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While it can be a daunting task to secure your first investment property, that shouldn’t stop you from expanding your property portfolio. Here’s how to do it.
Over the years, property has consistently performed as one of the leading asset classes for investment. For many investors it has proven a successful strategy to accumulate wealth. On a national level, property investing has played a significant role in supporting the economy.
Over the years, property has consistently performed as one of the leading asset classes for investment. For many investors it has proven a successful strategy to accumulate wealth. On a national level, property investing has played a significant role in supporting the economy.
Yet despite its prominence as an investment option, many investors are content with one investment property. In fact, 71.2% of property investors own just one dwelling in their property portfolio.1 Common reasons cited for this relate to caution around disposable income and risk. However, these issues don’t need to be a concern if you expand your property portfolio in a rational, diversified and sustainable manner.
71.2% of property investors own just one dwelling in their property portfolio.
The first property you acquire to build your portfolio will be the hardest. You really want to make sure that you start with a solid investment so that you can leverage its growth to expand your property portfolio.
Set realistic goals and make sure you establish how much risk you are comfortable accepting, both now and into the future. This means you’ll need to consider the implications if unforeseen circumstances were to arise, including higher interest rates, or longer-than-expected vacancies.
It is prudent to look for a property in an area with appeal to future owner-occupiers, or well connected to transport for tenants. The key here is research and to look for supporting trends like low-vacancies, high yields, population growth, new employment opportunities, and infrastructure investment.
One of the key steps to expand your property portfolio is to leverage equity. As soon as you start your investment journey, dispel the idea that savings will help you build a portfolio. That takes too long and you’ll miss opportunities.
Instead, growth in the value of your existing property (or properties) will form equity that you can borrow against. It also means you don’t need to sell any of your properties to fund the next acquisition.
As the number and value of dwellings in your property portfolio grows, your equity accelerates and serves as a larger deposit for your next investment(s). Beware however, you need to ensure you maintain serviceable debt levels.
We’ve talked about the importance of diversification within a property portfolio, including how investing interstate can help you. It is unwise to put all your eggs in one basket, so naturally it makes sense to reduce your risk by looking for properties exposed to different trends or socioeconomic drivers. You may look in a different suburb, interstate or towards regional cities to diversify your portfolio.
The strategic objectives of each property should also be viewed as another element to diversification if you wish to expand your property portfolio. While some investors choose to focus exclusively on capital growth, or solely on rental yield, you can achieve both.
This is especially the case if you can secure a positive cash flow investment like a dual income property. This will fund itself and help you service overall debt. That said, negatively geared properties may provide benefits to high-income earners. Regardless, don’t sacrifice growth. This equity is key to expand your property portfolio.
A big part of your investment returns will be shaped by your property finance. Fortunately for investors right now, it has never been cheaper to attain finance, with interest rates at record lows. You will need to consider whether an interest only loan or a principal and interest loan suits your circumstances.
A common strategy for property investors is to initially opt for an interest only loan, before later switching to principal and interest as rental prices increase. This scenario means your initial weekly repayments are lower and your cash flow improves, while the higher rates afford greater tax deductions. Freeing up this cash may help you service overall portfolio debt. Make sure that you speak to an accountant to decide if this is in your best interests.
Finally, it’s important you pay particular attention to the performance of your property portfolio. Make sure you keep accurate records of all cash flow and tenancy levels. It’s also wise to keep an eye on the market. Assess whether your properties are performing up to scratch, or if your capital would serve you better invested in another property.
It is especially important that you stay on top of maintenance and upkeep for a property to preserve its valuation. From a rental perspective, picking reliable tenants who look after the property and pay on time is a fundamental aspect of maximising cash flow.
Relying on a property portfolio to manage itself will only set you back. Establish a long-term investment strategy with clear objectives and follow it through. Ultimately, it’s up to you to drive the performance of each property you own in order to expand your property portfolio.
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