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The Ultimate Guide to Building a Profitable Real Estate Portfolio

A dream home, farmhouse, vacation home or plot of land is a part of every individual’s retirement dream. An idea harbored by the generations above us and heavily propagated by millennials – owning a home or piece of real estate is considered the epitome of financial success. While this may not be true for every kind of individual, at some point in life everybody has desired to build a real estate portfolio as a fragment of their wholesome financial plan.

Building a real estate portfolio traditionally, was easier said than done. With property rates rising steeply, apportioning for real estate investments in a portfolio had become a tough job. However, there is a way to counter this challenge. With finance professionals burning the midnight oil innovating new investment products and exciting strategies to suit every investors pocket size, building a profitable real estate portfolio may well be a piece of cake in the current economic scenario.

Prepping for a Real Estate Portfolio

  1. Objective:

The first step in building a real estate portfolio is to figure out the objective behind the portfolio. Investment in real estate can be done for a variety of different reasons. A potential investor should ask himself/herself the reason for the investment and then go about the most suitable avenue.

Real estate investment objectives can be any of the following and much more:

  • To build a retirement home
  • To live a debt-free lifestyle
  • To generate an additional income or
  • To build a real estate business
  1. Affordability:

Once the objective is clear, the next criteria a potential investor should focus on is to evaluate his affordability. Essentially, this means what kind of property or real estate can he/ she invest in as per his existing and resources and his investment objectives. At this stage, a purchaser should also think of alternate modes of financing incase his current resources are not enough.

  1. Location

The location of the property/ real estate is very important. It is imperative that the location of the property aligns with the investment objective. For example, a commercial property with the objective of generating rental revenue will reap no positive results if it is in a residential or remote area. Thus, a thorough study of the location, local surroundings, law and order situation, connectivity and law and order situation should be conducted before zeroing down on a property or proposal.

  1. Research:

No investment – be it shares, stocks, metals or real estate – should happen without a thorough research in the sector. Especially if the investor is a novice or amateur, they should ensure they are speaking to people experienced in the field or to a professional before signing any kind of deal. Primary areas of research should be location, modes of financing, intermediaries, if any, construction and builder details, government approvals, availability of natural resources, connectivity, local law and order situation, value of property, rate of appreciation/ depreciation, earning potential of the property, any hidden costs, or any other challenges and glitches.

  1. Asset Allocation and Diversification:

Investors starting out with a real estate portfolio should also consider the perfect asset mix in their portfolio. This mix should be determined keeping in mind their objective of investment. A perfect asset allocation and mix for a healthy real estate portfolio would be one which allows the investor to reach his objective seamlessly with minimum stress on his current savings and investments. For example – if the objective behind building a real estate portfolio is to create primary rental income, the portfolio should have a good mix of assets that can reap high profits in the form of rents. Like a couple of houses or commercial properties. A perfect real estate asset mix is integral for building a profitable portfolio.

  1. Management of the portfolio:

Building a real estate portfolio is one thing, but managing it effectively to ensure its profitable is a different thing altogether. To sustain a real estate portfolio and make sure it generates desirable profits, an investor needs to constantly rejig and alter the portfolio. A profitable real estate portfolio requires continuous monitoring and weeding out of non-profitable assets. To manage this effectively, an investor can always take the help of a professional portfolio manager. These are people who have years of experience and the requisite qualifications required in managing and handling a portfolio. For a small fee, they constantly study the prevailing market conditions and make transactions beneficial to the individual’s investment objective.

  1. Valuation:

Before sealing the deal on any real estate investment, it is prudent for a prospective investor to order a thorough valuation of the property. For this purpose, a qualified broker or property agent should be commissioned. With the help of the property agent, the investor should verify the actual value of the property and its profit generating prospects. The investor should then compare these estimated returns with any costs involved in the upkeep and maintenance of the property to estimate the overall profitability of the transaction. Valuation should also be done to safeguard the investor from any unscrupulous deals or from paying more money for the property than its worth.

  1. Tax Benefits

The Indian Income Tax Act provides a slew of tax benefits for investments in real estate. These tax benefits are in the form of deduction of principle and interest amount of home loans and also rebates on capital gains from sale of existing properties. The taxation laws of the country also provide benefits and deductions on any expenditure made towards the maintenance and upkeep of these real estate properties. Moreover, these tax benefits are available year on year, till the investor holds the property or till the charge (loan) on the properties is active. Thus, when investing in real estate a purchaser should also study the various tax benefits available and utilize the ones that suit him the most. This way, investors end up saving a good amount of money in lieu of taxes while acquiring a profitable asset.

Now that an individual is completely prepped to start building a real estate portfolio, there are some strategies that come into play. Simply researching and zeroing down on a location is not enough. Real estate or property is a big investment involving lakhs and crores of rupees. Hence, if not approached properly, it can potentially backfire and cause the purchaser irreparable damage. Hence, in order to make a wise and profitable investment, investors should follow expert strategies to fulfil their investment objective.

Few common, and most popular strategies (based on different investment objectives) that most real estate investors swear by are explained in detail below.

Strategies for building a real estate portfolio

  1. Wholesaling

If the investment objective is to trade in real estate and book profits, then wholesaling is one of the most convenient strategies to follow. In this model, a property owner can invest in different kinds of properties (often that are under construction) and sell them at a profit when the property rates appreciate at a later date. In this way, the investor can book high profits due to the price difference in the property over a period of time. If buying and selling is your thing, and you have the requisite resources to invest in real estate in real time then this is one of the most profitable modes of real estate investments.

  1. Renting

Most often, investment in real estate is done to reap continuous profits or to maintain a side income. In such a situation, purchasing a property (ies) and giving it out on rent can be a wise move. Rental properties generate income on a monthly/ annual basis for as long as the property is sub-let hence ensuring a consistent stream of money pouring in to the investor. In fact, the rent received from these properties also appreciates on a yearly basis as per the terms of the rent agreement resulting in a significant increase in cash flow. Rental property thus provides a good source of passive income on a regular basis to the owner in return for a small cost of maintenance and upkeep.

  1. REITS

For investors who are keen on having a real estate portfolio, but do not have the requisite funds or resources to invest in a full -fledged property can look at Real Estate Investment Trusts, as a preferred option. REITs are a type of mutual funds which invest the money pooled in by investors specifically in real estate projects. REIT’s are handled by experienced and able fund managers who invest the money in a number of different and credible real estate projects. This is thus, the easiest form of real estate investment satisfying all the conditions of prepping for building a real estate portfolio mentioned above. Though however, the only drawback of this investment model is that the returns and benefits are much lesser compared to actually acquiring ownership of a property.

  1. Sit- in sublet :

To build a real estate portfolio, you need not necessarily own a separate property or house. To generate an additional passive income, an individual can also rent out a small space in his existing property for some consideration. In this way, one can begin building their portfolio without actually investing anything. Thus, generating a total profit in the beginning. This model also helps in reducing total housing costs in the form of maintenance bills and charges and gives a first- hand business experience of the property lending business. Thus a win-win!

  1. Crowdfunding and syndication

Last but not the least, this is similar to REIT’s but one level less institutionalized and regulated. Crowdfunding and syndication is followed by a number of big businessmen who want to park their excess money in real estate projects. In this strategy of building a real estate portfolio, an investor collaborates with other investors having similar resources and collectively pools the fund into a project. In this common project, each investor then gets one share of the property, also called unit. The revenue/ profit generated from these units are then divided proportionately amongst all the investors. Usually plots in commercial parks, cooperative societies and industrial areas are sold on the basis of these units.

The strategies mentioned here are indicative, but not exhaustive. A prospective investor should keep in mind that the key to building a profitable real estate portfolio is diversification. Hence, a whole some real estate portfolio is one that is created with the combination of 2 or more strategies. This way, the investor can hedge himself from any unforeseen losses and ensure there are multiple streams of revenue generation. Real estate investment is a big financial decision, hence a purchaser should take it slow and calculatedly after studying the benefits, hazards carefully so as to not land up in an unfair deal resulting in deep losses to his hard earnt money.


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