Investing in real estate is a great way to diversify your stock portfolio and generate passive income for years.
If real estate investing is new to you, it can seem confusing. But don’t let that stop you from building your first portfolio of real estate assets. Real estate can be intimidating at first, but like anything else, educating yourself on how it all works will make it much easier.
In this article, let’s discuss eight steps to build your first real estate portfolio.
Build Your First Real Estate Portfolio in Eight Steps
1. Educate Yourself
The first step in building a successful real estate investment portfolio is to educate yourself on the basics of the industry. By reading this article, you’ve already started doing that!
There are several ways to educate yourself about real estate investing further.
You can read books, attend seminars, and take online courses to learn about different types of real estate investments, such as rental properties, fix-and-flips, and REITs. This will help you make informed decisions when selecting your investment strategy.
If you are a podcast person, I highly recommend the Bigger Pockets podcast. Each episode contains a wealth of information about RE investing for beginners and seasoned real estate professionals.
2. Define Your Investment Goals
Before you start investing in anything, it's important to define your investment goals. Nobody should start investing “just because.” Having concrete goals will help you to achieve them.
Are you looking for short-term profits, long-term appreciation, or a combination of both? Do you want to focus on one particular market or diversify your portfolio across different regions and property types? Having a clear understanding of your investment objectives will help you stay focused and make better investment decisions.
Note that most real estate investing is set up for long-term profit generation.
3. Create a Budget
Real estate investments can require a significant amount of capital, so it's important to create a budget before you start investing.
Calculate how much money you can afford to invest and consider the potential returns on your investments. Don’t invest any money you need within the next two years. This will help you determine which properties and investment strategies best suit your financial situation.
4. Decide on Your Investment Strategy
There are many different real estate investment strategies to choose from, such as buying rental properties, flipping houses, or investing in REITs.
When selecting your strategy, consider your investment goals, budget, risk tolerance, and how active you want to be. For example, rental properties may be a good choice if you're looking for a long-term investment with stable cash flow. On the other hand, if you're looking for a quick profit, fix-and-flips may be a better option, though flips generally require a lot of work.
Real Estate Investment Trusts, or REITs, are good options if you're looking for a hands-off real estate investment option. REITs are traded similarly to index funds or ETFs directly on the stock exchange and give investors exposure to real estate projects around the world.
5. Start Small
I’m generally a big fan of diving in head first with new things, but with investing in real estate (or anything, really), I wouldn’t do that.
When building your first real estate investment portfolio, it's important to start small and focus on one or two properties at first. This will help you gain experience and learn from your mistakes without risking too much capital. As you gain more experience and confidence with real estate investments, you can gradually expand your portfolio.
6. Conduct Thorough Research
Before investing in any property, it's important to conduct thorough research. Never invest in something that you don’t clearly understand.
This includes analyzing the local real estate market, evaluating potential rental income, and assessing the property's condition. Researching the property's history and any potential issues, such as zoning regulations or environmental concerns, is also important. If investing in a REIT, consider the REIT’s historical performance and the types of real estate projects it covers to make an informed decision.
7. Build a Team of Professionals
Real estate investing can be complex, so it's important to build a team of professionals to help you navigate the process. This can include a real estate agent, property manager, contractor, accountant, and attorney. Having a team of experts to consult with can help you avoid costly mistakes and ensure that your investments are profitable.
Note that your “team” could also be a couple of friends who know about real estate investing.
8. Monitor and Adjust Your Portfolio
Once you've built your real estate investment portfolio, it's important to monitor it regularly and make adjustments as needed. This includes tracking rental income and expenses, assessing market conditions, and evaluating potential investment opportunities. This is especially true if you’re looking at flipping houses, as the price you get for the house will greatly impact your profit later.
Staying up-to-date on industry trends and regulatory changes is also important.
Building a Real Estate Empire
In summary, building your first real estate investment portfolio can be a lucrative and rewarding experience, but it requires careful planning, research, and execution. Follow these steps to increase your chances of success and build a profitable portfolio that generates long-term wealth and passive income.
This post originally appeared on Wealth of Geeks.
Steve Adcock is an early retiree who writes about mental toughness, financial independence and how to get the most out of your life and career. As a regular contributor to The Ladders, CBS MarketWatch and CNBC, Adcock maintains a rare and exclusive voice as a career expert, consistently offering actionable counseling to thousands of readers who want to level-up their lives, careers, and freedom. Adcock's main areas of coverage include money, personal finance, lifestyle, and digital nomad advice. Steve lives in a 100% off-grid solar home in the middle of the Arizona desert and writes on his own website at SteveAdcock.us.