In many ways, real estate is an ideal investment. It can be a great way to create both immediate cash flow, and long-term wealth creation. It can help you to increase your monthly income, serve as a hedge against inflation, and can open up the door to a number of exciting opportunities, including the chance to use leverage and the opportunity for truly passive income.
But only when it’s done right.
While the returns from one or two rentals can be a good way to supplement your income, if you’d like to start generating enough wealth to live off of, or enough to set you up for long-term financial freedom, then you’re going to want to expand your portfolio and invest in multiple properties. At this stage, you might be thinking, “How am I going to manage multiple properties? One is enough work!” If this sounds like you, you’re not alone. Many investors simply lack the time (or inclination) to oversee an entire portfolio. That’s why outsourcing not just your property management, but your portfolio management as well, is an option that makes sense.
In this article, we’ll take a look at how, exactly, portfolio management works, and what makes it such a great option for any serious investor today. We’ll uncover some tips for expanding your rental investment portfolio as well.
What Is Real Estate Portfolio Management?
First up, what does portfolio management services look like?
Portfolio management is different from property management. While property management focuses on overseeing the day-to-day tasks that are involved with owning a rental, portfolio management is concerned with overseeing the entire portfolio of rental properties. This means overseeing, monitoring, and suggesting strategies that’ll help you to improve your returns.
Portfolio services is focused on providing larger investors with services that’ll make it easier for them to expand, especially if they’re moving into different markets or would like to invest in different locations. It’s also a good option if you’ve expanded beyond the point of just one or two rentals and would like help overseeing your rentals.
The best portfolio management services offer a centralized solution, so you don’t have to work with multiple people in multiple areas. Instead, you’ll have one point of contact who will be able to oversee everything for you. They should also be able to help you, not just oversee your properties, but also reach your financial goals. So instead of just monitoring your portfolio, they’ll be able to offer expert advice, including market analysis; things that will help you maximize your returns.
A good portfolio manager will help you with the following tasks:
- They can conduct a financial analysis of the rental properties – including stress tests when necessary.
This data can help you to understand exactly how your properties are performing, giving you the date that you need to make informed decisions about your investments.
- They can provide market analysis.
They should be able to assess the market conditions of a location, informing you whether they’d recommend buying in the area.
- They can provide investment advice.
They can provide advice on issues such as capital improvements that could help to increase the rent, or suggest other ways to increase cash flow. This could include advice on selling low-performing assets and tips for securing rentals in different markets that offer better yields. It might also involve diversification, something that can lower your risk and lead to better returns.
- Overseeing Transactions
Portfolio managers also oversee transactions to and from portfolios to help ensure that everything is running smoothly. Portfolio managers also help ensure that all transactions are easy to manage and should be able to keep you organized to make life easier when tax time comes around as well.
The best portfolio managers will also offer the following services and features. These are things that you’ll want to consider if your goal is to set up your rentals to offer passive income or if you’re a midsize to largescale investor:
- Standardized processes – Institutional-level reporting makes life easier and helps you to know exactly how your investments are performing.
- A single point of contact – Having one point of contact makes the entire process much easier and more streamlined as well.
- Goal-oriented – A portfolio manager can help to keep your investments on track, and should be focused on helping you to reach your financial goals.
Building a Portfolio
So how can you scale your portfolio? Here’s a look at some tips that’ll help you to be able to add high-performing properties to your portfolio:
- Set Investing Goals
First things first, it is important to start by setting clear goals. This means determining what you’d like your rental portfolio to generate for you. Would you like long-term financial security? Early retirement? Passive income? What amount do you need your rentals to generate each month in order for you to reach that goal? Next up, work on your investment strategy. This means determining how much cash flow you’d like to generate from each property: $600 a month, $500 a month? Maybe you’re looking for a percentage, some investors look for returns of 10%, others prefer for a more aggressive 12-14%. You should also determine whether you’re primarily looking for cash flow, appreciation, or both. Your goals will help to guide your investment decisions, allowing you to determine what type of properties you should invest in, and what markets you should consider as well. Different markets tend to have properties that experience different rates of cash flow, and appreciation, so be sure to keep this in mind when you’re looking for property.
- Buy Your First Property
Next up, it’s time to buy your first rental. Make sure you research the local market, to find a market that will produce the returns that you’re looking for. Take a look at our Research Center to ensure that the market you’re thinking of investing in checks out. You can view information like housing price appreciation, population growth, and more. Once you have a property in your sights, it’s important to do your homework on the property in question, and run the numbers to ensure the investment is going to generate the returns you’re looking for. Finally, you’ll want to come up with a plan for financing as well. When it comes to buying your first investment property, there are a number of ways that you can go about structuring financing for it. Just make sure you understand leverage –that is, using the bank’s money to invest in a property, allowing you to generate higher returns than you’d be able to if you were using your money alone. How you structure your deals, and the type of financing you’re able to secure (ideally, with a low interest rate) will also impact your returns.
- Grow Your Portfolio
Once you’ve invested in one property, you’ll want to think about scaling your portfolio. While many investors stop and one or two properties, with the right team by your side, you’ll be able to grow your portfolio to the point where it’s able to generate the returns that you’re looking for. While securing financing for your second or third investment property can be tricky, the good news is that the rest of the buying process is easier the second time around. You’ll have already done this once, so you’ll know the ropes and what to do when it comes to the next one. As your portfolio (and income) grows, the level of management that’s required will grow as well. The more properties you acquire, the more work it will take to manage them profitably. This is where a portfolio manager comes in. This is especially true if you’re investing in properties that are out of state, or looking for passive income that’s entirely hands-free.
- Diversify Your Portfolio
It’s less important when you have just one or two properties, but eventually, you’ll reach the point where you’ll want to diversify your portfolio. One excellent way to do this is by branching out and investing in markets outside your own local area. With this approach, you’ll be better protected should something happen to the local housing market.
Assessing Your Portfolio’s Performance
Whether you’re overseeing your portfolio or you’re having someone do it for you, it’s important to assess your portfolio’s performance regularly. This allows you to ensure that your portfolio is producing the returns that you’re looking for.
Here’s a look at some metrics that you can run to assess the profitability of your properties in it.
- Cash Flow
Cash flow can be a great tool for measuring a property’s returns. Your cash flow is your property’s income after expenses. You’ll want to calculate how much your property’s producing after expenses like maintenance, repairs, mortgage interest, insurance, taxes, and vacancies. It’s a good, basic metric that’ll show you whether you’re generating income on a property.
- Appreciation
Next up, you’ll want to consider appreciation as well. Appreciation is a long-term benefit of real estate investing, and is something that can help you to grow your investment, or at least, hedge against inflation. Appreciation varies considerably from market to market and can be difficult to predict with 100% accuracy. Still, there are some things that you can do to get an idea about how much your properties will increase in value over time. For starters, take a look at appreciation rates over the last ten years –or longer. The farther back you can go, the better. This will give you a good idea about what you can expect with your own property. In most cases, you’ll want to look for an appreciation rate that’s greater than the national average (3.5-3.8%), but that depends on what you’re looking for in a property, and whether you’re investing for cash flow or appreciation. In some markets, many places in the Midwest, for example, you can expect higher cash flow returns, but lower rates of appreciation. On the flip side are markets that tend to experience stronger appreciation but may not produce as much cash flow due to expenses being higher.
- Cash-on-Cash Returns
Another helpful metric when gauging profitability is your cash-on-cash returns. To find this figure, take your net cash flow and divide it by your investment (the amount you personally invested). You can compare this metric with other available properties in the market to see how profitable your property is.
The primary goal of a portfolio manager is to help you to get the best returns for your capital and to help your investments perform their best. Whether that’s offering you suggestions on ways to improve your portfolio’s performance, giving you advice on new markets to expand into, or helping you to find a way to command the best price possible for your properties. It’s a great way to maximize the value of your portfolio and the best way to establish your investments so that they will operate independently of you, meaning true passive income –and the chance to set yourself up for financial freedom and long-term wealth creation.
Thinking of outsourcing portfolio management? At Renters Warehouse, we can help. Meet Our Portfolio Management Team. One of the best places to start is with a rental property portfolio assessment. This will allow our experts to take a look at what you have, what your assets are generating, and help you to create a plan that’ll help you to get the most out of your investments. Our team can assist with everything from rent increases, to balancing out your portfolio with higher-performing assets, and more –so that you can get the best returns possible. Reach out today for your FREE Rental Property Portfolio Assessment.
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