Strategies to Build Your Investment Property Portfolio

written by Brandon Axley

Building wealth through real estate doesn’t have to start with a big inheritance or a massive hassle. Many successful investors begin with just one home and build from there—learning as they go, using smart financing, and making each move count.

Even if you only own a primary residence today, you can use it as a springboard to buy more homes over time. Here are five practical strategies that can help you steadily grow your investment property portfolio.

1. Buy a new primary home every two years — and use the tax advantage

One of the simplest and most surprisingly effective strategies in the U.S. is to buy a new primary residence every two years. Here’s why that matters: under IRS Section 121, if you’ve lived in your home for at least two of the past five years, you can sell it and keep up to $250,000 (or $500,000 for married couples) in profit without paying capital gains taxes.

Think of it this way: when your home increases in value, that growth is called equity. After two years, when you sell, you get to keep that equity tax-free. You can then use those proceeds as the down payment on your next, possibly larger or better-located home.

Repeating this process every few years allows you to move into nicer homes, build wealth through appreciation, and—if you decide to keep the previous home as a rental—begin assembling a portfolio of income-producing properties.

The timing is critical: if you sell before you’ve lived in the home for two years, you’ll likely owe taxes on the profit. But by waiting until the two-year mark, you unlock one of the most powerful (and underused) tax benefits available to homeowners. Patience really does pay here.

2. The Move, rent, repeat — a step-by-step way to grow without massive savings

You probably think you need to save up a pile of cash before you buy an investment property—but that’s just not true.

If you already own a home, or you plan to buy one, you can use a strategy that’s helped countless Americans consistently build wealth over time.

Here’s how it works.

You buy a home as your primary residence—something most people do at some point in their lives. That gets you a lower interest rate and smaller down payment, because lenders assume you’ll take better care of a home you live in.

Then, after living there for at least 12 months (depending on your loan terms), you rent that home out instead of selling it—and buy your next one. Because the new home will again be your primary residence, you qualify for owner-occupied loan terms all over again.

Now you might be wondering, “How can I afford two homes?”

When you rent out the first one, that rental income helps offset its mortgage payment. Even better, when you apply for your next loan, many lenders will count a portion of that rental income toward your qualifying income for the new purchase.

Yes, you’re taking on another mortgage—but the first one is largely being paid by your tenant, while you build cash flow and equity in both properties.

You’ll need to update your insurance, check HOA rules, and take on the responsibilities of a landlord—but imagine repeating this process every few years. By the time you retire, you could have a portfolio of homes paying you passive income for life.

3. House Hacking—turn your home into an income stream

House hacking means living in a home you own while renting out part of it to generate income. That might be a spare bedroom, a basement apartment, or a small guest suite within your primary residence.

This approach helps offset your mortgage payments and allows you to start investing even on a modest income. Instead of waiting years to buy a second property, you can turn your current home into a small-scale income generator right away.

For example, a homeowner who rents a finished basement for $1,200 a month might cover a large portion of their mortgage and save that extra cash toward a future down payment. It’s one of the most practical first steps for new investors because it reduces living costs while building valuable landlord experience.

Note: This is different from building an ADU (described below). With house hacking, you’re renting out space within your existing home — often sharing the property or common areas with your tenant. An Accessory Dwelling Unit (ADU), on the other hand, is a separate, self-contained living space with its own kitchen, bathroom, and entrance.

4. Creating value by adding an ADU

While house hacking uses the space you already have, adding an Accessory Dwelling Unit (ADU) is about creating new rentable space. An ADU could be a detached cottage in your backyard, a converted garage, or a finished basement apartment with its own kitchen and entrance.

Building an ADU takes an upfront investment, but it adds long-term value in two ways: you gain a separate rental unit that brings in monthly income, and your overall property value increases because the home now offers more livable square footage.

In Colorado, where in many cases zoning rules increasingly support ADUs, this has become one of the most reliable ways for homeowners to grow their real-estate portfolio without buying a second property.

5. Use low-down-payment financing to buy small multifamily properties

If you’ve already built some equity in your current home or gained experience managing a rental space, your next move could be to buy a small multifamily property—a duplex, triplex, or fourplex. This strategy lets you scale your portfolio while still qualifying for the same favorable financing available to homeowners.

Here’s how it works: you purchase the property with owner-occupied financing, meaning you agree to live in one of the units for at least a year. Because you’re an owner-occupant, you can use FHA financing with as little as 3.5% down, or certain conventional loans with just 5% down—much lower than the 20–25% most investors need for non-owner loans.

You then rent out the other units, using that income to help cover your mortgage, build equity, and strengthen your track record as a landlord. Over time, this approach can even make you more attractive to future lenders because you’ll have both rental income and management experience to show.

After you’ve lived there for the required occupancy period—typically one year—you can move out, rent your former unit, and repeat the process with another multifamily property. Each move adds more units to your portfolio with relatively little upfront cash, creating a snowball effect that accelerates your growth.

Final thoughts

There’s no single path to building a real-estate portfolio. Some strategies work best for homeowners who want to live in their investments; others fit those ready to manage several properties. 

What matters most is starting where you are and using each property as a stepping stone to the next.

With patience, smart financing, and a long-term view, real estate can become one of the most powerful tools for creating lasting wealth.