How to Build a Real Estate Portfolio & Quickly Scale Your Investments

You have to work hard to build a real estate investment strategy.

Just because you own real estate doesn’t mean you have a real estate portfolio. It takes time and careful planning, and you must be intentional about investing in real estate. A solid strategy guiding your buying and selling habits can help you build your real estate portfolio and track your results.

Once you have a strategy for buying an investment property and have created a real estate portfolio demonstrating your ability, you can scale your real estate business and achieve your financial goal. Your real estate portfolio proves to other real estate investors and lenders that you have a record for success.

This guide for new investors will help you know how to build a real estate portfolio, scale your investments, and grow your business.

What Is a Real Estate Portfolio?

Your real estate portfolio is a collection of past and present assets that you manage with a specific financial goal in mind. Property portfolios include rental property investments such as single-family homes, vacation rentals, and real estate investment trusts (REITs). It could also include alternative investments like raw land, commercial properties, or other investment properties. The holdings in your portfolio typically earn you cash flow or will provide a lump sum when you sell them in the future.

Start by setting a timeline for your financial goal, and then develop an investment strategy that aligns with it. Adding more assets to your real estate portfolio will help you build your net worth because you have a clear vision and plan for achieving your goals.

Some level of risk is always involved when investing in real estate. So part of putting together a rental property portfolio is determining your level of risk tolerance. To reach your financial goal, you’ll have to take risks. Knowing how much risk you will take before you find the next investment property is key to building wealth.

Keep your objective in mind when considering diversifying your real estate investment portfolio. The property portfolio is like an investor’s resume, so make sure you include investment assets demonstrating your ability to generate positive cash flow.

How To Build a Real Estate Portfolio

Purchasing your first investment property is important, but building a robust real estate portfolio requires owning multiple properties. Think of it like a resume—when you have more job experience, it showcases your abilities and accomplishments. Similarly, owning multiple properties demonstrates your prowess in real estate investing.

Investing in real estate is no different. You must have a few rental properties before having a real estate portfolio and proving yourself in the real estate world. But how do most investors build an entire portfolio from one investment?

These steps can help you build a real estate portfolio that takes you from owning one property to diversifying your investment assets and providing you with rental income:

Double down on your investment

Initially, a real estate investor may want to double down on their investment. This could mean various things, but ultimately, you’ll go from owning your first investment property to having an impressive real estate portfolio that generates a passive monthly income. 

Consider doubling down if:

• Market conditions call for it: When an economic downturn affects the real estate market, many investors will shy away from deals. However, it’s better to double down and buy when prices are low.
• Your financial situation allows for it: Doubling down can also mean you put more cash toward your mortgage each month to quickly build equity in your initial investment property.
• It gives you leverage: Paying more toward your mortgage each month builds equity, so when you start looking into financing options for your next deal, you’ll have more leverage and power to negotiate because you’ve made good investment decisions.
• It gets you closer to your financial goal: Value-add opportunities like doubling down on your investment get you closer to your financial goals. Whether you’re looking to buy more single-family properties or add multifamily and commercial real estate to your investment portfolio, doubling down can help you get there faster.

Embrace exponential growth

You can embrace exponential growth by having a growth mindset. When you let go of fear and start investing with a mindset that allows you to take your real estate business where you want it to go, you’ll see unlimited rental income potential. Start setting your sights—10X higher—than what you think you can achieve, and work to reach your financial independence goals daily.

To supercharge the growth of your real estate portfolio, you can adopt an exponential growth mindset and explore these exciting real estate investing methods:

• Buy and hold: Buy and hold means buying properties and holding them, hopefully collecting rent while you do. Typically, many investors intend to sell their real estate investments at some point for a profit.
• Syndication: Real estate syndication is when you pool your money with other real estate investors to buy commercial real estate or another investment property you couldn’t afford otherwise. This strategy has many tax benefits, but you must be a qualified investor to add syndication to your real estate investment portfolio.
• REITs: REITs own a broad range of real estate asset types that produce income. You can purchase shares of REITs on the stock market, as most of these companies are publicly traded.
• Fix and flips: Buying a distressed property, fixing it up, and selling it for a profit is called a fix and flip. You can see massive growth in your real estate portfolio with fix and flips because you can use the capital gains from selling the house to give yourself more capital to purchase more property.
• BRRRR: Buy, rehab, rent, refinance, repeat (BRRRR) combines the fix-and-flip method with the buy-and-hold method. Like with a fix and flip, you’ll find and rehab a home that needs repairs. When it’s ready, you can rent it, wait for interest rates to improve, refinance, and use the equity to make a down payment to invest in another rental.

Diversify your investments

Diversifying your investments means you have different types of real estate in your investment portfolio. Investing in various property types can protect you if something happens in your local market. Consider diversifying your real estate portfolio by:

• Increasing your reach: Purchase property in different areas of town and even in different locations in the country. The more reach you have, the less likely a downturn in the economy will hurt your bottom line.
• Including multiple asset classes: Don’t put all your eggs in one basket! A diversified investment portfolio includes investing in multiple types of properties. Consider including a mix of raw land, office buildings, commercial spaces, or even residential houses. This way, you spread your risk and increase your chances of success across different sectors.
• Creating a plan: Put an investment plan in place, and stick to it. You might need to start investing in single-family houses, but you can work up to duplexes, apartments, and commercial buildings if it’s part of your strategic plan.
• Balancing risk and reward: As you scale your real estate business, you must understand every deal’s risk versus reward. Balancing the two can help you boost your investment assets to a higher level. Use a real estate calculator to quickly determine the profitability of your current assets. This will help you determine when to sell and when to hold.

Build a strong network

Real estate investors with a team working with them are more likely to succeed than those who do it alone. Building a strong network of people who understand the real estate business and what goes along with it can connect you with others who can and want to help you reach your financial goal. 

On your team, you want the following:

• Agents: Real estate agents are invaluable allies who can provide you with early access to properties as soon as they become available. They may even have insider knowledge about upcoming deals and important details in other markets, giving you an edge in preparing and making competitive offers. Building a relationship with reliable agents is crucial for staying ahead in the market.
• Lenders: Having trusted lenders is essential when seeking financing options for your real estate investments. Whether you need a traditional mortgage, hard money loan, or fix-and-flip loan, having a reliable lender can simplify the process and provide the financial support you need to acquire your next property.
• Contractors: Plumbers and electricians are just two examples of contractors you want to know. These individuals are invaluable for getting your property ready to rent or sell.
• Title companies: Title companies deal with transferring a home’s title between owners and handle a lot of the paperwork that goes along with investment property ownership. Having a title company you work with can make buying rental property easier.
• Financial advisors: Financial advisors can guide you on your investment strategies and help you learn how to reduce your monthly operating costs. They may also have insight into tax benefits that will help you save.
• Other real estate investors: Surround yourself with like-minded individuals who can share their struggles and failures and can give you insight into the real estate business that helps you overcome your challenges. Listen to their guidance in areas where they have more experience than you.

Keep up with ongoing education and analysis

Keeping up with ongoing education is one of the key indicators of a successful real estate investor. Real estate is an ever-changing industry, and if you want your portfolio to provide the passive earnings you desire, you must constantly educate yourself about real estate and changes in the industry. You can use various sources, such as BiggerPockets forums and podcasts, to keep up with current market trends.

The analysis is another part of building a scalable real estate portfolio. Knowing your improvement costs versus your rental income helps determine whether a property fits your investment strategies. Tracking metrics is a great way to know where you can improve to increase the value of your portfolio.

Know your numbers

You must know your numbers if you expect your real estate investment portfolio to grow. Not only do you need to know how much your portfolio is worth, but you also need to know how much you want it to be worth. If you need a loan, whether a hard money loan, private lender, or conventional loan, you’re more likely to get the financing you need if you know your numbers. A lender will be impressed if you know the financial details of your deal, like the cap rate, net operating income, and rental rate estimate. It could lead to more loans in the future—perfect for those who have money tied up in other investments.

Benefits of Building Your Real Estate Portfolio

Real estate investing requires time and money, but building your portfolio can lead to financial independence. Eventually, you can make property management and investing your full-time job. When you have a decent portfolio, you may want to hire a property manager to oversee the day-to-day details of your rental properties so you can focus on building your investment assets. Property managers can handle things like collecting rent and finding great tenants.

Aside from being able to hire a property manager, building your real estate portfolio has these benefits:

Passive income

The more rental homes you own, the higher your passive income. Buying real estate in the right areas can help you earn top dollar when you go to sell, but it can also mean better cash flow when you rent the house. Adding investment assets to your portfolio that increase your cash flow, such as commercial or multifamily properties, gets you to your financial goal sooner.

Tax advantages

Real estate investors get many tax benefits for having rental property investments. You can write off property taxes, mortgage interest, real estate manager fees, property insurance, and ongoing fees, including maintenance and marketing. When you sell a real estate investment, you pay capital gains taxes instead of income tax on the profit, and you can use a 1031 exchange to defer the capital gains tax if you buy another investment property.

Leverage funds

Building your real estate portfolio allows you to leverage funds more easily. Whether you’re financing your deal through private lenders or you want to qualify for conventional financing, a solid real estate investment portfolio demonstrates your ability to turn a profit. This gives lenders confidence in your ability and improves your chance of getting a loan.

Inflation hedge

Property value tends to rise when the prices of goods and services increase, meaning you can increase rental rates as inflation rises. Property appreciation gives you some protection against inflation because you can increase your investment income as the prices of everything go up. You can also sell real estate for higher prices when overall costs are up.

Build equity

As you pay down your mortgage, you gain equity in your investment property. Equity is how much of your home you own. If the value of your house increases, you’ll also have more equity. You want to have properties with equity in your real estate portfolio because it gives you more leverage when you borrow money.

When Is the Right Time To Build Your Portfolio?

Many start their investment portfolios by investing in stocks, bonds, and mutual funds in their 20s or 30s. However, the right time to build your real estate investment portfolio will depend on your age, income level, and risk tolerance. A steady income helps you save a lump sum for a down payment faster and gives you a better chance of qualifying for a conventional mortgage.

Starting your real estate investing journey as early as possible can accelerate your progress toward your goals. However, it’s crucial to prioritize education and knowledge before diving into real estate investing. Take the time to understand your goals, set realistic expectations, and develop a solid plan for building your real estate portfolio. Purchase a single-family home that aligns with your plan, and continue expanding and diversifying your real estate portfolio until you achieve or surpass your goals.

Do You Need Help Making SMARTER Real Estate Investing Choices?

Having real estate investors with experience and knowledge on your side can be the tool you need to succeed. Successfully investing in the real estate business requires flexibility, patience, and savvy negotiating skills. You can learn from real estate professionals who have been around the block. That’s why the team at BiggerPockets has created many tools designed to guide you as you navigate building your real estate portfolio and achieving financial freedom.