In real estate investment, scaling your portfolio is absolutely essential to your long-term investment success. We don't ride bikes with training wheels forever and we don't stay in the shallow end of the pool.
Part of maturing, growing, and succeeding in real estate investment is moving beyond the first property. After all, this is how you compound your passive income, increase your net worth, and ultimately move towards goals of financial freedom and independence.
Obviously, though, buying a second property is easier said than done. There are considerations for every turnkey real estate investor who wants to take the plunge and buy another property. This is a topic we're passionate about—as much as we're for investors buying as many properties as they are able, it's also about what is right for an investor in their individual circumstances.
These are some questions and benchmarks with which you can measure your readiness to scale your investment portfolio.
6 Considerations When Growing Your Real Estate Investment Portfolio
Has my budget been on track for the past 6 months to a year?
We harp on sustainability a lot, but it is a key component to your success. When you look at your budget, has it performed consistently over the last year? You want to see strong performance in that your expenses have not been out of control, where you have been able to manage your money effectively, and where you have seen your income grow.
If you're not seeing this and instead it feels more like your budget is constantly slipping away from you, it's probably not the time to take on the risk of another investment property. While they pay off in a big way for your long-term financial future, every investment is a big commitment and a big financial decision.
If your budget has been well under control, you're likely fine. If it fluctuates and you don't feel secure, the time may not be right. Use your budget conditions as a benchmark for your readiness to scale.
Can an adjusted budget account for new income and expenses effectively?
While looking at your budget, it's time to make some projections. Now that you have some experience working with an investment property, you can more accurately consider what having a second would do for your budget. You can work the numbers and see if it is possible with your current finances. Adjust for the new cash flow it will introduce, as well as the potential expenses.
What does my portfolio advisor think?
Remember, the decision to scale your portfolio does not have to be made alone. As a turnkey investor, particularly an investor with Memphis Invest, you have access to advisors and experts who want to see you make the right decisions for your financial future as an individual. Because they have a wealth of experience in real estate investment and working with investors from a wide variety of background, financial situations, and markets, they can no doubt help you work through a personalized plan of attack.
What market meets my needs?
Not only is the question of "if" important, but once you decide to take the plunge, you have to consider a wealth of other factors. After all, not any property will do. For turnkey real estate investors, there are plenty of markets that offer lucrative opportunities, but some will suit your circumstances better than others.
This is where doing your homework is valuable. At Memphis Invest, we continue to grow the markets in which we offer opportunities, carefully vetting each one. Knowing where you need to expand your portfolio—which markets offer the environments and pace in which you want to operate and grow—helps you greatly determine the trajectory of your investments moving forward.
How does scaling meet my overall financial goals?
While scaling your portfolio is necessary for investment growth, it's not something that should be done without asking questions. You have to examine how each property acquisition really fits into your financial goals. Why are you buying this particular property? What purpose does it have for you? What role does it play? Every investment needs purpose—not just to be there because you feel it's what you're supposed to do. Being a purposeful investor should be part of the equation.
It might be as simple as growing your passive income and your net worth. But ultimately, you need to ensure that buying another investment property is serving your long and short-term financial goals.
Am I growing and learning as an investor?
Lastly, are you continuing your education? Though turnkey investors rely on the wisdom and management of their turnkey providers, they also need to be learning about the business they're in. It's important to learn from mistakes, understand why they're acting, and empower themselves to communicate effectively with their advisers.
Personal and intellectual growth is critical, especially as your portfolio expands.
The decision to grow your real estate portfolio is inevitable if you want to achieve financial freedom through real estate investment. The questions of timing, however, are a little more personal.
Ask yourself the right questions and consult the expert portfolio advisers at Memphis Invest—together we'll build a personalized, lasting real estate portfolio.