There’s a saying that less is more. But sometimes more is better. Institutional investors like Blackstone Group, Pimco Colony Capital, and Cerberus Capital Management have long recognized the value of owning large numbers of single family rental properties. They’ve been heavily investing in this undervalued asset class in recent years. You can adopt their principle of diversification (while at the same time building solid investing skills), by creating your own portfolio. Here are some more reasons why savvy investors build portfolios over buying just one rental property.
Why Smart Investors Build Portfolios
Reason #1: Spread Your Risk
When you build an investment portfolio, you spread your risk and get the chance to be a part of multiple markets— including being a part of current lucrative trends. For instance, investors capitalized on a booming Houston real estate market around 2013, by savvily adding these properties to their portfolio. At that time Houston was a perfect storm of opportunity: 3.9 million square feet of office space was under construction during the first three quarters of 2013 alone, job growth was booming thanks to the energy sector, and non-existent zoning laws favored housing units of all types being rapidly built. If you had owned Houston real estate at this time, the extremely high demand would have netted you a very lucrative return on your investment.
Reason #2: Generate More Profits
You net more income from rent when owning multiple properties. Here are 5 locations HomeUnion has properties in and an idea of what you can expect to make in monthly rent from a 3-bedroom home: Houston ($1,432), Austin ($1,732), Tampa ($1,343), Atlanta ($1,311), and Charlotte ($1,242). Investing in five properties across multiple markets adds up to $7,060 in monthly rent; while owning a single 3-bedroom home in Irvine— for instance— would only net you about $2,645 in monthly rent (Zillow).
Reason #3: Create a Safety Net
By owning multiple properties in your portfolio, you essentially create a safety net, in which vacancies make less of an impact on your returns. As in the Irvine example in reason #2, which assumes you only own one property in Orange County; in this instance, a few months of vacancy can really hurt your overall returns; basically, 1-month of vacancy equals out to 0 profit in rent. And you would most likely have to pay out of pocket to cover the mortgage and other monthly expenses. Whereas, if you had the portfolio of multiple markets, even if you had one vacancy (say in Houston), you would still bring in $5,628 in combined monthly rent from tenants in your other rentals in Austin, Tampa, Atlanta, and Charlotte.
Giving You the Best Chance at Success
Smart investors build portfolios, and you should too. After all, a well-strategized portfolio helps give you the best chance at financial success. Call HomeUnion at 888-276-0232 or schedule a consultation to start building your portfolio today.