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In 1993, we started a real-money portfolio using the most promising academic research to show that a consistent investment approach could be followed without a significant time commitment. Our ultimate goal with the Shadow Stock Portfolio is to provide you with the best of both worlds— investment ideas and investment education.

Should real estate investors learn how to build a real estate portfolio?

With something for everyone, there are numerous ways to invest in real estate. However, for those looking to accumulate long-term wealth by growing one investment property into several, the first rule is learning how to build a real estate portfolio.

A real estate portfolio is a collection of the different investment assets that are held and managed to achieve a financial goal. It’s a strategic catalog of current and past real estate deals, whether rental properties, rehabs, or REITs (Real Estate Investment Trusts), to earn monetary returns. Although not every real estate portfolio will look the same, the items considered part of your portfolio would generally depend on a combination of factors such as your objective, time horizon, and risk tolerance. When learning how to start a real estate investment portfolio, investors should first consider the expected number of months or years they intend to be investing to achieve their desired goal and the risk versus reward approach they aim to take to obtain it. Risk and reward are inherently intertwined with real estate investment, so the risk tolerance will ultimately be decided by an investor’s willingness to lose some–or all–of their original investment in pursuit of their financial goals.

A real estate investment portfolio is exactly what you’d expect: a compilation of assets. Simply put, however, a real estate portfolio is nothing more than a collection of property investments owned by an individual or group. Appropriately dubbed a real estate investment portfolio, these collections represent an investor’s career-long achievements. Metaphorically speaking, portfolios are like a resume that identifies one’s accomplishments, but if you dig deeper, they’ll tell you a lot more.

For those considering how to start a real estate portfolio, the following highlights components to building a real estate investment portfolio.

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How To Start A Real Estate Portfolio

For real estate investors, understanding how to start a real estate portfolio, as well as why it’s important, is vital to your success. A real estate portfolio will not only serve as your resume of work but your marketing arsenal to finding and acquiring funding for future deals.

“During the course of your daily interaction, you will meet many people who could be potential private lenders for your deals, and that’s why you must have marketing materials that show people the opportunity to potentially earn a high rate of return as a private lender,” says colleague Than Merrill, CEO of FortuneBuilders and CTHomes.

A well-maintained portfolio will essentially showcase your personal investment goals and strategies, the inner workings of deals you’ve completed and currently own, as well as your success/fail rate. Your portfolio can also include your buying philosophy and testimonials from other lenders you’ve worked with — similar to a private money credibility packet — when seeking financing. When building a real estate portfolio from scratch, investors need to pay special attention to the following aspects:

Your Objective

Simply put, what do you want to achieve from your investment assets? Because different investments perform differently at any point in time, investors need to understand their end goal before choosing assets. Although an entire portfolio does not decline because of one investment, the combination, including risk factors, will ultimately impact your bottom line. That said, the types of real estate investments you have in your portfolio will play a significant role in achieving your goal, as rental properties and multifamily properties aim to achieve passive income, while assets such as wholesaling and rehabs look to accrue short-term gains.

The Numbers

Building a real estate portfolio hinges on one simple aspect: the numbers. These numbers are the foundation of any real estate investment, as well as the elements of truth. What I mean is, these numbers provide transparency to your deals–revealing whether or not they’re good or bad. Therefore, your real estate investment portfolio should comprise each of your investment assets broken down by various numbers, such as purchase price, transaction/holding cost, profit, repair cost, and sale price.

The next aspect of building a real estate portfolio is financing. How did you find and structure the financing of your deals? How did you find a buyer for the property? Your real estate portfolio will need to answer similar questions when seeking financing through traditional institutes like banks or private money lenders.

Finally, your real estate portfolio will need to include the improvement costs, as well as monthly operating costs. This will not only provide lenders with a snapshot of the associated costs of each project but how you leverage that money to earn a profit. As an investor, make sure to summarize the repairs and improvements you made to the property, including the After Repair Value for future projects. Your real estate portfolio needs to be accurate, up-to-date and comprised of all financial figures on your real estate investment.

Asset Allocation

Another critical part of learning how to start a real estate portfolio is asset allocation. For investors, this includes determining the appropriate asset allocation model for your goal. Although a complicated task, real estate investors will need to select a combination of assets that have the highest probability of meeting their goals and doing so at the level of risk they desire.

As mentioned earlier, the appropriate asset allocation for you will take into account your overall strategy, as well as risk tolerance. Looking for greater returns? Investors will need to partake in riskier investments to achieve those results, while others seek safer bets, bypassing bigger gains for consistency. That said, the more risk you’re willing to take on, the more aggressive your real estate portfolio will be, and vice versa.

Management

The last component to consider when learning how to start a real estate portfolio is managed. When holding onto properties, investors will need to decide whether to hire a property management firm to oversee the investment or become the landlord and do it themselves. This is something lenders will not only want answers to but its role for your bottom line. Whether you have a dedicated property manager or not, your real estate portfolio should include how your investments are being cared for, as well as the added cost associated with their management.

Benefits Of Building A Real Estate Investment Portfolio

There are various benefits associated with building a real estate portfolio that prove attractive to anyone who wishes to build their wealth, even with varying financial goals. Many types of real estate investments provide a steady cash flow in the form of passive income. By adding a rental property to your portfolio, this passive income can also be utilized to pay down the mortgage debt that was used to purchase the property in the first place. Over time, properties added to your property portfolios can appreciate in