Diversifying your portfolio of rental properties is a strategy that most real estate investors know and follow, but how does one realistically build upon the number held in a portfolio? How do you scale up your real estate portfolio to create more profits and a stronger business?
Adding more properties to your portfolio is critical to a continued positive cash flow, reaching financial freedom, and accomplishing your larger goals. You already understand that diversification is necessary to guarantee money keeps flowing in on the positive side. When I mention diversification, I’m talking about both the number of units and the location. Say something happens with a few of your rentals in one area. You still have others to fall back on, and you can stay above the red line.
Your expenses are expected to be continually on the up-and-up due to inflation. Taxes, food, healthcare, and your personal housing costs will keep increase for the remainder of your life. Be certain to take into account that once you reach one level of success, you will once again reset your goals to arrive at a higher level of achievement.
So, How Many Rentals Are Enough?
That question is best answered by using an individual equation. The answer is related to where you hope to be financially. It’s possible that you only need ten units to get to you “financial freedom number.” For other real estate investors, that number could be one-hundred or ten-thousand units.
One thing that you should always expect in your real estate investing career is the process of cycling through units. Aging properties might be replaced with more profitable units in promising markets or trading up from your ten single-families to a large apartment building.
Obstacles To Scaling Up
Whenever you move from one phase in life or business into another, you will face obstacles and challenges. They call these growing pains. This fact is true when you expand your investment portfolio. Challenges include finding the right contractors, bringing the right people onto your team, dealing with the distance between your properties, and maintaining an excellent level of customer service. There are many rewards to being a real estate investor but beware of creating a full-time job for yourself. If you are scaling up, remember to put systems in place to make the growth seamless.
The Keys To Smart Growth
To realistically grow your rental portfolio, put the following three keys into your business strategy.
- Systems: A Plan of action that uses processes, procedures, and methods to reach specific results.
- Teams: Create a strong team of people who are connected to your business; working for you and with you.
- Cash: Is king and allows you to have options
Efficiency at every step will keep you from under average results. Missing deadlines and closing on too few properties will hurt you. The fact is— you can scale up quickly, but it may not be healthy if you’re not ready for it. Keep a strong framework and a talented team so your business can operate itself even when you’re not there.
In this era of real estate investing, there are many ways to increase your portfolio for even the busiest of professionals. New technology, better access to information, and the advancement of cloud-based systems attract those from a broad spectrum; from the most sophisticated investors to turnkey rentals and real estate crowdfunding. To break it down, how many rentals you need is math you must figure out. Find your financial freedom and retirement goals and work backward from there.