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Best Ways to Build a Solid Cash-Flow Real Estate Portfolio

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Published on Sunday, September 04, 2016 by Land Century

A solid cash-flow portfolio is the goal of every real estate investor. There are underlying issues with solid cash-flow in real estate because this can mean anything really. Just think about it: rentals will provide monthly income, but if you sell a property every month or two, this is also a solid cash-flow.

Renting land to farmers can provide income, too. But you can also invest in commercial properties and be a small owner in an apartment building (real estate crowd funding is a great thing). The possibilities are endless, and a solid cash-flow when it comes to real estate portfolios can mean a lot of things.

There are two types of gains:

- Short-term

- Long-term

And understanding where your investments fall into the mix will provide you with a better way to fledge out your portfolio.

Short-Term Gains

Short-term gains are gains that can be realized quickly. And these gains can come in all forms. Your short-term gains in real estate can be:

* Flipping a home

* Rental properties

* Land leases

When it comes to short-term gains, you want to think in terms of smaller amounts of money. Every investor's goal is different, and the truth is that the short-term gains are small compared to the long-term gains that can be realized.

Rental Properties: Most rental properties will net the owner $200 - $400 a month on the high-end because of mortgage costs, insurance and maintenance.

Flipping Homes: When you flip a property, you can make $30,000 - $50,000 a flip or more. There are countless costs that can go into the process, too, so these figures can be lower.

Land Leases: The right property can be leased to hunters, farmers or a variety of other users. This is a nice short-term income, but a lot of the time, you’ll make little in the form of cash because there are upkeep costs and taxes to consider.

If you’re looking for immediate cash flow, adding more rental properties into the mix is a good choice. A portfolio heavy in rental properties can provide you with a nice cash infusion every month.

Flipping homes comes with a lot of costs and headaches along the way, but this is a viable option if you can offload the property quickly. A fixer upper that takes a year to sell will eat into the owner’s profits immensely, making most ventures mute.

Leases on land are really good in the long-term and lackluster in the short-term.

Long-Term Gains

Long-term gains are where people get rich in real estate. You hold onto properties, sell them in 20 – 30 years, and you’ll reap massive profits in the long-term. The problem is that many people are short-sighted, so they only thing about the immediate cash-flow they receive.

Long-term real estate can include:

* Rentals

* Land

And for me, it’s a nice addition when you have rental income because you’re paying the mortgage, paying for upkeep, and building equity in a property. Over time, you’ll accumulate some money from a rental, and eventually, you can sell the property for a ton more.

Long-term gains in land can be very beneficial, too. People buy land in areas where there is a development boom, and when a prime parcel is up for grabs, developers will pay top dollar for it. Some will even pay very hefty premiums because your parcel is vital to their development plans.

When thinking long-term, think in 15+ years.

The Entire Picture

Now that you understand the entire picture, you’re probably thinking of investing in a few rental properties. This is a good idea if you have the money to be able to invest into the property. If the property already has leases signed from tenants, it will be much easier to be able to get a loan, too.

Some lenders will take into account the income from rental agreements so that you can get a loan a little easier.
A portfolio may look something like this:

* 60% rental properties

* 20% fixer uppers

* 20% land

The idea behind this type of portfolio is that you’ll have a short-term asset producing cash-flow as well as a long-term asset that can be sold in the future with rental properties. Fixer uppers can produce massive cash infusions, or they can be duds, depending on where your property is located.

But with just a 20% allocation in fixer uppers, your portfolio is less risky overall. Land is also a safe bet, and the rental properties should be able to account for property tax. If you choose to lease the land or work it in another way, you can also generate some income.

This portfolio provides less risk and more long-term gain potential while being a cash-producing portfolio.
Don’t forget that you can invest in bigger projects, too. Rental properties can include money received from an apartment building that you helped fund. Real estate crowd funding allows you, the little guy, to be able to invest in larger projects and reap the rewards.

Fixer uppers are very attractive because some homes can produce massive returns. But you need to be careful with a fixer upper. The wrong home in the wrong city may not sell for 10 months. And if you’re paying $12,000 in mortgage and other fees, this will come out of your profits, too. Then you have to pay contractors and so on, so some fixer-uppers will be a loss.

When trying to build your portfolio, it’s often best to start with rentals. This is because:

* You’ll build equity in the property

* You can prove to lenders that you can be a successful landlord

* You’ll be able to reinvest earnings into other real estate

The truth is that unless you have a lot of cash upfront, you want to buy these cash-producing properties, so you can invest more and make the profits work for you. Maybe you own 5 rental properties. You may be making $2,000 a month off of these properties, which would allow you to show more income to buy a fixer upper. You can also buy acreage for cheap, and all of this happened because of your small rental investment that grew into something bigger.
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