreciation if it's in an area that becomes attractive to developers.
However, there is limited cash flow from this investment through leasing to farmers/ranchers short term, mineral royalties if included in purchase, or appreciation.
Also, government restrictions on how the land may be used can impact its value.
Residential real estate investments.
Fixing up a residence and "flipping" it is a popular type of investment.
The profitability of this type of investment is dependent on the state of the local housing market; location is very important.
Commercial real estate investments.
Investing in commercial real estate, such as an apartment building, office building, or retail building, can yield a steady flow of cash, since you'll be getting a regular rent check from your tenants.
However, the property requires significant upkeep to make sure it's up to code.
You also run the risk of getting bad tenants who damage the property or do not pay rent on time. , "Flipping" generally applies to residential properties that are purchased, improved, and sold for higher price.
Most real estate requires long term holding, and is not conducive to short-term trading.
When considering what type of investment to make, determine which situation works best for you.
Consider whether you need additional income now or in the future.
Review your short- and long-term financial goals and if bringing in income now makes sense for you.
Factor in your income tax bracket and how that could be adversely affected by bringing in more income.
Consider the real estate market and if it is rising or falling at this time.
Evaluate your financial situation and see if you have other income that you can tap into if your rental properties become vacant.
Think about your available time and capabilities to manage or improve properties.
Using third parties for such services may decrease expected return. , Check the local state government website about the area you are targeting to see how it compares to other locations.
It is important to have as much information and knowledge as possible on property investing before you dive in.
Find out the local median income.
Research the population growth of the area.
See what the unemployment statistics are in the area.
Check to see if the community is continuing to grow.
Find out what the real estate taxes are compared to nearby towns.
See if there is a supply and demand of rentals in the area.
Check out the schools to see how good they are. , A lot of research can be done online, but you may also check your local directory and sign up for a reputable real estate investment course or seminar.
Make sure you bring some paper and a pen so you can jot down notes as you listen to the experts speak. , Someone who has been investing on his own will know the pitfalls from his own first hand experience.
A realtor with substantial knowledge in investing can teach you as you go along and help make you feel more comfortable with the process.
However, remember the money you are investing is yours, not the realtors, so trust your intuition.
About the Author
Amber Ross
Professional writer focused on creating easy-to-follow pet care tutorials.
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