It takes a lot of time, hard work and dedication to build up a solid passive investment portfolio. None of us find success just starting out — patience and consistent efforts are key here. Once we get our portfolios in a good place, it doesn’t mean we can take out hands off of the wheel. Not entirely, as 100% hands-off investing is a myth.
There’s ample room for investors of every kind to improve what they have. A better portfolio means more passive income, which gets you closer to meeting your retirement goals.
So what are a few ways to do it?
5 Tips for Building a Better Passive Investment Portfolio
1. Diversify your portfolio.
Diversify! If you’re just starting out as an investor or even if you’ve just settled into a comfort zone, rethink the kind of investments you’re acquiring for your portfolio. If you haven’t found your niche, explore all different kinds of investments to see what you really love and what works best for you. Look at new markets and expand your reach. There are risks involved with remote investing, but expanding to new, exciting markets can bring a slew of new opportunities.
Don't forget though, that diversification does not necessarily mean moving into different investment types. It can also mean different markets or even different price points within the same market. Diversification is simply an opportunity to move your risk as an investor. Some choose to move their risk a little higher if the opportunity costs make that a good bet. Others choose to reduce their risk possibly using leverage across multiple properties to acquire more thus diluting the leverage per individual property. Just remember, diversification does not have to be complicated, it can be accomplished in many ways.
2. Mitigate risk where you can.
So we just talked about risk and how diversification can play into risk. Some take more, while most use it as a vehicle to reduce risk. While risk is necessary in all investing, investors would do well to mitigate it where possible. There’s no need in taking unnecessary risks. It may include upping your property maintenance game and better addressing safety concerns, getting rid of liabilities and hazards (or just avoiding them on the front end) like pools, hot tubs and trampolines. It may even be something like creating a trust or LLC. See where you can better manage your risk and your portfolio will be stronger for it.
This is a play that is all about long-term income. Planning. Where are you going to be as an investor three, five and even 10 years from now. Wisely consider all the risky areas and talk to any of your advisers as well to help you identify them. Then consider all the ways to reduce that risk and grow as well as secure the income of your portfolio.
3. Build the best Team possible
To craft the best possible portfolio, it’s necessary to build the best possible team. For active investors that like to do everything themselves...and are good at it(!)...physically building your own team may be a great idea when you are ready to let go of some of the tasks that do not have the highest time/income benefit for you. IN other words, spend your time on the activities that make you the most money and build a team for the activities that do not. You may view this as adding expense, but if you are a good earner and choose your activities wisely, you should be able to produce greater income than your expense and therefore....give yourself a raise.
If you are a passive investor, often times teams are built for you. However, there is nothing wrong with checking into all the areas that you and your team can improve whether you built them yourself or not. Property management is one area that we often think the grass is greener on the other side when often it is not. Check around and see if you are paying good market rates for services. Are you receiving all of the services you should get. Make sure and inquire about the advantages you have with your current team and make sure the situation on the ground has not changed.
Same goes for rental agents, repair men, lawn care, bug care, etc... If you pay these expenses on your rental homes without the benefit of a Turnkey system or a property management company, now is a great time to ask if their rates are current. We provide those services to over 1,000 investors and believe me, we are asking all vendors right now to update their pricing and make sure we are getting the lowest price possible. You should too.
4. Revisit your insurance policies.
Upping your insurance can go a long way to making a better portfolio. Revisit your coverage and see what kind of adjustments you can make to better protect your assets. While you don’t want to end up overpaying, you’d be hard pressed to find anyone regretting being over-insured in a time of crisis.
As a company, Memphis Invest is taking major steps to reduce our insurance costs and those of investors who use our property management company. Those steps will lead to a steep reduction in costs for some of our investors. It will also open up new neighborhoods and opportunities for us as investors by making properties more accessible from a return stand point. Insurance is one area where all investors would do very well to work on reducing costs. We hope to have concrete programs in place for investors within the coming weeks to reduce their existing insurance costs should they decide to take advantage.
5. Delegate management.
Real estate investors, are you still managing your properties solo? Stop. Unless you just really enjoy land lording, it’s better for your investments if you leave those duties to a property manager or turnkey company. Taking on those responsibilities yourself severely limits the capacity of your portfolio and your potential to earn. For other types of investors, you may need an assistant or other sort of manager to ensure that you aren’t working too hard on something that should be relatively passive.
Just as I have already stated, it is important that you as an investor are doing what you do best. For many, that means being an engineer, a doctor, a fire fighter, an accountant, a teacher or any number of other occupations. Those are so important to your family. Your investments are sometimes best left to experts who know how to manage tenants, renovations, negotiating as well as all the other aspects of investing. If you can put your full energy into what brings in the best income for you and allow other members of your investing team to do what they do best...you will see a better income in your passive investment portfolio!
What strategies do you use in improving your passive investment portfolio? Share your thoughts in the comments.