With the extreme amount of appreciation in the Colorado real estate market the past few years, a common question we get is “What do I do with my portfolio?” There’s a great opportunity to use equity but a lot of confusion about how to optimize a portfolio.
Our Portfolio Analysis Mastermind was created to answer this question using a combination of our Propertyllama software and human advisory. To understand how it works, we’re walking you through a condensed version of the 9-week course using a real portfolio. For all of the details, create your free account on Propertyllama to download the slide deck.
- Listen to the podcast “#362: Where Should You Invest $500k in Colorado?” on the Denver Real Estate Investing Podcast
- Watch the YouTube video (at the bottom).
- Read the blog post. Note, the blog is an executive summary. Get the in-depth breakdown from the podcast or video.
Optimize and Analyze Your Portfolio
The Portfolio Analysis Mastermind combines human advisory along with our brand-new Propertyllama software. Propertyllama acts as an advanced spreadsheet that analyzes the returns on your properties. Because numbers are only half the battle, we advise you based on your specific goals and risk tolerance, too.
Over a 9-week period, we took over 100 people through the software, helping them analyze their portfolios and crafting plans. There were three major parts to the mastermind: determining long-term goals and gathering the data; identifying opportunities based on the market, cash on hand, and portfolio; and creating an action plan using all of this information.
For a better idea of what the Mastermind looks like, we’re giving you a high level look at one of the portfolios we analyzed. Richard McGuirr joined Chelsea and me to talk about his experience in the Mastermind and what his next moves are.
We looked at Richard’s and his wife Ilona’s properties in more detail in this episode.
Phase 1: Gathering Data and Identifying Goals
One of the biggest “aha” moments in the mastermind came from our participants realizing just how much equity is in their portfolio. By putting all of the information into Propertyllama, users can see how well their individual properties are performing and what their portfolio looks like as a whole.
Richard is in the growth phase of his investing career, and his next milestone is $4MM in total portfolio valuation. His end goal is to replace his income at a high standard of living, about $250K per year.
With these goals in mind, we can advise him on ways he can achieve them using his current portfolio.
Phase 2: Identify Opportunities
We identified three scenarios that would get Richard closer to his goals. All of the properties in our scenarios are actual comps that were recently purchased by other clients.
Scenario 1: Use a 1031 Exchange to Buy a Commercial Multifamily Property
If Richard were to sell one of his underperforming properties, he could use a 1031 exchange to buy a commercial multifamily property for $2MM with a 5% cap rate.
With this multifamily property, his Net Operating Income (NOI) almost triples and his valuation jumps to $2.5MM. In just one move, he would be more than halfway to his valuation goals.
Scenario 2: Use a 1031 Exchange to Buy a Fourplex in Denver
If Richard wanted to stay out of the commercial space but still acquire multiple doors, he could buy a fourplex in Denver for $1.2MM. Although the returns would be a little lower, the property is less leveraged and allows him to keep cash on hand.
Scenario 3: Buy Four Properties in Colorado Springs and Pueblo
Richard can spread his investments across two markets giving him more locational diversity. Currently, Colorado Springs is more of an appreciation market, and Pueblo is a cash flowing market. A lot of investors are excited about Pueblo because of the lower point of entry and because it’s a younger market, the multiplier will be higher.
Phase 3: Action Plan
Based on this information, Richard can decide which path he wants to follow to reach his goals.
He and his wife Ilona realized halfway through our Portfolio Analysis Mastermind that they had no emotional attachment to their most expensive property and that selling it would allow them to get closer to their ultimate objectives.
While the first scenario is exciting, he is leaning towards a mix of scenarios two and three: buying a fourplex and investing in Colorado Springs and Pueblo.
Join the Next Portfolio Analysis Mastermind
If you want to learn how to analyze and optimize your portfolio, sign up for our next Portfolio Analysis Mastermind. Click here to the join our waitlist for the mastermind in two months. Everyone who signs up will get their own one-on-one analysis session in which we lay out different scenarios and pick the best one based on your risk tolerance and goals.
In the meantime, create your free account on Propertyllama to download the complete side deck. If you want the side deck and already have an account, email us.