Things to be Aware of in Order to Properly Build a Rental Portfolio
Real estate and rental properties are popular options for investors that are not only looking to diversify their investment portfolios, but also earn long term income. In order to build a strong rental portfolio, there are a few things that need to happen. Without taking the time to properly diversify, and strengthen your portfolio you risk losing money on certain investments, and potentially missing out on other great investment opportunities. When building a rental portfolio it is important to always remember that while there are benefits to doing so, there are also risks and things to be aware of as well. Here are a few tips to help you build a strong, and diverse rental portfolio.
Tax Benefits
Like other businesses, when you own a rental property and hold on to your receipts you are generally able to write off most of your business expenses. Common tax deductible expenses include mortgage interest, insurance, homeowner association fees, real estate commissions, maintenance, advertising, legal fees, and utilities.
Not Knowing Your Markets
When it comes to rental real estate one thing that is always a key factor in not only the value of a house, but also its appeal to potential tenants is where the property is located. If you are able to purchase a rental property in a desirable area that is not only attractive to the eye, but also offers educational, recreational, and employment opportunities the likelihood of your property renting quickly goes up dramatically. That said, investors who simply focus on the price of a property as opposed to the actual location and market that it is in, often find themselves with properties that end up sitting vacant and end up losing money on a monthly basis.
Not Having Enough Money in the Bank
Real estate investment is an expensive thing to do, whether you are looking to fix up fixer-uppers and sell them for profit, or you want to focus primarily on rental properties, if you do not have enough money to take care of problems as they come up, your property and ultimately your business and entire portfolio with suffering. For investors focusing primarily on rental properties, there is the benefit of regular monthly income – once you secure a reliable tenant – that said, if your property is in need of a lot of work upon purchase, odds are you will not be able to secure such a tenant without having these done beforehand.
Consider Investing in More Than One Kind of Real Estate
A real estate is a great option for investors, and people looking to build equity and long-term income, however, refusing to at least consider investing in more than one kind of real estate is the equivalent of putting all of your eggs in one basket. Investing in different kinds of real estate – be it rental houses, flipping houses, or commercial allows you to have a more diverse portfolio. Additionally, it allows you to branch out and become more educated on real estate investing as a whole, preparing yourself for whatever lies ahead.