How to Create a Real Estate Portfolio

Start Small so You Can Dream Big

It’s important to understand that one property will not secure your financial future. Leasing a single house or apartment may net you a few thousand dollars a year, and after a decade, may have earned you a few thousand dollars in appreciation. That being said, the first piece of real estate is just that, the first.

Your first mission should be to increase the property value before you move on. Next, use the equity on your home by refinancing it to buy your second home, and as you buy more, the more likely a bank will give you loans to keep buying more real estate, but it all starts with your first.

Research Your Financing Options

Creating a steady monthly stream of money is the end goal, but one property will not make you a millionaire, but as you accumulate properties, you will be able to buy more. It’s unlikely that you’ll have enough cash on hand to buy your next properties out of pocket. That means you’ll need to take out a loan. 

Financing multiple properties at once can be a challenging endeavor. Most banks are not willing to give out more than one mortgage at a time, but that doesn’t mean that they won’t. You’ll have to fork up a larger down payment, have a credit score of 720 or higher, and must demonstrate a great track record with your previous properties. 

Cash Flow

In simple terms, this is money spent and money earned from a property. Money spent on the property is things like your mortgage payment, taxes, HOA dues, and upkeep. The goal is to make enough from your tenant to cover that and maybe even make a profit. Let’s say you made a $200 profit a month, which means $2,400 a year.

Appreciation

If you are leasing a single home, odds are you won’t make a ton of profit from your tenant. Your profit will come with the appreciation of your home. This is what we mean when we say investing in real estate.

When you buy a home, you are expecting the price of that home to rise. In Mexico and Baja California, that is happening almost across the board. In Tijuana, housing costs went up 10% last year. That is a bit of an outlier, so let’s say you bought your house at $250,000, and each year the price of your home went up by 5%. By year ten, your home would be worth $407,224.

Loan Paydown

Throughout this ten-year period will be making regular monthly mortgage payments, let’s say, $1,200 a month. After 10 years, you will have paid off $144,000 of the home. That leaves you with $106,000 left to pay, but if after ten years you want out, that means over $300,000 profit from your home appreciation and an additional $24,000 from your tenant. Not bad for not doing anything. Like we said earlier, the more homes you buy, well, the more you can see how these profits can compound themselves. To learn how International Land Alliance can help, please visit our investor relations page.

Diversify

As you grow your real estate portfolio, it is important to consider diversification. Much like a stock portfolio, it’s risky putting all of your eggs in one basket.

Investing in real estate has many benefits compared to a traditional stock portfolio. For instance, real estate comes with tax incentives, which will cover inflation. With that, buying different types of real estate is also the best way to combat the effects of a recession. Retail, industrial, housing, and warehouse spaces are all important parts of a well-diversified real estate portfolio.

Also, if you are looking to fix distressed homes and flip them, it is important to balance that risk with homes you can generate cash flow with while you do your repairs. Buying a newly renovated home or newly constructed home in an up-and-coming area is also a great strategy.

Buy in Areas with Huge Appreciate Potential

Buying a home in an area that is going to see huge ROI is obviously the goal when you invest in real estate. According to Bay Area Market Reports, if you bought a home in San Francisco 20 years ago, you would, on average, have made a 400% profit. Now, that is such an outlier, it is more likely that your housing real estate will appreciate around 3% every year. But how do you know if an area is good to invest in?

One sign a lot of investors look for is something called hotspot spillover. This is when an area of high popularity starts to bleed out to neighboring communities. In Mexico, the appreciation rate across the country has seen a steep rise in housing prices. Tijuana has seen a 10% rise in its real estate prices, so if you’re looking to buy in Mexico, neighboring cities to Tijuana is a great place to start.

Learn about the Local Market You’re Buying into

Ensenada is one such neighbor. It is a coastal town that also sits next to the most important wine-growing region in the entire country (Valle de Guadalupe. It is also one of Mexico’s busiest ports.

Only 45 minutes away from San Diego, this town is ripe for a similar trajectory as Tijuana. Bajamar and Valle Divino are two of our real estate developments in Ensenada that we think you should invest in. To learn more about the area, visit us on our website.

Stocks that are correlated to Real Estate

One last thing to consider when building a portfolio centered around real estate, and that’s stocks. Buying stocks that are correlated to the housing market is a good idea, but it is also a great way to track how well the market is doing, as it will correlate rather well. PG&E is one such stock. PCG investor relations are tied to the well-being of the housing market, so it is also something to consider in your portfolio building.