Building a real estate portfolio doesn’t require buying multiple properties at once. The most common path starts with a single home and a strategy called house hacking. Here’s the basic framework.
- Buy a home, ideally one with rental potential. A duplex is the classic version of this strategy, but even a single-family home with a finished basement, extra bedrooms, or a detached garage can work. Think about how you could rent out part of the space to help cover the mortgage and build savings faster.
- Live in it for one to two years. While you’re there, make improvements that will make the home easier to rent and maintain down the road.
- Buy your next home and move into it. You’ll typically need a down payment, which can often come from the equity you’ve built in the first property via a HELOC.
- Rent out the first property. Rent should cover the mortgage and maintenance, plus build a reserve for vacancies and repairs. Your tenants effectively pay down your mortgage while you build equity. If landlording isn’t for you, a property manager can handle the day-to-day.
- Repeat every year or two. Over time, this compounds into a real estate portfolio and a stream of passive income.
This strategy isn’t the right fit for everyone, but it offers possibly the easiest path towards building a portfolio of properties and typically provides more favorable financing options. Depending on your risk tolerance, cash flow, lifestyle and appetite for being a landlord (even a hands-off one), there may be reasons to seek other investment avenues. But it’s one of the more accessible ways to start building real estate equity without needing significant capital upfront.
Curious whether your current home or a potential purchase would work for this strategy? Let’s talk through the numbers.
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This article is for general educational purposes and isn’t financial or investment advice. Talk with a qualified financial advisor and mortgage professional before making investment property decisions. Questions? Reach out to Marla directly.