Single-Family Rental Portfolio Investing - Scaling Fast in Real Estate Systematically
A portfolio sounds fancy, but it’s actually a simple concept that unlocks a major wealth builder: it’s just buying more than one property. As long as properties are bought or sold together, it’s considered a portfolio.
Why Buy a Real Estate Portfolio?
Buying real estate portfolios is powerful when done properly. It’s a great way to build a collection of cash-flowing properties quickly, and it also allows real estate investors to penetrate deeper into a target market faster than buying properties one at a time.
There are other benefits, as listed below:
Real estate portfolios tend to come with property managers. That doesn’t mean that you have to keep them but a good property manager allows you to recapture your time.
You don’t have to sell the entire portfolio; selling individual pieces of the portfolio is still possible.
There are solid 1031 tax benefits to portfolio investing.
It’s easier to finance the portfolio than trying to buy each property separately.
Community banks tend to be incentivized to give loans for portfolio investing since it directly benefits the community.
Real estate portfolios tend to trend where the collection focuses on one type of property. This also makes it easier to maintain, since you can have a contractor focus on the common issues of one property type versus a wide mix. Discounts on labor and other services are easier to gain when there are multiple properties to bundle together. Contractors will routinely cut deals on work for clients that have a portfolio full of properties to maintain.
Pitfalls of Real Estate Portfolios
It wouldn’t be fair to only present the upside of real estate portfolio investing. What about the downsides, the cons, the pitfalls? Here’s what you need to know before you get the ball rolling on buying portfolios:
The details matter, because they’re magnified: if one property isn’t performing, chances are good that others are in trouble. The numbers matter in real estate, but multiple properties do make a difference.
Increased costs. Can things even out? Certainly: the repairs on one property may balance out another property that tends to be low maintenance. It can, of course, not work out that neatly.
Portfolio investing requires commercial loans, which may require periodic refinances. If you don’t have an LLC or another business structure, it’s wise to get started on that first.
It can be hard to sell part of a portfolio, as other portfolio investors prefer to buy the whole enchilada.
There are increased travel costs when handling a real estate portfolio compared to a solo property.
Since property management be
comes more important, it is possible gaps in management will require more of your time compared to a single property.
Most successful portfolios have a common theme, which means that mixed-portfolios can have an uphill battle for investors looking to sell and get out of them. Remaining creative is incredibly important in real estate, and portfolios are no exception to that rule.
Where to Find Rental Portfolios in Your Area
Looking for real estate portfolios isn’t tricky, but it does require consistent searching. You can search for real estate portfolios on your local MLS, as well as going deeper and reaching out to your local real estate community. Local investors are often willi
ng to form partnerships to pick up big portfolio packages.
A real estate agent you trust can be an incredible source for portfolio investors; keep your ear to the ground and be open to new opportunities.
Don’t ignore services like LoopNet or Zillow and search around. Portfolio packages are just about everywhere you look. Once you begin getting serious, you may be surprised at how many deals find their way to you!
Getting Creative to Get Into a Real Estate Portfolio
In a perfect world, you’d have unlimited resources. Yet like economics, life is about navigating limited resources and unlimited desires. Sometimes financing real estate portfolios requires getting not just creative, but proactive.
Even if a listing for a portfolio deal doesn’t indicate seller financing is available, it’s a good idea to put forward a seller financing opportunity anyway. Seller financing is a great way for the seller to still unload the properties without having to handle their upkeep.
Hard money loans are another possibility, so keep looking over every deal carefully. Getting financing for your first portfolio is the hardest part. After you’ve established yourself as someone that can handle portfolio deals well, you might be amazed at how often investors find you!
Take Your Time with Real Estate Portfolios
Far too often it can be tempting to rush in and grab any portfolio package just because it’s a bundle of properties. Take your time; the need for due diligence doesn’t go away with real estate rental portfolio investing. If anything, the need for due diligence becomes even more important. Good luck and happy hunting!