Add This Type of Property to Your Portfolio
For any investor, there is one type of property that is a must-have for your portfolio. But, what is it?
Let’s say that you want to build a portfolio in residential rental units. You have heard the market is great in this area, and you see your friends making a great living at real estate. You’re excited for what lays ahead.
In terms of your portfolio, what property you choose for it should be guided by two things. The first point you always must consider is cash flow and the second is how quickly the property will help you reach your end goals with as minimal a risk as possible.
Essentially, this means that your ideal property for your portfolio will be one with a net income potential that provides you enough cash flow to move you quickly to your end goal. If rents are $40,000 per year, and your expenses are $36,000 per year, then that leaves you a $4,000 per year cash flow. Is that enough cash flow to get you to your end goal, whatever that may be?
Stop focusing on how beautiful a property is, whether you like the neighborhood it’s in or its possible appreciation in value. Instead, your focus ought to be on whether the financials make sense and will help you reach your final goal. That describes the ideal property for your portfolio.
Comments (2)
A nice little article. I totally agree that the focus should be on the financials and how that contributes to your end goal. I have to disagree with you when you said: "Stop focusing on how beautiful a property is, whether you like the neighborhood it’s in". In my opinion, generally speaking a properly in a better neighborhood which is more aesthetically pleasing to the eye will command a higher return, which in turn will help you further your goals more than say a property in not as nice a neighborhood with lower end finishes and amenities. Of course, the caveat is that the "nicer" property will most likely cost more upfront so we must take into consideration the buyer's budget range.
Alexander Merritt, over 8 years ago
This is awesome advice Brie! Currently I have been eyeing a deal in an area that I wouldn't normally pay any attention to due to, in my opinion, the misuse of tax dollars in the area. (High taxes, horrible infrastructure.Horrible infrastructure, not-so-good residents.) However, after really digging into the numbers and putting some serious time and effort into my analysis, this particular property brings me closer to my goal than perhaps others would. The lesson I learned is exactly what you speak about in this post: cant focus on all the cosmetics or superficial amenities however, focus on what really matters in terms of the goals we've set! Awesome post!
Joshua White, over 8 years ago