Your way to success in real estate investing starts with building a rental property portfolio. That’s because whether you’re trying to build a real estate empire or even just a humble business in real estate, it all comes down to your portfolio’s ability to produce cash flow.
Most millennial real estate investors hope to build a real estate investment portfolio fast enough to achieve financial independence at an early stage and maybe retire early as well. So, here is our guide on the investment strategies as well as the important aspects to consider while building your portfolio.
Investment Strategies for Building a Rental Property Portfolio Quickly
Building a property portfolio in no time depends on your investment strategy. The best strategies are those that allow a real estate investor to generate enough income in order to purchase more properties in short periods of time. Here are a few of these strategies for how to build an investment property portfolio for beginners:
Related: How to Buy Multiple Rental Properties in a Single Year
Real Estate Partnerships
Teaming up is never a bad idea especially if we are talking about a rental property business. A real estate partnership is a very effective investment strategy for the purpose of building a rental property portfolio. That is, especially, if time is an important factor in this.
As you can guess, buying multiple investment properties is a costly process. For this, you will need the capital, or at least enough to cover the down payment to purchase your first investment property. And even then, you will likely need capital to cover the other property costs that are involved in the process. Rather than spending months (or even years) saving up, you can partner up and combine your financial resources to buy properties more quickly.
A real estate partnership does not only help to provide the capital for your rental investments but also it helps you buy more properties in a shorter period of time since the responsibilities are split as well.
The A-B-C Investment Strategy
The ABC strategy is based on investment property categories which a real estate investor should pay attention to. Building a rental property portfolio in a short time requires that you understand the difference.
Property type A is basically the investment property that comes already maintained, renovated, and with all the necessary and advanced amenities. Property type B, on the other hand, is the one that is maintained and contains the basic amenities. Property type C is the type that is in bad shape. In other words, these are the type of investment properties that you would buy for cheap through foreclosure, a short sale, or other ways.
The best approach starts with investing in type C properties which leave a higher margin for profits for the owner. While it is still important to diversify your portfolio with various types of properties, your main focus should be on type C properties. That’s because you can typically buy them for cheap and upgrade them to type B properties. That way, you can make a lot of rental income from them and use that to buy more properties. The key is to do your research and try to find these types of investment properties in nicer neighborhoods.
Related: How to Find Foreclosed Homes for Sale to Invest In and Make Money
The Stack Strategy
The stack strategy is also another option for building a rental property portfolio quickly. To start, all you need is one investment property for your first year. That is actually when you learn about buying an investment property and acquire basic knowledge and experience in the field.
Once you buy it, rent it out to start receiving a monthly rental income. Then what you need to do is to make a purchase each year, doubling the number of properties as you go. So, you buy one investment property the first year, two the next year, and the year following that, you buy 4 properties regardless of their number of units. If you keep the ball rolling, in just a few years, you’ll own over a hundred properties in your portfolio.
Now, since the main question in your head at the moment is how anyone can manage to afford that, click here to learn about investment property financing.
Types of Real Estate for Building a Rental Property Portfolio Quickly
Building a rental property portfolio is not only about the investment strategy, but it is also about the type of property you purchase. So, here are some options:
Multi-family Homes
Multi-family homes are one of the best choices you could make to build your investment portfolio quickly. You could purchase duplexes, triplexes, or even quadruplexes for that matter. Unlike single-family homes, buying multiple properties of this kind will allow for more rental income as well as faster growth for your business and, consequentially, your portfolio.
Click here to start looking for and analyzing the best multi-family homes in any city or neighborhood in the US.
Related: Buying a Multi-Family Home for Investment Is Easy with This Guide
Apartment Buildings
Apartment buildings are another option for building a rental property portfolio quickly. This type of real estate is the best investment property choice because it results in multiple sources of income. If you decide to invest in apartment buildings, look for areas where there is a promising job market and high rental demand.
What Else Should You Consider When Building a Rental Property Portfolio?
Real Estate Education
One of the most important aspects of your business would be proper real estate education. Without it, you will not go any further than maybe a couple of rental properties at the very most. So, make sure you learn the proper steps to becoming a real estate investor and start with a solid foundation.
Selling Bad Property
Building a rental property portfolio quickly is not only about the number of investment properties under your name. Rather, it is also about the quality of these properties. Make sure you evaluate your rental properties every once in a while to ensure each one is a positive cash flow property. For those properties indicating losses, it is better for you to sell those as soon as possible.
Diversification
Diversification is another factor in this equation. Consider different locations and even out-of-state real estate investing. Moreover, different real estate investment strategies might also help spread the risk of loss.
Related: Diversification and Real Estate Investing: 3 Ways to Diversify Your Portfolio
Starting with Low-risk Investments
Starting small is perhaps the best advice we, as professionals, could give you. Low-risk investments will allow you to acquire proper experience as well as protect you from making detrimental decisions that could cost you all you’ve invested. This way you’ll make sure that you are building a rental property portfolio in the safest way possible.
Hiring a Real Estate Agent
Hiring a real estate agent for buying investment properties can be a great way to ensure you’re always making good decisions. You will need this type of assistance in the very beginning until you, yourself, develop the skills and experience to buy properties on your own. At that point, you will be able to save money on agent commissions. But, an expert for early stages won’t hurt.
Find a top-performing real estate agent now.