A property portfolio can be a springboard to financial success. Although this method of wealth building has worked for many investors, some don’t know how to grow their portfolio and maximise its financial potential. However, others look beyond their first investment, using it wisely to accumulate more properties. Whatever your portfolio position, here are some tips to help you get started and grow from there.
Your first purchase is the foundation for future opportunity
Making the right decision now can set you up to use this asset for future purchases.
That’s why investors are more interested in positively geared properties, where the repayments are covered by the rental return without having to add to it. Using the equity in a positively geared property, you can borrow money for your next purchase.
On the other hand, a negatively geared property requires you to dip into your savings to cover mortgage repayments. This can put you on the back foot in the short term, but you might see capital growth potential. If you’ve chosen an area that is likely to rise in value or if you’re willing to invest in some minor alterations and improvements to attract a higher paying tenant, it could turn your property positive.
Have a property plan
You might turn your focus to a particular type of property (unit, freestanding home etc) or be on the lookout for land of a specific size or have a minimum rental return in mind.
This list of specific criteria will help you narrow your search, saving you time and money researching properties that don’t fit the bill.
Keep financial safeguards in place so you don’t over extend yourself
Over committing financially is the number one reason people don’t reach their investment goals. To avoid this, it is widely recommended to include contingency funds in your budget for maintenance expenses, a lull in the market or unexpected vacancies. Having this set up will keep your savings intact.
Consider all fees, not just the sale price
There are one-off fees when buying a property – among them are bank fees, solicitor’s fees and stamp duty. There may also be money required for maintenance or renovations. In addition to this, consider any on-going fees like rates, levies and insurances. All these costs must be factored into your budget to give a true indication of affordability and investment viability.
Seek out sound financial advice
A financial planner or accountant can advise you on the best portfolio structure for your situation, pinpointing your eligibility for any tax benefits.
A property portfolio requires planning and management
Planning will see you clarify your financial goals.
Management is keeping an eye on your property’s income and expenses, so you can anticipate an opportunity to sell if the time is right.
Consult your local real estate agent about what the market is asking for. Keeping up with repairs and maintenance and offering a property that ticks all the boxes will put you in a position to command higher rent.
Leveraging the money of others
Also known as co-ownership or joint venture.
Pooling together your resources can propel your portfolio. It can be a risk but wise investors should enter any agreements thoroughly researched and legally documented.
When investing as a group you must consider the needs and wants of each party and their current and forecast financial position. A contract will outline each investors responsibility, their contribution and their share in the property. A carefully laid out exit strategy is crucial; It identifies various scenarios and provides guidance on what to do in that event.
Review and revise
Even if you see momentum in your portfolio and you are happy with your direction, you should review and revise regularly. Has something in your life changed to alter the feasibility of a property? Is the market rising or slowing in a particular area? Is your property appreciating or depreciating in value? These questions will help determine if you should hold on to a property or sell it. Keep your eye on the market and get advice from a real estate agent who knows the area well and can give you some local insights.
Property investing is a business. From the points listed here you can see there is no one-size-fits-all recipe to success. Immersing yourself in the market, investing your time as well as your money can put you ahead of the pack.
Building a property portfolio can take longer than most people think. It’s not a sprint. It’s more like hurdles. There are peaks and troughs to navigate along the way, but financial gain is the ultimate reward.