Looking To Diversify Your Real Estate Portfolio: Here Are 10 Things To Know

Real estate is always valuable. That is a statement you should not take for granted, even though it has the word “always” in it. Because what most people hear is “real estate is always expensive” or “the price of real estate is always high”, which are not always true.

What is always true is that people always want real estate. More than that, people always need real estate so that they can use it to solve problems that only real estate can solve.

For this reason, real estate is an excellent addition to any portfolio. It can be used as something that you trade or create passive income for you to live off of or save for a retirement fund.

But how do you get into real estate? Here are ten things you need to know in order to do so.

Real Estate is a Liability

This is not where most people expect to start. The way most people talk about it, real estate is the most valuable thing ever. And in a weird way, that is true. So, how can it be a liability?

Remember that in this context, “liability” does not mean “drawback” or “deadweight”. It means “risk”. If you get a loan to buy or renovate real estate, then your loan turns from highly maneuverable and adaptable money to real estate that cannot go anywhere.

Money can be replaced if damaged. Real estate has to be repaired, making it a risk.

You can Invest in Real Estate in Several Ways

While real estate is not adaptable as money, it is definitely more adaptable than most people think. This includes the “how” of your investment, as well as the “what”. Some real estate is bought all at once, some is paid off, but some is not just a plot of land like people think of it.

Real Estate can be Bought Percentages at a Time

Imagine that you want to buy a piece of property. Whether you have the money already or need to get a loan, you probably expect to buy it all at once. But there are other ways. For instance, you can buy a percentage of a property. This is called a “fractional share” of a property.

This is actually an idea adapted from the stock market, where the same can be done to stocks.

Prices to Buy Real Estate can be Negotiated

It is not easy, but due to the natural liability involved in real estate, most of its price is not set in stone like you might think. Doing your research on the property you want to buy can lead you to find out interesting things—leaky pipes, a history of bad weather, and other risks.

These variables can be so diverse and uncommon that the person making the sale to you does not necessarily have to know them, but if you can prove them then you can get that price lower.

Loans can be Negotiated Too

People expect that loans can be negotiated much more, though their experience with it can differ. For most people negotiating a loan means filling out different information on a form.

This is why it is important that your loan be negotiated in person rather than handed down from a machine. When you pitch the idea you have for how to make money off of a property, you want to do the inverse of what you do when buying the property: Make it look like less of a risk.

You can Contribute to an Existing Real Estate Plan

This all makes it sound like the only way to invest in real estate is by having an idea for a business, finding a property that can support it, and getting a loan to get it started. That is quite a lot of work though, and not everyone is interested in doing that. 

So, why not contribute to someone who is?  One option you have is helping finance a loan someone else is getting. That means when they make payments, part of the payment goes to you. If you finance the whole loan, you get basically the whole payment. 

Be Careful About Defaulting

When it comes to paying into other people’s real estate plans, it is always a risk that they default on the loan you gave them. This is why going in for the whole loan might be a bad idea.

Renting is Highly Profitable

Once you actually have the property, what do you do with it? Most people do one of two things: They hire a construction company and either demolish an apartment to make office space or demolish office space to make apartments. Then, they rent these things out to people.  

These are great, efficient ways of establishing passive income from your real estate.

But be Careful About Renting Too

The big trap people fall into with renting is trying to make it as profitable as possible. But if you are a landlord, then the tighter you squeeze your tenants the faster they slip through your fingers. Trying to make a building as profitable as possible can quickly backfire.

People can Only be Squeezed so Much

The reason for this is related to something fundamental to real estate investment: Only so much money can be extracted from a property in a given time. You can push to get more and more money out of it, but the harder you push the more likely it is that your property makes no money.

Which makes sense—if you raise the rent too high, charge too much for utilities, create a hundred little fees, then you will make a lot of money… In theory. In practice, it will be too much for any tenant or business to deal with.

Conclusion

Real estate is a great thing to add to your portfolio, but Teifke Real Estate advises that you keep a technique about it in mind. It is not easy to manage, and is too easy to over-extract.