How can passive income investors enhance their real estate portfolios in 2015?
If you are going to invest in real estate, or for income in general, it only pays to optimize what you are doing. The key is to enjoy the best returns on your investments, and protect what you’ve got. However, that is easier said than done. Improving a passive income portfolio will require due diligence and hard work. Combined with the following advice, your passive income portfolio can net large profits in 2015:
1. Diversify
One of the best moves long-term buy and hold real estate investors can make in 2015 is to diversify. The U.S. real estate market continues to see different locations turning at slightly different positions in the cycle. Maximize the upside, defend from risk, and ensure consistent passive income and portfolio performance with diversification. For example; if you haven’t yet, consider investing in San Diego, Southern California, or plowing into the northeast and CT homes.
2. Scale While It’s Good
Now is the time to scale income property portfolios. When put into perspective, asset prices are mostly still low, leverage attractive, and potential for growth significant. That said, spreads remain very appetizing. It won’t last forever. Every month sees spreads shrinking. Those that are in early enjoy the compounding advantages of their superior positions every year. Make sure you’ve got more than enough properties to deliver all the passive income you desire.
3. Refinance Investment Property Loans
While warnings of higher interest rates have been going around, it may be time for them to take affect. When they do, they will shrink cap rates and the benefits of refinancing. Also, consider there are a couple hundred billion in maturing CMBS over the next couple years which may not be paid up, and could limit capital availability. So refinance and lock in incredible long term rates while they are available. Many passive income investors may also see the wisdom in refinancing current homes.
4. Simplify Financing
2015 may be the best time for real estate investors to simplify and consolidate financing. For some, this can help dramatically reduce debt service. For others, one of the best benefits will be reducing risk and potential for error. Those with sizable portfolios of single-family rentals could be well served by taking blanket mortgages. This can also free up personal credit and increase capacity for scaling and diversifying, while helping investors to qualify for better financing terms.
5. Limit Personal Liability
Despite minimizing or eliminating personal liability, in real estate investment or in business there is still a degree of inherent risk. Perhaps they aren’t educated on the dangers and consequences, or maybe they didn’t think they had a lot to protect when they started out (but do know). Whatever the case; make 2015 the year to have a liability check up and make adjustments where possible. This may include establishing an LLC or trust.
6. Reduce Taxes
Minimizing tax liability is an important step many real estate investor still need to take. Getting a better accountant can be a great step. However, one of the most significant moves passive income investors can make is establishing a self-directed IRA, and then investing through it for tax deferred and tax free returns. The bump to net returns and compounding advantage this provides can seriously accelerate wealth building and retirement goals.
7. Increase Security
All the gains in the world aren’t worth much unless those gains and the underlying assets are protected. Consider reviewing insurances and adding or bumping up coverage where necessary.
8. Make Energy Efficient Improvements
Making energy efficient improvements to rental properties may not just be the right thing to do, but it can also significantly improve net returns. This remains true for both investment properties in which landlords pay the utilities, and where tenants pay them. Solar additions can also entitle some investors to rebates or help qualify them for grants and preferred financing terms.
9. Put Real Estate Investments on Autopilot
Sadly, far too many real estate investors continue to spend too much time managing their investments, rather than actually being able to enjoy the benefits of truly passive income. So, if you haven’t yet turned those rental properties over to a property manager, consider doing it soon. The time you have can be better spend finding more investments than running existing ones.
