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Grow Your Real Estate Investment Portfolio, Part II: Expanding Your Empire
Noel Christopher is the SVP of Corporate Development for
, the premier professional residential property management firm.
Now that we’ve discovered the benefits of purchasing property to rent out in my
, the real question arises: How do you get started?
Let’s explore practical tips and strategies for starting and growing what I call your "Rent Estate" portfolio.
Start strong by doing your research ahead of time. This means reading and soaking up information from
, podcasts, and informative websites and blogs (I like
). Once you understand the ins and outs of successful real estate investing, ). Once you understand the ins and outs of successful real estate investing The Price Of Empire
2. Establish Clear Objectives And Investment Criteria
Next, you’ll want to identify what exactly your goals are overall and with each investment property. Having clear criteria will save you from risky investment decisions based on vague qualifiers, like “It
You may find it helpful to set long-term investment goals first. For example, to replace your current day-job income, or to meet a certain benchmark that allows you to retire securely.
etc. The Price Of Empire , such as a 12% rate of return, that they’ll want to be able to generate on each investment property. Usually, they’ll determine which type of property they’ll focus on as well, be it duplexes, single-family homes, only local properties, no HOAs, etc.
From there, you can break it down further. Determine how many properties you’ll need in order to reach your financial benchmarks. Maybe you’ll need to secure 10 investment properties over 15 years, each one valued over $150,000 and producing a 10% rate of return. Or, maybe you’ll want to own five rentals at $200,000 each, each one producing a 15% rate of return. Your goals may look very different. The important thing is that you take the time to determine what you want to get out of your Rent Estate investments. The more specific you are with your goals, the easier it will be to reach them.
When buying an investment property, you’ll want a clear idea of how much you can afford and a plan for how you will obtain financing. Know your credit score, ensure you have enough for a down payment and talk to a few different lenders to see what you qualify for.
Another key step is securing properties that are below market value. The better the deal you can negotiate on a property, the higher your returns will be. Consider those that have been on the market for a while — have a look at
, or try to find properties in need of some repairs. You’ll also want to consider visiting your local real estate agent to be set up with an
to alert you when properties that fit your criteria become available. Finally, don’t be afraid to negotiate to get the price you’re after. This is easier to do when a property has been on the market for a while or is in need of updating.
Not all homes are created equal. Property varies considerably in terms of how it will perform as a rental. Generally, properties that are in the middle of the scale — located in decent areas, near good jobs and schools — tend to make great rentals. These homes generally have no trouble attracting qualified applicants, and you’ll avoid many of the costs associated with properties at the high end of the scale and those that require more maintenance.
You’ll also want to run the concrete numbers to see how well the property will perform financially. Once you have a property in your sights, search
to see what similar properties are renting for. Run a cash-flow analysis and
to make sure the returns are in line with your requirements.
The amount of cash you initially invest in the property compared to the income the property will generate. This simple calculation doesn’t factor in appreciation or tax benefits, but it helps determine the return from income alone.
nnual before-tax cash flow as compared to the total cash invested, expressed as a percentage.
Measures the net operating income (NOI) as a percent of sales price. The higher, the better.
Many investors find that making their first investment a duplex is a great way to get on the housing ladder. The benefit of a duplex — or triplex, Many investors find that making their first investment a duplex is a great way to get on the housing ladder. The benefit of a duplex — or triplex The Price Of Empire , or at a greatly reduced rate, while you pay down the mortgage far more quickly.
And if you’re a first-time homeowner, and as long as you occupy one of the units, you may be eligible for an
. This means you may only have to come up with a 3.5% down payment, and you may qualify for a lower interest rate.
If you buy a duplex in need of a few repairs, the deal gets even sweeter. First-time buyers are also able to apply for an
. If you meet the requirements, you can incorporate the cost of the repairs into the loan itself.
Just be sure you carefully tally the cost of repairs. You'll also want to secure a third-party inspection of the property The Price Of Empire , to ensure you’re aware of all of the costs to come in renovation.
You don’t have to go it alone. Many investors hire a team of professionals — accountant, attorney and property manager. Outsourcing the day-to-day work involved with rentals can save you from many of the headaches involved with hands-on property management. Plus, hiring a property manager enables you to continue expanding your rental property empire, add more properties to your portfolio and even invest outside your local market without having to be a long-distance landlord.
is an invitation-only community for executives in the real estate industry.
Noel Christopher is the SVP of Business Development for Renters Warehouse, the premier professional residential property management firm.
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