The real estate business is among the best ways to build wealth.
However, this fast-paced industry demands a lot from you. And, you must learn a lot to create success in this industry.
Real estate investors must understand what it takes to build a successful portfolio. One way to do this to outsource estimating services and other processes. There are experts out there that can help you get ahead quicker. Learning what you are good at and what you want to outsource, early on, is smart. While it may all seem daunting at first, once you gain experience, you will feel far more confident.
So what exactly is a real estate portfolio? Here is a simple definition: a series of multiple investment assets owned and maintained to accomplish a financial goal. Some might even call a portfolio a resume of achievements for a real estate investor. In some ways it is, but these portfolios are a lot more than that.
Today, we will take a look at creative ways to build and maintain a successful real estate portfolio by building and renovating projects with a focus on commercial properties.
Let’s get into it.
This is true for success in any business. You need to equip yourself with the right tools. It’s critical in any trade. This is particularly true in real estate because the stakes are high if you stumble.
To become an effective real estate investor, you need to immerse yourself in the business. From takeoffs, construction to cost estimation, familiarize yourself with everything from beginning to end in the processes involved in buying and owning commercial real estate.
The first phase, though, is to research the different aspects of real estate investment. This includes:
- knowing how to do your due diligence
- steps involved in purchasing a property
- understanding what is creating growth in the area where you want to invest
- modern renovation practices
- eco-friendly developmental and building techniques
- and, finally, how market trends may impact the space you are in (such as retail or industrial)
Ultimately, success comes from learning, applying what you have learned, and adapting to the market conditions.
Create a Detailed Plan
Research and educating yourself go hand-in-hand with proper and thorough planning. Like any other business, you need to come up with a detailed plan.
The ultimate goal is to create a profit. Creating a portfolio of real estate investments requires planning your renovation projects, building projects, and other construction-related projects in advance. Then, aligning those plans with a budget.
To do this, you need a sound business strategy. This strategy should account for unexpected situations that you might face as a builder or a renovator in real estate. Your strategy should include a vision for:
- future investments
- financial strengths
- investment strategies
A Clear Vision of Future Investments
What are your priorities and objectives in developing your commercial property portfolio? Are you looking to generate passive income or becoming an active investor? Do you want to focus primarily on industrial properties? Or, is your interest in office space? Do you want to concentrate on cash flow production or long-term appreciation? How many investment assets do you intend to buy before you gain financial stability?
Establish SMART targets (Specific, Measurable, Achievable, Realistic, and Timely). Clearly outlined goals help guide investors in down the decision-making path.
A Clear Vision of Financial Strengths
As a contractor or builder in real estate, you have to decide how you are going to finance your investments, renovation projects, and construction projects. How much money and available capital do you have to sustain your current activities and investments into the future?
How are you funding your project? Is it you solely as the owner? Or, will you take on outside investors? Will you fund the project through traditional lending? A critical part of any project is realistic financial plans. These plans should include the cost of investment and annual operating expenses on all your construction-related projects. Staying on budget and in regular communication with all the parties involved will help your immediate and long-term success.
Finally, to ensure sure that your investments meet your financial targets, you should incorporate key metrics and track your plan and make necessary adjustments over time.
A Clear Vision of Investment Strategies
Put your strategy on paper. There are many ways to make money in real estate. Know which investment strategy is right for you. Know your risk tolerance. Learn what you like. Will you be focused solely on flipping new properties? Or is your focus renovation? Or, is starting your own construction projects the thing you want to do?
Unless you have an inheritance to work from, you need to start thinking about how you will secure funding for your purchase.
Money is your best friend in all types of investment opportunities. You can try securing a financial loan from a lender. Or start saving so you have enough money to get started. And there is always the opportunity to bring on investors to your project.
Invest in a Property
Only purchase a property or begin construction once your project has been thoroughly vetted and the numbers check out.
The first project is a big one. You want to start with success because it will become the launching pad for your next projects. Success breeds success. Your lenders will be watching.
Build a Team of Seasoned Real Estate Professionals
Now that you have purchased your first property and understand the core concepts of the real estate business and portfolio generation, you need to put together your team. This team will offer ultimate support and will serve as the backbone of your success in real estate. This team includes your construction partners, your lenders, your attorney, your broker, and so many more. And, your managers.
Management becomes an important factor. This is particularly true as you continue to acquire further investment properties. In order to be successful in investing in real estate, you need to make sure your investment portfolio is also growing at a steady rate and is being taken care of as you grow.
You can opt for in-house teams or off-shore and outsourced teams. This means that you can hire the best and most useful real estate professionals on a permanent basis. Or you can start outsourcing estimating services and other important jobs to independently operating third-party companies.
Outsourcing the job will take the burden off of you. It allows you to be more focused on investing and managing your cash flow. The contracted parties will take care of all the estimation and on-field requirements and needs related to the project construction.
If you choose to hire internally, rather than using contracted services, supervision is essential. Make sure your team understands your style, how you prioritize, and how you want them to operate. You are the leader. Maintain control.
Research the Area
Before building, renovating or purchasing, research the area. Look for untapped markets. Specifically where there are a lot of opportunities for expansion.
Are there any areas with a lot of potential for commercial industry and growth? What areas offer the best possible opportunities for residential growth and investments? What areas are more profitable than others? Will your investment be worth it in an underdeveloped area?
Expand Your Business
Rather than investing all your money in one genre or niche in the real estate industry, you need to focus on several areas and expand your business when the time is right.
The fluctuations in the real estate industry offer no guarantee at any time. This is why you need to branch out, diversify, and expand your growing business in different ways. Property prices fluctuate. Some values will fluctuate more than others. Protect yourself and diversify.
Expand only when the time is right for you. Don’t overextend yourself or put yourself in financial jeopardy.
Monitor Your Progress and Update Your Portfolio
Now that you have set up your business, you need to constantly monitor your progress with the help of metrics previously defined in your business plan. When you know where you are, you will know where to go. Continue to monitor your progress, watch what the market is doing and add to your portfolio with investments that fit in well with both the market and the rest of your portfolio.
For powerful analysis, use modern technology to monitor and track your objectives, and find a way to quantify them in terms of your expectations on income, growth, and return on investment (ROI). Your ROI will define the overall success of your real estate business. Get software and professionals to help you with monitoring your business.
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No real estate giant became successful overnight. It takes time. And, more time. It takes planning, the right investments, the right market conditions, and the right adaptations. The growth may take you years. But if done well, the outcome will be worth the wait.
Daniel Quindemil is the founder and CEO of I AM Builders, which is a construction estimating and consulting firm specializing in helping contractors and developers with cost estimating and project management. Daniel is also an Architect and a licensed General Contractor.