Real estate investments require you to think about your long-term and your short-term investment goals. If you don’t have established goals and a clear strategy for achieving those goals, you’re not going to know how to look for the right opportunities and where you should buy your next investment property.
We have been helping investors manage their assets in the Boston rental market for years, and we have found that real wealth is created when you expand your investment portfolio. It doesn’t matter if you have one property or 10; consistently adding assets will give you an opportunity to earn more.
Are you thinking about growth? You should be.
Now is a great time to think about expanding your real estate investment portfolio. There’s a huge demand for rental real estate in Boston, and we don’t expect that demand to diminish any time soon.
As the sales market continues to remain competitive, the rental market is strong. Rental values are increasing and inventory is low, setting you up for high vacancy and retention rates.
Here are some of our best tips for local or out-of-state investors who are interested in growing and expanding their portfolios inside the Boston market.
Acquisitions and New Investments in Boston
The most direct way to expand your portfolio, of course, is by buying new properties.
This is an immediate growth point. When you buy new properties, you have a larger and more valuable portfolio of real estate investments. We get a lot of questions about the best time to buy. Should you buy now or should you wait? Is it smart to acquire a new investment in this market?
Here’s the truth: You should be prepared to buy any time you find the right opportunity. The market’s strength will play into how you structure and negotiate your deal, but it’s always a good time to invest in Boston real estate. There’s always a lot of value in the properties here.
Yes, the current market includes rising prices and low inventory.
But, remember that, unlike other buyers, you’re looking for rental properties, not the home you’re going to live in. This opens up the market for you and allows you to grab some great deals while others hesitate.
If you have the money and the opportunity to acquire a new investment property – do it.
Diversification Equals Expansion
Another great tip when it comes to growth and expansion: diversify your portfolio.
Not only does diversification help you grow your portfolio, but it also helps you manage the risk that comes with real estate investing.
Here are some of the typical ways that investors diversify their portfolios:
- If you own primarily single-family homes in HOA communities, this might be a good time to look at some multi-family units or a small apartment building.
- Consider commercial spaces if you only own residential property.
- New markets are also a great way to diversify. If all of your properties are in Boston, consider looking at neighborhoods outside of the city. Maybe you’re an investor from New York or the west coast, and you’re thinking about a new market. Take a look at what Boston has to offer.
Diversifying your investment portfolio will do more than add to its strength and profitability. It will also protect you from the risk you take on when all of your assets are in a single class of property or a single geographic market. If something goes wrong in a single local economy and that’s the only region where you hold investment properties, you may find yourself struggling to earn any money. If you own all office buildings, the remote work trend might have really hurt your ROI.
Look for ways to diversify so you grow and manage your risk.
Expand Your Portfolio with a 1031 Exchange
While we have you thinking about diversification, what about a 1031 exchange?
A great way to leverage the investment properties you already have is with a 1031 exchange. Under this program, you can sell one property and then defer the capital gains taxes on it by investing the proceeds into another property (or several properties) that are similar. The word similar in this case only means that it has to be another income-producing property. You cannot sell the home you occupy and buy an investment. You cannot sell a rental property and buy yourself a vacation house on the Cape. It has to be like property for like property.
How does a 1031 exchange help?
- You can defer capital gains that you’d earn by selling a property.
- You can unload an investment that may not be performing the way you want it to.
- You can increase the size and strength of your portfolio by selling one single-family home, for example, and buying a couple of duplexes.
There are a lot of options. A 1031 exchange requires a good sense of timing and an understanding of what types of properties will help you expand your portfolio. You have 180 days total to make the exchange. This includes an initial 45-day period in which you have to identify the new property you’ll buy.
Treat Your Investment Portfolio as a Business
You have to buy the right properties, and the right properties will make financial sense.
One mistake that a lot of investors typically make when they’re expanding their portfolio is to buy anything and everything.
That’s not a good strategy. You want to find an investment that will bring in some great short-term cash and long-term returns. You want a home that tenants will be interested in renting.
Look at every potential acquisition from the standpoint of a potential tenant. Will they want to live there? Will they be willing to pay the rent you will ask? It’s about quality, not quantity when you’re expanding your portfolio. Keep the emotions out of it, and focus on smart business decisions. Don’t buy high-priced homes or properties that need a lot of work.
Think strategically, and make a business plan. Be sure that every move you make corresponds with your own investment goals.
Would you like to talk more about your investment goals and how to expand an existing portfolio? We would love to have this conversation with you. For additional expertise on the Boston real estate market, contact our team at Platinum Realty Group.