Learn How To Start Investing In Real Estate
Learn How To Start Investing In Real Estate

4 Ways To Improve Your Passive Income Portfolio

Written by JD Esajian

Key Takeaways

  • Building a passive income portfolio to supplement your golden years is ultimately one of the best decisions you can make as a real estate investor.
  • No passive income portfolio is ever complete. While you may feel like you are well off with the assets you have in place, there is always room for improvement.
  • I am convinced that today’s greatest passive income portfolios are those that expose their owners to the least amount of risk.

What is a passive income portfolio?

I will answer that question by first starting with the answer to another question: what exactly is passive income, and how can I generate one?

Have you ever fantasized about a life spent traveling the world? Or one where you didn’t have to call someone your boss? What about one where you you’ve been blessed with an unlimited income potential? Well, passive income – and building a passive income portfolio – is the best way to turn those fantasies into actualities.

Passive income is generally defined as a person whose income is acquired through one or more business ventures in which he or she continues to participate in, relatively inactively. Because people who earn passive income are treated differently by the government than those who receive active incomes – typically, those individuals working nine to five jobs – there are significant tax benefits awarded only to passive income recipients.

If you have yet to be convinced that a passive income lifestyle is one you want to live, also note that entrepreneurs who obtain their earnings inactively are more likely to achieve their personal goals and and reach a financially secure retirement future.

While there are many enterprises that one can pursue in order to maintain passive earnings, real estate is arguably the premier method to accomplish such lofty – yet attainable – goals.

Benefits Of Starting & Maintaining A Passive Income Portfolio

passive income
If you do, in fact, make the decision to invest in one or several rental properties, it is important to build and maintain a passive income portfolio.

Your passive income portfolio is the perfect item to show potential business partners and lenders whom you are looking to execute a deal with. Your passive income portfolio will showcase your multitude of deals – in which you acquired a profit from, of course – so that outside investors want to do business with you.

Ready to establish your passive income portfolio? These benefits will entice you to move forward:

How To Improve Your Existing Passive Income Portfolio

passive income real estate
Do you already have a passive income portfolio you are proud of? That is great. However, My partners over at CT Homes and I have come up with a few additional ways to help you to enhance your resume.

Having a passive income portfolio ready to show off to private investors is the key to closing a successful deal. Passive income portfolios that boast the following five qualities are sure to have an impact on a majorities of investors:

Diversify: Diversifying your investment portfolio is one of the most impressive traits private and hard money investors realize when reviewing a good real estate deal. However, a portfolio that possesses ten of the same deals will not inspire, or dazzle, potential partners. The real estate market works in cycles: there are ups and there are downs. When the market is on the upside, maximize risk, when the market is performing less than stellar, it might be time to hold your properties or wait on your next investment opportunity. The point is, is that the best investors have a multitude of deals happening at once.

One of the best ways to diversify your investment portfolio is by purchasing rental properties in a college town. College town rental properties offer investors a variety of benefits, which include – but are not limited to – high demand (because both students and faculty are always looking for the next place to call home), increased rental rates (because high demand means property owners can charge more in rental prices), and a reduced marketing budget (due to the fact that college towns are typically close to food/entertainment and public transportation and therefore virtually sell themselves.)

If you desire to take your passive income portfolio to the next level, consider investing in a college town rental property.

Scale: What does it mean when someone tells you to “scale” your investments? In layman’s terms, this refers to investing in more properties. When the market is in a certain state, where it favors real estate investors – like it is now – it is the time to add to your investment portfolio. Interest rates are low, asset prices are relatively low, and the potential for growth is significant, meaning, it is time to expand your business. Keep in mind, however, these opportunities won’t last forever. You must do your due diligence, research market highs and lows, and figure out what types of properties strive in particular markets. If you have a system in place that successfully manages one property, what is to say that, that same system can’t drive multiple properties.

When it comes to scaling your passive income portfolio, it is important to still diversify your investments. A mix of multifamily properties, single-family properties, rehab properties, and college town rental properties will help your portfolio shine. Just remember – if the going gets good, it is time to scale.

Refinance: Although interest rates are at an all-time low, there is word that they might increase – even if only slightly – in the near future. Because this might be the case, refinancing will potentially benefit your business. If you have the opportunity to lock in a lower interest rate on one or more of your properties, jump on the chance. By paying less on your mortgages each month, you will have extra cash that you can put towards the maintenance and upgrades of your properties.

One common way investors are currently choosing to refinance is through a cash-out refinance.  If you are looking to generate a little extra cash – whether it is to sustain a current property purchase a new one, pay off business credit debt, or even take a personal vacation, a cash-out refinance is the way to go. Once you’ve built up some equity in your home, you can take out a new mortgage, for a larger amount, and receive the difference between your new and old mortgage in cash.

Curb Liability: Once you’ve established your passive income business, it is crucial to take the necessary steps in order to protect yourself and your company. As with any business venture, there is a certain amount of risk involved when putting your entire self into your dream. If you do not protect yourself, there is a chance that, if you business goes south, you and your entire family could pay the consequences.

Establishing an LLC – a limited liability company – can mitigate risk and help make your company appear more legitimate. If your business has gotten to the point where it has taken on multiple partnerships, employees, and clients, setting up an LLC can safeguard your business while at the same time, provide you with tax benefits and prevent time-consuming, costly lawsuits.

If you are ready to make a change and live a passive income lifestyle, use these tips to amp up your portfolio and beat out your competition.