5 tips for expanding the size of your investment portfolio

Real estate allows aspiring investors to build wealth in a more stable market — with a greater probability of return on investment — than other, riskier markets, such as stocks and cryptocurrency. By buying and flipping homes, having investment properties, or buying shares of a real estate investment trust (REIT), you can grow your wealth with real estate.

The best way to grow your real estate income is to increase your number of property holdings. But what’s the best way to go about increasing your portfolio, and how do you know if you’re making the right choices?

Whether you’re looking to expand your real estate portfolio now or weighing your options for the future, here are five tips for increasing your number of investment properties.

Know the market

If you’re going to establish a long-standing and flourishing real estate investment portfolio, it’s critical to understand the local market. With 75 percent of Americans reporting that they have regrets about moves, you want to avoid leaving prospective buyers and renters with any doubts. The better you understand what house hunters in your community want, the less likely you are to have a sale or rental agreement fall through because of cold feet.

Pay attention to up-and-coming neighborhoods in your community. These are areas where buyers and renters will be looking to move. Also find out what kinds of amenities, home styles, and design trends are most popular in your community, so you can tailor your properties accordingly. Doing this continuous research means you’ll be on top of the game and able to compete in the market.

Buy your properties for a bargain

Although home values have increased in recent years, the number of rental vacancies has also increased, meaning it’s a good time to invest in rental properties. In addition to shopping for rentals in desirable locations, look at properties you can purchase below market value. If you’re paying attention to the market, you’ll understand comparable property values, and you can buy accordingly.

You can further increase your earning potential by purchasing a fixer-upper. When you make renovations based on what the market wants, versus your personal tastes, you can increase the property’s value. Keep in mind that some renovations have a greater ROI than others. 

For example, upgrading a home’s lawn, trimming and mulching greenery, and updating shingles and siding immediately increase a property’s value. You can inexpensively add more curb appeal by painting the door or planting flowers and tree saplings.

Inside the home, you’ll see a bigger return on investment with an updated kitchen rather than spending on a primary bedroom suite. Likewise, you’ll get a solid return on a new HVAC system and energy-saving windows. Although buyers or renters might not be able to see a new heating or air conditioning system, you can catch their attention in a listing by letting them know how much money they’ll save on utilities every month thanks to the upgrades.

Secure financing

Before you can invest in real estate, you need to have cash and a line of credit. To give yourself the best odds of securing financing for a loan, make sure you have an excellent credit score and set aside money for a down payment. Although some home loans require as little as 3% to 5% down, you’ll get a better rate if you can make a down payment in the ballpark of 10% to 20%.

If you’re just starting in real estate investment, consider buying a home that you can live in along with tenants to secure a personal mortgage, which comes with a lower interest rate than business loans. This could be a single-family home with a basement available for rental, a home with a detached guest house, or a duplex. Be sure to check with your local ordinances to find out what can be considered a multiple-family dwelling.

Be on the lookout for ways to save cash. For example, there are certain tax deductions and breaks available to real estate investors. So do your research and save your receipts.

Take small steps to grow

As a real estate investor, it’s normal to start with one property — as a flip or rental — before diversifying into multiple properties. It’s important to know when the time is right for you to expand your portfolio. 

After a couple of years as a landlord owning one or two properties, you might consider selling that property to purchase another with more income potential. You can roll over the profit from a single-family home to buy a duplex or quadplex. 

Over time, you can continue to build your cash flow and increase the number of properties you own. Having more properties not only increases your earning potential, but it also offers a more steady stream of income. For example, you will continue to earn income while some of your properties are vacant during transitions in tenants. 

Establish relationships with other real estate professionals

As you build your investment property portfolio, take the time to develop relationships with other knowledgeable people in real estate. This includes Realtors, contractors, property management companies and other professionals. You’ll be able to rely on their expertise to make your properties stand apart from the rest of the market.

By working with a top-notch local real estate agent in the market where you want to invest, you can have an inside track on potential investment properties before they hit the market. They’ll know your preferences and can guide you toward properties that will best suit your needs. In some cases, you might be able to snap up a property before it hits the market, preventing you from getting into a bidding war with other potential buyers.

When you have relationships with contractors and builders, you’ll have the resources you need to get your properties ready faster than if you were starting at square one each time. The less time you have a property sitting vacant, the faster you’re able to start generating income.

If you’re planning on opening multiple properties, there may come a time when you need help with daily management. You can work with a reputable property management company who will take care of the logistics, such as advertising for new tenants, running background checks, and keeping in constant communication with existing tenants. A good tenant will appreciate this level of professionalism, and you’ll retain them instead of facing constant turnover.