The Importance of Treating Your Portfolio Like a Business
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The Importance of Treating Your Portfolio Like a Business

Treat Your Real Estate Investments Like the Money-Making Venture They Are.

Are you serious about your rental investments?

Neglecting to treat real estate like any other business venture is arguably one of the worst mistakes that you could make whether you are an experienced investor or new to the game. Without a business plan and a well-thought-out strategy to guide your investment decisions, your real estate investments will most likely suffer.

What does treating your real estate investments like a business really mean? It means taking the time to implement a solid strategy, systems, and policies from the very start. It means laying a strong foundation for your investing and rental management endeavors. Taking a business-minded approach means that you will develop plans, test the waters, and be intentional with your purchases and rental management decisions. This will enable you to get more out of your investments and go much farther than you would with a haphazard approach to real estate.

Here are a few simple ways that you can implement business-mindedness to your investment strategy and take your rental investments from a part-time hobby to a profitable and successful business.

First, Develop a Strategy

Starting a business on an impulse is a recipe for disaster. Careful planning is key to bringing a great rental investment to fruition.

Create a plan to guide your investment decisions, and set goals that are broken down into doable steps with timelines. That plan will keep you on course and will also help you to make more calculated investment decisions.

For example, when weighing up potential investments, having a plan and investment criteria in place will allow you to see, at a glance, whether a potential investment is one that will fit into your strategy. Instead of simply buying property because it seems like a good deal, you’ll have a more focused and strategic approach. For example, you might require a certain benchmark cash return, such as five or 10 percent.

Second, Get Your Financing in Order

Once you have a plan for the properties you will buy, you will need a plan for financing those investments.

You might use private or hard money lenders, look for properties that offer seller financing, use equity from the purchase property or other properties, or find an investment partner. Get your finances in order and make updates to any areas that change as those changes occur so that you can quickly and easily gather the information that you need to secure financing when a great deal comes along.

Third, Start Tracking Your Income and Expenses

As with any business, a rental property portfolio will have unexpected expenses from time to time. Tracking your income and expenses prevents those unforeseen costs from catching you off guard.

Keep a careful eye on your income and expenses to ensure that nothing gets out of hand. Just as in business, you need a detailed budget for each of your properties so that you will be able to see, at a glance, how well each one is performing and compare investments as well.

This way, if an investment is losing you money or isn’t performing as well as it should be, you’ll be the first to know, and will be able to make changes.

Fourth, Set Policies

Just as businesses have policies and procedures in place, your rental properties need them as well. Protect yourself with an airtight rental agreement that outlines your expectations for the property. Outline your tenant screening procedures, in writing, to ensure that you screen all applicants fairly and to maintain compliance with Fair Housing laws. Finally, run all of your policies and procedures by an attorney to make sure you’ve covered all of your bases and that you are in compliance with the law.

Fifth, Keep Cash Flow in Mind

In most cases, you’ll want rental properties that are cash-flow-positive each month. Some investors look for profits of $150 to $200 per month per unit, after expenses, but your individual investments may produce different amounts. The important thing is to ensure that your units are producing a profit that’s in-line with your strategy. Do not forget to factor in appreciation.

It’s all about finding investments that fit into your strategy, ones that will produce the results that you’re looking for.

Sixth, Build Your Network

Networking is beneficial for any business owner. Real estate investors should reach out and connect with other real estate professionals like agents and mortgage brokers who can assist in the search for income properties.

Seventh, Assemble Your Team

As an investor and landlord, you must remember that your goal with rental investments is to make a profit, not to try to do everything on your own! The best and often most economical option is to enlist help for areas that are outside of your realm of experience or that are not the best use of your time.

Keep a list of real estate professionals on hand who can help you with your investment decisions. For instance, an investor-friendly accountant will be able to assess potential investments with you, informing you of any hidden expenses that you may be overlooking. Having an attorney and a real estate agent will prove to be invaluable as they smooth the purchase process.

Consider enlisting the services of an experienced property manager to oversee your rental units for you. This will free you up to focus on your investment strategy, make it easier for you to add more units to your portfolio, and of course, free you up from having to be on call 24/7.

Don’t let a jumbled, unprofessional approach to your real estate investments cause you stress, frustration, and even eat into your profits. Step back and formulate a strategy from the start. Take a businesslike approach with your real estate investments. The move will help you to make objective and fact-based decisions that will drive your endeavors on towards success!