Real Estate Investing Education Center

How to Build a Real Estate Portfolio

By Michelle Clardie on 02/08/2022
If you’re wondering how to build a real estate portfolio, you’ve come to the right place. The real estate experts at Gatsby Investment spent years developing a proven system for real estate investing. And we’re teaching new and experienced investors how easy and fun building a real estate portfolio can be. 

In this article, we’re going to give you a blueprint for creating a healthy, diverse real estate portfolio. We’ll discuss:

●      How to build a real estate portfolio from scratch, step-by-step,
●      The benefits of diversifying your portfolio, and 
●      A real estate portfolio example so you can see what a well-designed portfolio looks like.
 


How to Start Building a Real Estate Portfolio


You can build a real estate portfolio in just five simple steps. 

Step 1: Analyze Your Current Financial Position and Know Your Options 


Before making your first real estate investment, you need to analyze your current financial position to determine how much money you’re comfortable investing. While you’re reviewing your finances, you should also check to see if you qualify as an accredited investor. Accredited investors get access to investment opportunities that the general public does not, so if you are accredited, you’ll have more options for your portfolio.

A real estate investment portfolio doesn’t always mean purchasing properties on your own. There are lots of ways to invest in real estate without buying a property, including:
●      Wholesaling
●      Private equity funding
●      Real estate notes
●      Hard money loans
●      Tax liens
●      REITs

Check out our helpful article on how to invest in real estate without buying property for more information on these options. If you’re considering going this route, you may only need a few hundred dollars to a few thousand dollars to get started.

If you’re planning to purchase a property on your own, make sure you have enough cash on hand for the down payment, plus closing costs, and any urgently-needed repairs or renovations. 

Step 2: Devise a Strategy that Works With Your Personal Goals 


What are you hoping to get out of real estate investing? 

Do you want a quick project that allows you to get in, get out, and take a lump sum to your next project? Or are you in it for the long-term, looking to create passive, recurring income?

Do you want to own a physical property or would you rather own real estate-related securities (like mutual funds and ETFs)? 

Do you want to be involved in the day-to-day management of your portfolio? Or would you prefer to enjoy purely passive income while a professional manages your properties for you?

Do you want to invest in linear growth markets, which are characterized by slow, steady growth over long periods of time (like we see across much of the Midwest)? Or would you prefer the excitement and higher gain potential of exponential growth markets (like we see here in California with the housing shortage)?

Eventually, you might do all of the above! You can own real estate securities while also personally renting out a single-family home that you own while also owning a share in a multi-family development with a professional property manager. 

But you need to start somewhere. Now is the time to decide where you want to start and where you want to get to eventually. 

Step 3: Test the Waters with Your First Investment


Step three is where you get to take measurable action in starting your real estate portfolio. It’s time to buy your first investment. 

It’s imperative that you spend some time completing your due diligence. You need to understand current market conditions and know the ins and outs of the investment type you’ve chosen to start with.

Depending on your unique investment strategy, making your first investment might mean investing a few hundred dollars in a well-researched Real Estate Investment Trust (REIT). It could also mean investing $25,000-$50,000 to buy a stake in a new multi-family development through a trusted real estate syndicate. Or it might mean finding and purchasing a home on your own, then starting the renovation to work to flip the property or rent the property to tenants. 

This stage is where most mistakes happen. Check out our list of mistakes to avoid when investing in real estate to minimize your risk of making a costly mistake as you build your real estate portfolio.

Step 4: Expand Your Holdings


One investment property is a great start, but you don’t really have a real estate portfolio until you have multiple investment assets. 

To grow your real estate portfolio quickly, use any profits made from your first investment to help fund your next investment. This is how you create exponential growth. By rolling your profits from a growing number of assets into additional assets, you create a situation where the growth of your portfolio grows at a faster rate year over year.

Step 5: Diversify Your Real Estate Portfolio


Rather than continuing to invest in the same type of asset as you grow your portfolio, spread your capital around to different asset types. This creates a diverse portfolio that capitalizes on opportunities while mitigating risks. 

In addition to the different investment options we’ve already mentioned (like real estate syndication, REITs, traditional rental properties, and flips), consider the different types of real estate available to investors, including:

●      Single-family flips
●      Single-family rentals
●      Multi-family rentals
●      Luxury real estate,
●      Vacant land, and 
●      Commercial real estate.

By investing in different types of real estate, you develop a healthy, balanced real estate portfolio.
 

Real Estate Portfolio Example


Here’s an example of a healthy, diversified real estate portfolio:

  1. Multi-family rentals from a real estate syndicate. This provides purely passive rental income potential, and because it’s a syndicate, you can buy into a high-value project with low investment minimums.
  2. A new development. Whether single-family or multi-family, through a syndicate or on your own, a new development is a chance to add tremendous value to your portfolio in a comparably short timeframe. 
  3. Exchange-Traded Funds (ETFs). ETFs can be traded instantly on the stock market, giving your portfolio some liquidity in case you need to pull cash out of your portfolio without notice.
  4. REITs. Semi-liquid, REITs are comparatively stable investments comprising shares in multiple real estate companies and projects. 
  5. Traditional rental property. This asset will give you experience managing a property of your own on a small scale. You can use this experience to decide if you want to be more hands-on with other investments or have professionals handle the management. 

Benefits of a Diversified Real Estate Portfolio


You may have noticed that we keep returning to this concept of diversity in your portfolio. This is because a diversified portfolio provides several advantages to the investor. 

The benefits of a diversified real estate portfolio include: 

  • Reduced impact of any market volatility. Market volatility hits different investment types in different ways, so if one of your investments is struggling, your portfolio can be buoyed by the remaining investments. 
  • Less time spent actively monitoring your portfolio. With a balanced portfolio, you can allow your assets to cash flow and appreciate without constantly feeling the need to move in or out of whichever investment type is doing best in a given moment.
  • Gaining the financial advantages of multiple investment types. Fix-and-flips enjoy quick returns while buy-and-hold properties enjoy passive rental income and long-term appreciation. With a diversified portfolio, you get the benefits of each type of asset you include.  
  • Tax advantages. With a diverse portfolio, some of your holdings will likely qualify for some of the tax benefits of real estate investing.

Building a Real Estate Portfolio with Gatsby Investment


One of the biggest hurdles to real estate investing is the upfront capital required. Investing in 10 units in a hot market like Los Angeles could require millions of dollars. But with Gatsby Investment, you could build a diverse, multi-property portfolio with under $100,000. 

Gatsby’s investment model allows you to purchase a share of a specific property in any of our seven investment typesfor as little as $25,000. With this investment strategy, you can split a $75,000 investment among diverse offerings like single-family renovations, multi-family rentals, and multi-family developments, providing instant diversification. And because of our stable legal structure, you actually own a share in the underlying real estate (unlike many real estate crowdfunding platforms that don’t provide any ownership stake in the actual real estate).

Building a real estate portfolio with Gatsby is easy. Simply create a free account, get verified as an accredited investor, and choose your specific investment properties from the comfort of your own home. Our team of experts will handle all the work, and you’ll share in the returns!

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