Thinking of Expanding Your Real Estate Investments? 9 Tips for Success

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For anyone who already owns a few pieces of real estate, this is the read for you. With a real estate market this hot, especially in the Lehigh Valley, you’re ready to take steps towards improving and expanding your portfolio of assets. But juggling real estate investments is not the same game as the stock market. There are proven steps to take first, pitfalls to avoid, and best practices to leverage for the greatest potential ROI. This is the guide you need to identify those key pillars so you can grow your portfolio in today’s market.

1. Evaluate the Real Estate Investments You Have

Growing your portfolio of real estate assets means first understanding your current position. Sit down with your books and data to gain a comprehensive knowledge of every detail. Where are you making money? Which aspects of your current portfolio are problematic? From there, you can create a list of goals for yourself to improve. You can’t realistically expect results from any new investment strategy without first outlining objectives and current positioning.

The data points you’ll want to evaluate include:

Net Cash Flow: the annual income of a property minus the annual operating expenses.

Cash-on-Cash Returns: net cash flow divided by your initial investment. 

Economic Vacancy Rate: multiply the number of vacant units by 100, then divide by the number of total units. 

Property Appreciation: property value of each of your investments and track the appreciation rates over time. 

2. Start with Small Improvements First

Before committing to any overly ambitious attempts to grow your portfolio, start small and test your strategies. Increase your property’s value. Look for ways to cut operating expenses. Introduce ancillary revenue channels with your current roster of properties. Taking small steps first will help you build a strategy for larger improvements or portfolio expansion efforts rooted in experience. And making mistakes with small changes won’t likely be as costly as making similar mistakes with big decisions.

3. Identify What Investment Strategies Work Well

Before you build anything, you need to have a strong foundation. Expanding your real estate investments successfully will require proven pillars and methods. So, take the time to evaluate what works well across your existing properties. What have you done right? What continues to be a method that works? Which properties achieve the highest levels of success for you. Using those indicators as your benchmark, you can begin building upward based on those efforts that have already proven to be successful for you. Of course, how you secure tenants for a residential property will vary from marketing a commercial vacancy, but the root strategies can be duplicated.

4. Study the Current Market Conditions

The market may be very different now than it was when you first started in the real estate investment business. Before you make any significant moves, do your homework on the latest market influx. It’s hot out there, pretty much anywhere you look. And the local agents, brokers, and lending professionals can be invaluable resources of knowledge. You can’t expand your investment portfolio if you don’t have a clear understanding of buying, selling, and financing trends. Making purchasing and listing decisions with your portfolio is not something you want to do in the dark.

5. Diversify Your Real Estate Portfolio

Expanding your portfolio doesn’t necessarily mean you have to stick with one niche of property types. In fact, most of the real estate investment experts will suggest you look to diversify your assets. If you’re predominantly managing residential, single-family rental property, for example, maybe it’s time to find a multi-family unit or expand your portfolio to include commercial property. Maybe the perfect cash flow complement to your current investments involves fix-and-flip properties, REITs, land purchases, or vacation rentals. The idea is to identify which property types can represent strong income sources, especially during the periods of time when your other property types may be slow to earn. 

6. Get Comfortable with the Numbers

Getting to this point of success with your current roster of real estate properties has taken some degree of finesse and savvy financial strategy. But if you plan to grow your portfolio, you’ll need to take your comfort level of numbers and finances to another level. Live and breathe the data ongoing, know the one-percent rule, and become an expert at spotting great income-generating properties when you see them.

Consider these aspects of real estate investing to be your core elements:

Return on Investment: Have clear definitions for your investment objectives and look to evaluate any new opportunities through a lens of ROI. Is it worth investing for cash flow right now, or are you looking for appreciation returns? 

Economic Occupancy: This is a numeric percentage that represents potential gross income on a property. You can use this percentage of potential revenue over a month, a quarter, or a year, to compare with investment costs and risks. 

Maintenance and Improvement Expenses: Not all properties you consider will be fixer-uppers, but there will always be maintenance and improvement costs. You’ll want to compare the investment required to make a space more marketable, of higher value, or more desirable to potential tenants. 

Monthly Operating Expenses: In calculating your one-percent rule figures, you’ll want to quickly identify what operating expenses will be taking chunks out of your cash flow. Hard operating expenses, like utilities, will always be a factor in your ROI decision.

7. Asset Allocation and Portfolio Growth

Asset allocation refers to the step in which you determine which properties are most likely to get you to your goals. Find those that have the highest probability of achieving your objectives with the least amount of risk. Those will represent the heartbeat of your portfolio and can help you gauge growth strategies that aren’t too aggressive for what your portfolio can withstand. The healthier your core assets are, the more risk you might be willing to take on new ventures. The fewer core assets you have driving the bulk of your portfolio success, the less risk you may want to take.

8. Real Estate Investment Management

If your current real estate investment only consists of one or two small properties, you might be content to handle the management of those assets yourself. However, when you’re expanding your portfolio, you’ll want to consider developing a new method for property management. That might include working with a property management firm, real estate and tax accounting professionals, and financial advisors who can help ensure proper maintenance and management of every detail. Those partnerships will also come at an additional cost, so be sure to evaluate those expenses with the addition of new properties to your portfolio.

9. Don’t Be Hesitant to Get Professional Advice

Successfully expanding and managing real estate investments involves sets of skills that not everyone will have. There are finances, investing strategies, tax deductions, and lending terms to know. But there are also property conditions, construction basics, contractor management, and repairs to expect. You’ll also need to have some degree of marketing and sales knowledge to actively promote property vacancies and attract residents or commercial tenants. Then there’s an entirely other legal side to real estate, especially where rental property is concerned. Unless you’re a general contractor who also happens to be a lawyer, a CPA, a loan officer, a digital marketing specialist, and a plumber, these skills aren’t necessarily strengths for everyone. The best way to ensure success as you expand your portfolio is to identify when you need help and align your efforts with professionals who can help you reach your objectives.

Consider these tips as you explore expanding your real estate investment portfolio. And for more insights regarding the real estate market, closing, and more, let New Door Property Transfer be your guide!

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