When you’re talking to real estate investors, they’ll often tell you how many doors they own, meaning how many rental units they have in their portfolio. Stating door numbers, however, can often be misleading. Generally, the real metric to keep track of is cash flow because, after all, profitability is what counts in any business, right?
Sometimes, though, the two can get conflated, and on occasion, owning just a few doors, irrespective of cash flow, can be a good strategy for building long-term wealth.
Confused? Don’t be. Rapidly appreciating areas can often generate far more wealth than simply adding doors that make $200-$300/month without the headaches of multiple tenants. In those instances, clinging to the side of a speeding real estate train might be the best investment strategy to generate wealth quickly, giving you investment options further down the line.
Note that most landlords in America are not Wall Street behemoths or incredibly successful businesses with hundreds of doors in their portfolio but mom-and-pop owners with a few units to supplement their income.
In other words, relax if you still need to purchase your first unit. You’re not getting left behind in the stampede touted by investment gurus to scale your portfolio. Owning just a few units puts you alongside most owners. If you already own a primary residence, turning it into a rental is relatively easy if you plan to move.
If you want to scale your portfolio, however, there are some important things to consider before starting.
Where Do You Intend to Buy Your Rental Units?
Your purchase power will be sorely limited if you intend to buy rental units in expensive areas. Assuming you’re not sitting on a trust fund or haven’t written songs for Taylor Swift or Beyoncé, there are the practical issues of how much you can borrow and earn from your day job, which will directly influence your purchasing power.
If you are a high earner or have investors…