Building a strong investment portfolio takes smart financing, a keen eye for properties, and an understanding of existing and future markets. Every real estate investor tends to find niche areas in which to invest. To help you, here are 4 strategies for building a strong investment portfolio in Massachusetts. With more experience, you will learn to master each strategy to improve your portfolio holdings.
Core Portfolio Holdings
Core portfolio holdings are the foundation of most investment strategies. In this strategy, you buy and hold properties, whether they are commercial or residential. As you lease the properties, you are able to take advantages of long-term tax strategies while building equity paid for by tenants.
Many real estate investors begin with this strategy as they buy a personal property to renovate, live in it for a while and later step up into a bigger and better home. This presents an advantage. Owners are able to learn about the market with less risk since they owner doesn’t invest in a rental first. With this strategy, they are able to learn about maintenance and other issues and are better able to gauge the rental price. This experience helps with future long-term hold properties, ideally upping the strategy from a core holding to a core-plus holding that has a slightly higher opportunity for returns.
Value-added opportunities are similar to core portfolio holdings in the sense that they aren’t an immediate flip. In the value-added strategy, investors foresee the real estate market increasing five to seven years down the road. This insight could be the result of incoming developments or other community improvements making the property an attractive mid-range hold.
In some cases, the investor himself will work on the improvements and develop the property himself. Investors must have enough cash flow resources to maintain and improve the property during the course of holding and execution of the investment strategy. Because the timelines are accelerated, it poses a higher risk than core investment holdings.
As this strategy sounds by its name, investors seek to take quick advantage of a situation. This is most prominently seen in Massachusetts when distressed properties become available and the market is hot. Investors jump at the opportunity for a quick in and out strategy to generate returns but reclaim cash flow as quickly as possible.
While this strategy is often executed quickly in less than a year, investors may seek to hold a property up to three. Investors need to have a strong pulse on the market and be able to jump quickly in with cash purchases and rehabs or development of properties. This strategy is higher risk than buying and holding strategies like core and core-plus.
Equity and Debt Usage
Real estate investors will evaluate the amount of equity and debt maintained in their portfolio. While investors seek to improve equity positions with savvy purchases, they also understand how to leverage debt. Leveraging debt means using the equity in one property to obtain debt to purchase a new property in a cash-like deal. To sellers, the money comes in as cash because the debt is tied to a different property.
An example is getting an equity line of credit on one property, taking cash out and using it for a new purchase. Once the new investment deal is closed, the investor can improve the property, getting it reappraised and apply for a line of credit on it to either pay off the first line of credit or purchase another property.