If you’re keen to get more than just a foot in the property market, investment is key. Read on for our best tips on how to build your property portfolio.
Australians have had a long love affair with property. The drive for home ownership seems to be part of our DNA, and many business-minded Australians are keen to develop their financial wealth by building a property portfolio.
But is it really possible?
Yes, it is. And while it’s quite a straightforward process, it’s not necessarily an easy one. However, with the right understanding and approach, it’s very possible to build a robust property portfolio in Australia.
What is a property portfolio?
First things first: what is a property portfolio? Put very simply, it is a collection of properties owned by either an individual or business. These properties can be residential, commercial, mixed-use or a combination of any of these.
In most situations, you will live in one property and own several more which earn rental monies for you. This could be in the form of long-term rentals, holiday homes or even commercial properties.
When it comes to how to build your property portfolio, don’t forget to think outside the box. Car parks, for example, can be an excellent investment – as are vacant lots.
What are the benefits of a property portfolio?
- Diversification. Owning multiple properties will help to diversify your investments and spread out your financial risk.
- Passive income. The passive income gained from renting out a property will of course be amplified with several properties in your portfolio.
- Capital growth. Regardless of whether your properties are generating a positive cash flow (“positive gearing”) or a negative cash flow (“negative gearing”), the ultimate aim is likely to be building capital growth by generating equity in the properties.
- Financial security. In general, a property portfolio can be a great long-term strategy for offering financial security in your future, particularly after retirement.
How to build your property portfolio
Building your property portfolio takes commitment and sometimes sacrifice of the short-term for the long-term goals. But the results can lead to exponential financial growth. When it comes to how to build your property portfolio, here are the steps to take:
1. Assess your current situation
You may wish to conduct a Home Loan Health Check to see if there’s a way you can tweak or switch your current home loan/s to free up additional funds for more property purchases. If you’re just starting out on your portfolio-building journey, make sure you check out our tips on how to buy a second home. The equity available in your current property/ies may just be the stepping stone you need to build your portfolio.
2. Get clear on your financial goals and investment strategy
While ultimately most investors will want a balanced portfolio, figuring out your initial plan is crucial to help guide your purchasing decisions. For example, you may choose to focus on a positively-geared property (or one that generates more income than it costs in loan repayments and fees) that will generate a solid rental income as your first investment. Work out what best suits your individual circumstances, and go from there.
3. Know your risks
Of course any purchase or investment comes with inherent risks, and a property portfolio is no exception. Understand the costs involved, as well as any unexpected challenges such as house maintenance costs and time between tenants. Be sure to consult financial professionals and only purchase property you can reasonably afford.
4. Aim for balance
Creating a balanced portfolio can be a clever way to diversify your property investments. By this, we mean selecting properties that offer high rental yields, as well those that are in a good position to generate great capital growth. Choosing properties in a variety of different locations can also help create balance and reduce your risk.
5. Brainstorm ways to generate even more money
Your investment properties might also present extra potential to make even more money. Consider getting creative by adding a granny flat, converting into a duplex or renovating the property to attract higher rental yields and add equity to the property.
6. Stay involved
Building a property portfolio isn’t necessarily a set-and-forget investment. While an excellent property manager can do most of the heavy lifting for you, it’s important to regularly reassess your own financial situation. As part of that, you’ll also want to consider your loan features to understand if they are still serving you well. And you should frequently review your properties to see if your rental rates should be updated or raised.
7. Speak to an Expert
When it comes to how to build your property portfolio, it pays to speak to the experts. At Lending Loop, our team of experienced professionals can share their knowledge and wisdom to help advise you on your best next steps. Give us a call today at Lending Loop, and let’s see how we can help!