New Year is time for making new decisions and changing for the better. This is a good moment for real estate investors to bring some good changes for their business.
New Year, new me! We all know this saying that shows the true spirit of New Year resolutions. Real estate investors should also be making some decisions that can change their business for the better. This is a great period for you to up your investing game and to grow your investments and increase your net worth. The first step of successfully doing this is to look at the year passed (we know, 2020 was a painful time) and review your ups and downs so you can make a good financial plan.
2021 is just around the corner, and it’s time for those changes! Here are four New Year resolutions for real estate investors that you can make right now.
Pay Less in Investment Fees
Fees are a bane of every business, not just investment. They can ruin your efforts to build wealth, which will, in return, shrink your earnings. In essence, fees are negative returns. A good example of this is mutual funds. The fees for these funds add up, no matter if that transaction is used for buying or selling, or if these are some annual fees on an ongoing basis.
As the New Year is coming close, you have two options if you’re planning on limiting your fees. The first option is to consider changing your investment choices. For example, if you’ve invested plenty in already mentioned actively managed mutual funds, try opting for index funds or exchange-traded funds. And if you’re already on some low-cost options, but you still have high fees that are ruining your earnings, you might consider getting a better financial advisor. Sometimes, they are the reason behind poor income. If you do decide this is the way to go, have high conditions for future professionals. Ensure their fee structure, professional credentials, and their services are up to your standards. Real estate investors need to have good financial plans to be successful.
Expand Your Portfolio
Diversification is very important for being successful in real estate investment field. This isn’t for no reason. If you’re focused on just one asset class, you are putting your whole business at risk. In case some change happens on the market, particularly to that one sector, your entire investment portfolio will fail. When you have some variety, you’ll always have some source of profit.
If your portfolio is focused on just one type of properties, try expanding it. Do you have enough single-family or multi-family properties? Have a few rental homes, while also flipping houses. Also, try investing in some real estate investment trust (REIT), or even venture into crowdfunding. These can be a nice way to reap the benefits of real estate investments, without actually purchasing a property.
Another good New Year resolution for real estate investors is to rebalance your portfolio from time to time. This gives you a certainty that you’re maintaining the correct asset allocation for your investment goals. Most investors fail to have a hands-on role when it comes to investment managing. They prefer to set everything up and enjoy a passive income. On average, less than a quarter of employees ever even attempt to rebalance their portfolios.
The New Year is a great opportunity to start regularly rebalancing your portfolio. If you’ve never rebalanced it, start doing so now. If you’ve rebalanced once a year, start doing it quarterly. This isn’t something you should do daily – on the contrary, this might cause you to overreact. However, great real estate investors always know what exactly is happening with all their investments. This is one of the keys to their success.
Increase Tax Efficiency
Taxes are another expense that is eating away your investments. If you have a qualified retirement plan, you shouldn’t worry too much about taxes. This includes an individual retirement account (IRA), or an employer’s plan. A good idea is to get a 401(k) or traditional IRA. This will make your savings grow tax-deferred. Also, any withdrawals after age 59.5 are taxed at a tax rate of a regular income. When you have a taxable investment account, however, you can trigger the capital-gains tax which applies when you send your investment for more than you’ve bought it. This means you have to be smart. To minimize this tax, try diversifying your investments by investing in index funds of ETFs, as well. These funds don’t have as big turnover as real estate does, which will reduce the frequency of all those taxable events.
These four resolutions can be very useful for all real estate investors. They can help you improve your business and raise your income. Just make sure you stick to them. Fit them into your financial plan, if needed. This will insure you remember them.