Your Objective

Simply put, what do you want to achieve from your investment assets? Because different investments perform differently at any point in time, investors need to understand their end goal before choosing assets. Although an entire portfolio does not decline because of one investment, the combination, including risk factors, will ultimately impact your bottom line. That said, the types of real estate investments you have in your portfolio will play a significant role in achieving your goal, as rental properties and multifamily properties aim to achieve passive income, while assets such as wholesaling and rehabs look to accrue short-term gains.

The Numbers

Building a real estate portfolio hinges on one simple aspect: the numbers. These numbers are the foundation of any real estate investment, as well as the elements of truth. What I mean is, these numbers provide transparency to your deals–revealing whether or not they’re good or bad. Therefore, your real estate investment portfolio should comprise each of your investment assets broken down by various numbers, such as purchase price, transaction/holding cost, profit, repair cost, and sale price.

The next aspect of building a real estate portfolio is financing. How did you find and structure the financing of your deals? How did you find a buyer for the property? Your real estate portfolio will need to answer similar questions when seeking financing through traditional institutes like banks or private money lenders.

Finally, your real estate portfolio will need to include the improvement costs, as well as monthly operating costs. This will provide lenders with a snapshot of the associated costs of each project and how you leverage that money to earn a profit. As an investor, make sure to summarize the repairs and improvements you made to the property, including the After Repair Value for future projects. Your real estate portfolio needs to be accurate, up-to-date and comprised of all financial figures on your real estate investment.

Asset Allocation

Another critical part of learning how to start a real estate portfolio is asset allocation. For investors, this includes determining the appropriate asset allocation model for your goal. Although a complicated task, real estate investors will need to select a combination of assets that have the highest probability of meeting their goals and doing so at the level of risk they desire.

As mentioned earlier, the appropriate asset allocation for you will take into account your overall strategy, as well as risk tolerance. Looking for greater returns? Investors will need to partake in riskier investments to achieve those results, while others seek safer bets, bypassing bigger gains for consistency. That said, the more risk you’re willing to take on, the more aggressive your real estate portfolio will be, and vice versa.

Management

The last component to consider when learning how to start a real estate portfolio is managed. When holding onto properties, investors will need to decide whether to hire a property management firm to oversee the investment or become the landlord and do it themselves. This is something lenders will not only want answers to but its role for your bottom line. Whether you have a dedicated property manager or not, your real estate portfolio should include how your investments are being cared for, as well as the added cost associated with their management.