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

It didn’t take me long after I graduated from college and entered the world of work to look for another way to make money. I knew the power of investing in the stock market, but I wanted diversification and a completely different business model that could pay off now and in the future. Which led me to real estate.

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

1. Invest in more REITs

REITs, short for Real Estate Investment Trusts, have become a very popular way for investors to diversify their portfolio into real estate. When I ventured into real estate investments, my focus was on actively owning and managing the properties myself, which resulted in my overlooking the opportunities of REITs.

REITs give everyday investors (like me) access to institutional real estate portfolios that I could only dream of one day at a fraction of the time, cost and effort of owning or managing those properties myself. And because of their unique tax structure, REITs pay great dividends that can add up to substantial dividend income.

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

Real estate portfolio in a ring binder with numbers.

Image source: Getty Images.

2. Further diversify my portfolio

I decided to invest heavily in mortgage letters. After the Great Recession, investing in mortgage bonds, especially distressed bonds, was an incredibly lucrative investment option. I’ve made a lot of money in this niche in a very short time, but I had almost all of my eggs in one basket.

I should have tried to hold more rental properties, which was a potential result of investing in mortgage loan. At the time, I felt that rental property required extra work and added too much liability, which is not wrong – but that mindset meant that I was overlooking the power of appreciation and the tax benefits that come with renting, which is enormous. I’ve owned several rentals in the past but never held them for long, and looking back, I’ve seen tax evasion, cash flow, and appreciation washed down the drain.

3. Take more calculated risks

I can’t tell you how many deals I missed, not because I didn’t try, but because I was scared. Risk is a natural part of investing. Absolutely no investment is without it. The key is recognizing the risks and knowing how and when to act regardless.

Early on in my career as a real estate investor, I tried to diversify my portfolio into apartments. My project was actually quite successful because I had six apartments under contract in the first six months of marketing to sellers. But after every tour, inspection, or analysis, I ended up walking away. For some apartments it was a blessing, but in most cases a big mistake. Problems with management practices looked like major tenant problems when in reality they could have been resolved. Cosmetic problems seemed bigger to fix than they would have been. Not knowing this meant I lost hundreds of thousands in equity today and years of cash flow and tax breaks.

Become an expert to find out where the real risks are and what actually is an opportunity for value. This enables you to better assess and calculate your risks and, hopefully, not to miss any valuable opportunities.

Person typing on calculator with papers at desk.

Image source: Getty Images.

4. Better secure capital gains

Making money in real estate is wonderful, but paying taxes on that income is not. Since I was a young investor aggressively focused on making money, I wasn’t as focused on protecting my earnings. Real estate offers so many incredible ways to protect income from taxes, including depreciation, tax write-offs, pass-through income, and 1031 exchanges and much more. It has taken me years to realize the benefits and power of protecting my taxes and lowering my capital gains tax. Investing for tax benefits shouldn’t be your only focus, but it should definitely be part of the plan and should be given careful consideration before investing.

5. Stay focused

Do you remember when I said I broke into apartments for a while? Well, I’ve broken into a lot of different real estate investment strategies. I’ve repaired and flipped real estate, owned rents, invested in mortgage letters, and dealt with self-storage. All of these investment methods can be extremely valuable ways to invest in real estate. It wasn’t the method that was the problem, but that I was everywhere and never fully carried out the plans I brought into play.

I should have focused on one investment path and really mastered it before moving on to the next. This would have meant that I would probably have seized the opportunities if they presented themselves because I would have had the knowledge and expertise to identify risks and opportunities down each path.

Building a real estate portfolio is a unique experience for everyone. What, where and how much you own often depends on how much time, capital and knowledge you have to invest and what investment goals you are pursuing. While there is no perfect portfolio, there are a few cornerstones that all investors should strive for, including diversification, healthy debt-to-asset ratios, and investing for cash flow or residual income. My biggest piece of advice is to start simply and take a long-term perspective on your investment. Whether you choose rental properties, REITs, or commercial real estate, it’s amazing what the time, commitment, and interest can bring to building wealth through real estate.