Every real estate investor wants to see their portfolio grow. They want to increase revenue generated across all their sustainable properties, build their net worth, and eventually become a real estate mogul – or possibly pull out and retire early.
However, it’s possible to grow your real estate portfolio in an unsustainable, problematic way. If you grow too quickly or without proper grounding, you could over-leverage yourself, become overwhelmed with responsibilities, or potentially put yourself in a position where you can no longer manage your portfolio properly.
So, what steps can you take to maintain a sustainable curve of growth for your real estate portfolio?
What Is Sustainable Real Estate Portfolio Growth?
Sustainable real estate portfolio growth is a rate of growth that can be kept consistent over a long-time horizon, without any major problems or disruptions.
That entails:
- Consistent growth.It’s not sustainable growth if it occurs in fits and spurts. If you buy 10 new properties in one year, then it takes you a decade to recover before you even consider a new one, you’re not growing sustainably. Adding one new property every other year is technically a slower rate of growth, but it’s a much more consistent, sustainable one.
- Risk management. Risks can hurt your real estate investment strategy – and potentially threaten your entire operation. Taking on risky properties, engaging in shady, not sustainable practices, and taking on too much debt are just some ways you could compromise your entire real estate portfolio. For your growth to be sustainable, you need to appropriately manage risk.
- Effort and time controls. It’s also important to think about the effort and time you spend in this operation. If you’re forced to work 16-hour days and there’s a never-ending stream of repair requests and complaints from tenants anyway, your growth is not sustainable.
Sustainable investments in the real estate sector consider not only property value but also the long-term cost savings and personal effort involved. Balancing workload and investment returns ensures a sustainable approach to property management and growth in the real estate market.
How to Maintain Sustainable Real Estate Portfolio Growth
So, how do you maintain sustainable real estate investment portfolio growth over the long term?
- Analyze your personal goals and risk tolerance. First, it’s important to recognize that every individual is unique. Some people don’t mind working 12-hour days. Some people would rather delegate all responsibilities to a property manager. Some people want to take big risks in pursuit of big gains, while others want to invest conservatively and safely. Before you get any further, take a moment to analyze your own personal goals and risk tolerance. What does sustainability mean for you and your lifestyle?
- Build and expand your network. It’s almost impossible to scale up a real estate operation entirely on your own. If you want to be sustainable and effective, you need a team of experts and professionals to assist you. That means you need to continuously expand your network and meet new real estate agents, lawyers, property managers, contractors, partners, investors, and other talented pros who can support you in your journey. If your network is robust and full of trustworthy partners, there’s practically no problem you won’t be able to resolve expediently.
- Start with one property. If you’re just getting started with real estate investing, it’s important to focus on one property first. While some particularly ambitious moguls may tolerate multiple properties even at the beginning, most people do better with a single property they can become familiar with. There’s plenty of time to grow, so don’t rush things.
When starting with such properties, prioritize sustainable development practices to enhance property values and ensure long-term financial returns. Keeping low operating costs in mind helps maintain profitability and stability as you expand your real estate portfolio over time.
- Build up your emergency reserves. The larger your pool of emergency reserves is, the more potential emergencies and chaotic situations you can handle. If half your units become vacant overnight, a robust pool of funds can make it no big deal.
- Keep your DTI ratio in check. Your debt to income (DTI) ratio is a measure of how much debt you have, compared to how much income you have. It’s one of the most concise and reliable data points for evaluating your leverage risk. Borrowing money gives you financial benefits and is an incredibly powerful investment tool, but it can also be a liability. On an annual basis, or perhaps multiple times a year, measure your DTI to see where you stand; if it’s at or above your comfort threshold, it’s a sign you should pause activity until it climbs back down.
- Prioritize tenant screening and retention. One of the best ways to make your operation more consistent and, therefore, sustainable is to prioritize tenant screening and retention. In other words, you need to be choosy about the tenants you take in and do everything you can to retain them. Better tenants, combined with lower turnover, can reduce expenses and eliminate countless headaches associated with your rental properties.
- Delegate everything you can. Even if you like doing things yourself, it’s important to know how to delegate, especially as your portfolio expands. Hiring property managers, contractors, and assistants can help you through some of the toughest aspects of being a real estate investor.
- Diversify your real estate portfolio. Next, work on diversifying your real estate investments. Having a diversity of different assets shields you from risk and increases the consistency of your returns. You can diversify your real estate portfolio by investing in different types of sustainable real estate opportunities in different areas of the country.
- Diversify the rest of your investment portfolio. Similarly, spend time diversifying the rest of your investment portfolio. Real estate is powerful, but it’s still only one of many viable asset classes.
- Be willing to cull underperforming or annoying properties. Finally, be willing to cull your underperforming and annoying properties. Growth isn’t just about adding new properties and maintaining what you have; it’s also about keeping your operation lean and profitable. Gardening requires weeding as much as it requires new plant matter.
Managing a sustainably growing real estate portfolio is much easier when you have a team of talented real estate agents to back you up – and an Austin property management team to take care of most landlord responsibilities for you. At Green Residential, we can give you access to both. Contact us for more information today!
Michael is Green Residential’s Vice President. He helps to keep the team organized and running smoothly. Prior to joining Green Residential, he spent 12 years working at Cadence Bank in the mortgage loan servicing department, where he specialized in loan audits, modifications, and bankruptcy-related issues for the mortgage portfolio.
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