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If you are starting to invest in real estate, you may be looking to expand your investment portfolio into a fully developed operation. If you maximise the value of your investments early on in the process, you may find that this can happen fairly quickly. Here are 5 things you can do to help create a successful real estate portfolio.
Make Sure Your Portfolio is Diverse
Fortunately, trading in real estate is generally considered one of the safer forms of investment. It can thus be a great, stable way of increasing your income. However, just because it is low-risk does not mean there aren’t potential pitfalls to watch out for. Housing is as sensitive to the volatilities of the market like any other asset. As such, prices can rise or fall based on the economy. To protect yourself against this, you should make sure your property portfolio is sufficiently diverse. This means that you should try to invest in a mixture of property types and locations. This should prevent scenarios where all your investments substantially drop in value. For example, hotels and other holiday properties are season-dependent, and often the first things sold when economic downturns hit. As such, they are generally more sensitive to market fluctuations than other types of real estate. Thus, investing in residential properties as well will give you some protection against drops in value, since their value is generally more stable.
Defer Tax Payments to Make More Investments
If you are just starting out, you may notice that taxes, loan re-payments and other expenses are prohibiting you from investing in more property. Luckily, federal laws allow for deferral of tax payments in some situations. Using this can give you more capital in the short-term which you can then use to expand your investment portfolio. 1031 exchanges are the primary means of doing this, and are currently very popular in real estate. If you sell a property, and then buy a property of equal or greater value within 45 days, you will not be required to pay tax on the original sale for 180 days. This practice can then be repeated as many times as needed. This can be a great way to allow you to continue building your operation in the short-term. However, you should give yourself an overview of 1031 exchange rules before doing so, as the rules which allow you to keep deferring payment are quite specific.
Look for Listings Everywhere
Commercial real estate agents and online housing marketplaces can be a great place to get an overview of the housing market in your chosen location. However, if you are looking to find the best value investments out there, you should expand your search to include more obscure places for listings. Foreclosure auctions, for example, can be a great place to snag a deal on a property at far less than market value. However, this strategy can be risky as the properties often need extensive renovations before being resold. Local newspaper listings can also be a good place to find deals which are not being advertised nationally. Finally, the best deals can often be leveraged when dealing with distressed sellers. These types of seller often prioritise the speed of the sale over maximising their profit. If you can identify these sellers prior to them putting the house on the market, it is likely you will yield a very high profit.
Time Your Investments Wisely
As with trading anything else, timing is everything when it comes to successfully investing in real estate. It is thus important to keep an eye on the fluctuations of the market, and make your investments when it is most profitable to do so. Ideally, you should pull the trigger when you notice growth in the area you’re investing in that the market hasn’t yet corrected for. Naturally, this also applies to when you should decide to sell your property. You should make sure you do not overreact to one small piece of data or news though, as there are many variables which factor into the rise and fall of real estate prices.
Use Digital Resources to Your Advantage
As previously alluded to, data is key in identifying market trends, and market trends should then dictate your investment strategy. Given the difficulties of gathering and finding this data, this fact previously meant that large investment firms and real estate companies had a sizeable advantage over individuals. However, in recent times, the advent of online real estate platforms has created a much more level playing field. These websites collect scores of marketing data that can be invaluable for helping investors find which real estate to target. This information can also be used to calculate what you should sell your investments for.
Data is not the only advantage of using digital resources for real estate investment, however. Software can now track the performance of your properties, so you can see how your investments are doing in real-time. As such, digital tools are of vital importance for when you’re developing your real estate portfolio.
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