It’s smart to start your real estate investment portfolio with one property. This gives you a chance to learn the business and understand what’s expected of you. As you become more confident and established, you’ll begin to consider expanding your rental property portfolio.
Before you go crazy buying properties, there are several things you should do first. That way, you can be prepared and set your investment up for success.
This guide will give you four steps you should take before you begin growing your rental property portfolio.
1. Learn About the Industry
While you’ve probably learned a lot with your first property, you still don’t know everything. Take this time to learn about every aspect of the industry.
Learn how to do your due diligence when finding and buying a property. Understand how different factors affect the price of a property and potential rental rates.
It helps to learn common vocabulary terms:
- Cap rate
- Cash on cash return
- Rate of return
- Net operating income
- Gross Rental Yield
- Appreciation
2. Create a Business Plan
Your first rental property could be called a hobby. But once you decide to grow your rental property portfolio, it becomes a business. This means you need to create a plan that helps you stay on track financially. Creating your plan when you’re on property number one sets you up for success when you’re looking at properties five and six.
Your business plan should include your investment goals, a financial plan, and investment strategy. This will help you plan for unexpected events while also staying on your overall goal. It helps to use the SMART method when creating your plan. This means creating goals that are specific, measurable, achievable, realistic, and timely.
3. Choose Your Investment and Analytics Tools
There are several metrics that you’ll need to track to ensure your rental properties stay on the profitable track. These include cash flow, cap rate, and rental income. If you find that a rental property isn’t making you money, then it may be time to dump it.
In the beginning, you may do all of these calculations and metrics tracking by hand. As you grow your portfolio, you’ll quickly realize this is time-consuming and complicated.
Establishing a system with property management software early on is smart. Then you can have an accurate record from the beginning. It’s also easier to add your properties as you acquire them.
You should also look for software that allows you to easily find comps. This data will help you to quickly and easily compare potential properties. That way, you can identify the properties that are the best investments. You can also use predictive and historical information to better understand the local rental market. This ensures you’re investing in the right locations.
4. Establish Your Team of Professionals
Before you start acquiring properties, you need to gather your team of professionals to assist you. A real estate attorney can help you with anything legal, including document creation and eviction processes. They can also represent you should a tenant file a lawsuit against you as the landlord.
You’ll also need an accountant or CPA. They will help you prepare your taxes and ensure you avoid paying unnecessary taxes while also paying your tax liability in full. They can also help you manage your financing agreements and other financial responsibilities.
The final person on your team should be a property manager. It’s best to choose your manager when you only have one property. This can be a test run. Then you can have a smooth-running system and established relationship in place when you add more properties to your portfolio.
Contact our team of experienced property managers today and let us help you grow your rental property portfolio.
