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If I Could Redo My Real Estate Portfolio, This Is What I'd Change

By Liz Brumer-Smith – Jan 13, 2022 at 11:30AM

Key Points

  • Diversification is hugely important when building a real estate portfolio.
  • Focusing on the tax advantages of real estate can pay off big.
  • My wish is that I had started sooner so I could have invested more.

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After ten years of investing, these five things would have made my portfolio better.

It didn't take me long after graduating college and entering the workforce to search for another way to earn money. I knew the power of investing in the stock market, but I wanted diversification and a completely different business model that could pay me now and well into the future. Which led me to real estate.

I spent the next ten years learning everything I could about real estate investing, eventually building a real estate portfolio worth over $4 million by the age of 27. While it was definitely a portfolio I was proud of, I made a ton of mistakes building it along the way. Now, looking back at what I've built and what I've missed out on over the past 10 years, here are five things I would redo in my real estate portfolio if I could change it.

1. Invest in more REITs

REITs, which is short for real estate investment trusts, have become a quite popular way for investors to diversify their portfolio into real estate. When I ventured into real estate investing, my focus was on actively owning and managing the real estate myself, which meant I overlooked the opportunities of REITs.

REITs offer everyday investors (much like myself) access to institutional-grade real estate portfolios I could only dream of having one day, for a fraction of the time, cost, and effort of owning or managing these properties on my own. And because of their unique tax structure, REITs pay great dividends, which can add up to sizable dividend income. 

REITs are majorly on my radar today, and I'm happy to say over the past three years I've added several great REITs to my portfolio, but if I could go back in time, I would have added more REITs to my portfolio, which could have paid off big time in the last ten years.

Real estate portfolio in ring binder with numbers.

Image source: Getty Images.

2. Diversify my portfolio further

I chose to invest hot and heavily in mortgage notes. After the Great Recession, investing in mortgage notes, particularly non-performing notes, was an incredibly lucrative investment opportunity. I made a lot of money in a very short period of time from this niche, but I had nearly all of my eggs in one basket.

I should have made an effort to hold more rental properties, which was a potential outcome of investing in mortgage notes. At the time, I felt rental properties required additional work and added too much liability, which isn't wrong -- but this mindset meant I was overlooking the power of appreciation and the tax benefits that come along with rentals, which is huge. I've owned several rentals in the past but never held them for long, and looking back, I see tax shelter, cash flow, and appreciation flushed down the drain.

3. Take more calculated risks

I cannot tell you how many deals I missed, not because of lack of trying but because I was scared. Risk is a natural part of investing. Absolutely no investment is without it. The key is to be able to identify the risks and to know how and when to take action regardless.

Somewhat early on in my real estate investing career, I attempted to diversify my portfolio into apartments. I actually saw pretty decent success in my venture, having six apartments under contract within my first six months of marketing to sellers. But in each walk-through, inspection, or analysis, I ended up walking away. For some apartments, that was a blessing, but in most cases, it was a huge mistake. Issues with management practices looked like bigger tenant problems when in reality they could have been resolved. Cosmetic problems appeared bigger to repair than they would have been. Not knowing this meant I've lost hundreds of thousands in equity today and years of cash flow and tax benefits.

Become an expert on being able to identify where the true risks lie versus what is actually an opportunity to add value. This will help you assess and calculate your risks more carefully and hopefully not miss out on valuable opportunities.

Person typing on calculator with papers at desk.

Image source: Getty Images.

4. Hedge capital gains better

Making money through real estate is wonderful, but paying taxes on that income is not. Being a young investor focused aggressively on earning money, I wasn't as focused on sheltering what I earned. Real estate offers so many incredible ways to shelter income from taxes, including depreciation, tax write-offs, pass-through income, and 1031 exchanges, among many others. It took me years to realize the benefits and power of sheltering my taxes and reducing my capital gains tax. Investing for tax benefits shouldn't be your only focus, but it should definitely be a part of the plan and heavily considered before you invest.

5. Stay focused

Remember when I said I broke into apartments for a bit? Well, I kind of broke into a lot of different real estate investing strategies. I've fixed and flipped properties, owned rentals, invested in mortgage notes, and dabbled in self-storage. All of these investing methods can be extremely valuable ways to invest in real estate. It wasn't the method that was the problem, it was that I was all over the place and never fully executed the plans I put into play.

I should have focused on one avenue of investing and really mastered it before moving on to the next. This would have meant that I likely carried through with the opportunities when they came my way because I would have had the knowledge and expertise to identify risks and opportunities in each avenue.

Building a real estate portfolio is an experience unique to each person. What, where, and how much you own are often determined by how much time, capital, and knowledge you have to invest and your goals for investing. There is no perfect portfolio, however, there are some cornerstones that all investors should strive for, including diversification, healthy debt-to-asset ratios, and investing for cash flow or passive income. My biggest piece of advice is simply to get started and take a long-term outlook on your investing. Whether you're choosing to get your feet wet in rental real estate, REITs, or commercial real estate, it's amazing what time, dedication, and interest can do to build wealth through real estate. 

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