How to Build a Real Estate Investment Portfolio That Works for You

Besides primary home purchases and sales, the biggest area of curiosity for our clients is investment real estate. There’s an allure to the idea of building wealth through owning buildings. After all, you can essentially have someone else pay off your properties for you with the rental income. Earn the benefit of appreciation in value over time. Have some tax shelter while you have depreciation benefits on the property and deduct expenses to maintain them.

All of these examples are great reasons to acquire and hold real estate as an investment — but under the surface, it’s a bit more complicated. Generally speaking, it takes more money to get into the investment game than most people realize. Financing options, even when you have the available funds, can be a little more limited than primary property financing options (or carry a higher interest rate). Inheriting tenants from the current property owner often comes with issues, too.

I mention all of these things not to scare you away from using real estate as a wealth-building tool, but rather to emphasize that — like most things — there is more to it than meets the eye.

One of the things I’ve also noticed over my years in this business is that the people who build profitable real estate portfolios all share one thing in common: they leverage their skill sets and talents, their scenario, as well as their relationships and connections, to succeed.

I’ll share a couple of stories to illustrate my point.

One of our clients is a contractor by trade. He has full-time employees and a team of subcontractors that he uses on his customer’s projects. Their work includes additions, remodels of existing space, roofing, siding and window replacement. At his fingertips, he has everyone he needs to renovate a home from foundation to rooftop.

Over the years, he’s bought properties that need significant renovation in desirable locations. Some of these properties were good enough buys that he could have easily renovated and flipped them for a quick profit. However, he recognizes that the key to long-term wealth building is to buy and hold. So, once renovated, he’s rented them out and kept them as income-producing properties.

Another smart thing about his process is that he times his purchases. What I mean by that is, he looks to acquire properties he can work on in his slow season of November through January or February. It gives him and his crew something to work on if they are light on projects for customers.

As a second example, we have a client who owns several properties which she converts to investment property after using them personally as a primary residence. To put it simply, she moves and purchases a new property every few years. Then, rather than selling the property she is living in, she retains it and rents it out.

The advantage here is that each time she buys another primary residence, she is able to take advantage of owner-occupied financing options, which generally yield better lending rates as well as terms that require lower down payments.

If there’s one thing I regret out of all the moves I’ve made in real estate, it’s that I did not buy something the first time that would have been a viable investment property later. If you’re getting ready to buy your first home and would like to explore this as an option, I suggest checking out our article First Home Buying 101.

I hope these examples get the wheels turning as you think of ways to leverage your skills, your scenario, and your connections to build a real estate investment portfolio that will serve you well and help you achieve the objective that it should: building wealth. And if you’d like to delve deeper into the possibilities for your unique situation, don’t hesitate to contact us!