How to Scale Your Investment Portfolio

Are you interested in growing your real estate portfolio? If you are in an appreciation market versus a cash-flowing market, the heavy lifting is done for you. Instead of making $5,000 per year in cash flow, properties in an appreciating market are generating $20,000 or much more per year in equity. This will help grow your portfolio and create a snowball effect. The key is to keep reinvesting your proceeds back into the business and not using it for other activities. 

If you already have an investment property that you have owned for at least 5 years, chances are you have a good amount of equity that has been created. With that equity, you can cash-out refinance your property, and pull out 70%-80% of the property's value. You can also sell your property and pull out all of your equity in the property (minus the fees associated with selling the property). From there you can then reinvest that into a much larger property or multiple properties tax-deferred by using a 1031 exchange.

Look at what investment properties cost in your target market.  Take 20% of that to figure out the minimum amount you would need to purchase your next property.  These funds can come from cash, stocks, a 401k loan, or a self-directed IRA. If you are looking to invest and do not have the access to the down payment, partnering with someone is the best way to move forward. If you can find a good deal, finding an investor to partner with will be relatively easy. Also, finding a seller who is open to seller financing is difficult but not impossible.

Here are some things to consider when adding to your portfolio:

• Do you want to purchase a property that needs repairs or something that is rent-ready?

• How much do you have for a down payment (how much property can you afford)?
• Where do you want to invest (up-and-coming area, high-end, suburban, lower rent, etc.)?
• Are you going to have professional management or self-manage?

If you are looking to transition your portfolio to a more passive investment, there are a few options for that. You could become a hard money lender, enter a syndication, invest in commercial properties, or be the financial backer on an investment. For these options, you would not able to use a 1031 exchange and you would need to pay capital gains taxes on these investments. However, you could invest in a Delaware Statutory Trust (DST) and roll funds into that from a 1031.  

Scaling your investments is tricky but figuring out which path you want to take is the first step in growing your portfolio.