It may seem an unrealistic dream to go from paying the mortgage for one property to owning a portfolio of properties. Especially with competitive and growing markets nationwide. But seasoned investors will tell anyone who’ll listen, the first is always the hardest. If you’ve already taken that first step, then you’re only one more away from starting your portfolio.
Building a property portfolio
Duplication, duplication, duplication
It is key for a new investor to gain a grasp of the principle of duplication. This is so they can understand how to approach their investments in the future. Duplication involves finding a simple but workable system for your investments, and then duplicating this when possible. This ‘system’ should focus on identifying ways to turn capital growth into equity. That simple! If you are paying off your current home and are putting away savings towards an investment property, think about what system you want to use for growth. Let’s assume, that your home’s worth has grown since you bought it. You can release equity based on this growth to use on a deposit for a new investment. This saves you locking your savings up and keeps them free to use for your home’s mortgage.
This idea of freeing equity based on your investment’s growth in the market underpins property investment. It is going to be hard to rely only on your salary and savings to grow a portfolio. Building on the growth of your current holdings is a risk but this is a game of managing these risks to your advantage.
It pays to have friends
What’s the best way to release this equity? By building strong contact with experts in the field. A bank will often try to push you towards cross-collateralising your home loan with your investment. This is not always best because the bank may try to use growth in your investments to pay your home’s mortgage. This could leave you with no equity to continue building a portfolio. You should instead make friends with a great mortgage broker and see how to diversify your loans so you are free to use them how you like. You might be able to connect with some local mortgage brokers on LinkedIn (or follow VIEW whilst you’re on there.)
Interest-only loans and property portfolios
This is just one to think about, however some may have differing thoughts on this. Interest-only loans mean you only pay the interest on your mortgage. The risk or downside about these is that it takes much longer to make a dent on the principal mortgage. The reward of these for an investor is that they open up your cash flow. This may make the difference between having a stagnant portfolio and having the funds to make that next purchase.
Educate yourself and above all, enjoy this process! Your portfolio won’t expand if you don’t on some level enjoy learning about the strategy you are going to pursue and the markets you are trying to tap. Also try to stay on top of trends and changes to tax conditions. This is where those friends you made earlier on will help. Financial advisers, accountants and property advisers can all help to make the most from your money. Take a look at our Beginner’s Guide to Investing to get an idea of the tax benefits to investing.
Buy with room to grow
Avoid buying investments that have already had work done. In an ideal investment you want to create wealth rather than just rely on capital growth. This means buying under market value. This does come down again to your research. There are properties out there that you can buy under market value but be careful during this process. If a property has been on the market for a long time, why is this? Is it just because the property needs work or is the local area a weak area? If it is just the house, this is great because you want to add value. If it is the local market, this is much harder to fix and is important because…
Buy for your tenants
Avoid emotional buys. You want to buy with your target tenants in mind and this means knowing the local area and buying close to public transport, schools and shops. Once you have those tenants, be good to them, they keep your investments afloat. As long as you have chosen great tenants, reward them by making sure any issues with their home are either avoided or fixed as soon as you are aware of them.
Eggs don’t share baskets
That’s a hilarious way of advising you to diversify. Think about investing across markets to offset differences in rental yields and capital growth. Take a look at our post on investing interstate for some great tips. Also look at commercial properties. These have great advantages, such as higher rental yields and longer lease periods. But they also have higher risks. They are best for seasoned investors but you’re going to be one those, right?