How to Create a Multimillion-Dollar Real Estate Portfolio

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How to Create a Multimillion-Dollar Real Estate Portfolio (Photo by Monstera from Pexels)

Is it necessary for real estate investors to learn how to construct a portfolio?

There are several ways to invest in real estate, with something for everyone. However, learning how to build a real estate portfolio is the first rule for those looking to build long-term wealth by growing one investment property into several.

A real estate portfolio is a collection of various investment assets that are held and managed in order to meet a financial objective. It's a strategic database of current and past real estate investments, such as rental properties, rehabs, and REITs (Real Estate Investment Trusts), with the goal of making money.

Although no two real estate portfolios are alike, the elements that make up yours are usually determined by a mix of factors such as your goal, time horizon, and risk tolerance.

When studying how to establish a real estate investment portfolio, investors should first assess how many months or years they estimate to invest to attain their desired goal, as well as the risk versus return strategy they intend to use to get there.

Because risk and reward are inextricably linked in real estate investing, an investor's risk tolerance will ultimately be determined by their willingness to lose some–or all–of their initial investment in order to achieve their financial goals.

Understanding how to establish a real estate portfolio, as well as why it's important, is critical for real estate investors. A real estate portfolio will function as both a resume and a marketing tool for locating and obtaining funds for future deals.

A real estate investment portfolio is, as the name implies, a collection of assets. A real estate portfolio, on the other hand, is just a collection of property investments owned by an individual or organization.

These collections, aptly named a real estate investment portfolio, demonstrate an investor's long-term accomplishments. Portfolios, in a metaphorical sense, are like a CV that lists one's accomplishments, but they may tell you a lot more if you look deeper.

The following highlights components to developing a real estate investment portfolio for anyone wondering how to start a real estate portfolio.

Though there are other ways for investors to get started, the method outlined below will be effective. In his best-selling book "How I Turned $1,000 into Three Million in Real Estate in My Spare Time," William Nickerson describes this technique. If you follow this approach exactly, you will be able to establish a real estate portfolio worth over a million dollars.

Step 1: Boost Your Earning Capacity. Obtain a bachelor's degree, a master's degree, or a certification program.

Step 2: Make a backup. You should set aside 20% or more of your earnings. These savings will rapidly accumulate over time. If you need motivation, read George S. Clason's "Richest Man in Babylon."

Step 3: Educate yourself on real estate. Join an investment group, read every book on real estate investing you can find, or take some courses to become a real estate agent or broker.

Step 4: Purchase Your First Home. When you have $20,000 in your savings account, use it as a down payment on a $100,000 rental property.

Requirements:

  • Must be in a market that is experiencing rapid population and job expansion.
  • You must time your purchase to coincide with the market cycle's expansion phase.
  • Must be purchased at a discounted price.
  • After all expenses, the rental house must be profitable (ex. 7 percent vacancy allowance, property taxes, insurance, HOA, maintenance, mortgage). Download the Annual Property Operating Data (APOD) template if you're not sure if you're doing it right.
This is your very first money-making machine. If every home satisfies the criteria listed above, it will become increasingly easier to find your next one.

Do you believe it's impossible to find these kinds of properties? It is currently possible in this market! Tip: Take a look at the country as a whole.

Step 5: Refinance and cash out. When the value of your home has increased to around $165,000, contact your mortgage broker and refinance the loan at an interest rate of 80%. You will receive a check for $52,000 ($132k-$80k) from the bank. Because it's technically a loan, this money is tax-free, but you'll use it to buy more cash-flowing properties.

Step 6: Purchase two more rental properties. The conditions outlined above must be met by all properties. You'll now be the proud owner of three cash-flowing investment homes in rising markets.

Step 7: Refinance and cash out. Call your mortgage broker and refinance the loan at 80 percent once the value of your two new investment homes has increased to around $165,000 apiece. You will receive a check for $104,000 from the bank (2 x $132k-$80k).

Step 8: Purchase a total of four additional investment properties. The conditions outlined above must be met by all properties. You'll now be the owner of seven cash-flowing investment properties in rising markets.

Step 9: Refinance and cash out. When the value of your four new investment homes has risen to around $165,000 apiece, contact your mortgage broker and refinance all of your loans at an 80 percent rate. You will receive a check for $208,000 (4 x $132k-80k) from the bank.

You've achieved the maximum amount you can borrow from Fannie Mae for a bank loan (ten loans). As a result, you'll need to identify a portfolio lender (a bank that services its own loans) or a (c) securitizing portfolio lender to put future loans in their name while you put all the money down, acquire, manage, and collect the cash flow from the property.

Step 10: Purchase an apartment complex OR eight more investment properties. The conditions outlined above must be met by all properties. You'll now be the owner of seven cash-flowing investment properties in rising markets.

Remember that as an investor, you're offering an important service to your tenants, who are paying consumers. You are renting out clean, well-maintained homes to people who require them. As a result, if you treat your tenants properly, they will stay in your homes for a long time and pay you handsomely for it.

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