Archive for the ‘The Property Ladder’ Category

The Property Ladder – How to Build Your Real Estate Portfolio

Tuesday, April 21st, 2009

By Jon Swire,

Have you started investing in real estate and aren’t sure how to climb the Property Ladder or even what it is? Then continue reading for important information on how you can build a real estate portfolio that can generate enough money for you to retire on.

The Property Ladder, as it’s called by many experts, is the path investors take as they trade up from Single Family Homes to Duplexes and onto Multi-Family investments. It’s dubbed the Property Ladder because each ‘rung’ in the ladder is smaller than the next. The goal is to build a portfolio that will one day generate enough passive income for you to pay for your kid’s college tuition and fund your retirement and lifestyle. If you’re diligent and patient, you can turn a $30,000 investment into $2MM or more over 30 years.

For most investors, their first purchase is usually a Single Family Home, or SFR. This is a purely speculative investment and the hope is it will appreciate in value. Once it does, you sell the property and use the equity gain to purchase a 2-4 property, also known as a Duplex, Triplex or Fourplex. These properties will generate more cash flow than an SFR and are usually the second step up the Property Ladder.

The ultimate goal is to sell their 2-4 units properties once they’ve appreciated in value and trade up to a multi-family property consisting of 5 units or more. This is called a 1031 Exchange and allows the investor to defer paying taxes on the gain until sometime in the future.

The key to the Property Ladder and growing your passive income stream is to keep your equity working. I suggest to all my clients that they sit down with their real estate professional at least once a year and evaluate their real estate portfolio. Once your property has appreciated enough, you should consider selling it and replacing it with a larger property generating more cash flow. Remember, be patient and consistent, and over time you’ll find that you’ve built a small real estate empire and successfully climbed your own Property Ladder!

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