Building the perfect property portfolio can be a delicate process to embark on. Depending on your priorities, what to include and, more importantly, what not to include can turn out to be a decision exclusive to your liking.
Rather than going in with just an idea, having a non-negotiable strategy can help you maximise your profits and minimise your risks. It’s all about balance!
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What is a property portfolio?
A property portfolio is simply a collection of investment properties that are owned by a person, company, or trust. Most individual investors choose to live in one of their properties while renting out the rest.
Property investment is mostly explored by people who want to create a passive, secondary income stream that can fuel their bank accounts while they do little to no work on the daily.
There are times when the rental income that a person earns on a property is less than their loan repayments, which is termed negative gearing. On the other hand, positive gearing is when the rental income is greater than loan repayments.
What makes up a good portfolio?
A good and balanced portfolio doesn’t just appear from thin air. You have to put a calculated effort into it.
The goal of a property portfolio for investors is to build a portfolio that is able to pay for itself every month and grow in value. In order to do this, you must first have properties with high rental yields or properties that can garner high capital returns.
Properties that provide high rental yields can typically be found in regional working cities or places that attract masses of people that want to live there on a short-term basis. These typically offer yields up to 7%.
As for properties that can promise high capital returns, you can comb through growing suburbs that draw the eyes of families with capital growth of up to 5-10% per annum.
Building the perfect property portfolio can be a great advantage in the long run. Having the best strategies under your belt can pay off more than you can imagine. Don’t be scared, take the leap!
How to build a property portfolio
Learning how to build a property portfolio entails knowing your individual goals, prioritizing, and being patient. Long-term investment requires implementing strategies that can increase your cash flow and capital growth.
There are four things that must be considered in order to reach a balanced property portfolio: your expenses, your income, your wealth target, and your time. These four things are incredibly important when considering how to make money in property and how to succeed in making money in property.
Most investors believe that the money comes first, and the assets come second. This is because your cash flow determines the amount of surplus that you can trap.
A higher number indicates higher borrowing power, which helps with financing a property.
Keep your goal in mind
Everyone starts off with an ideal goal in mind when it comes to investing, but most people don’t realize that working towards that can be the same as starting with it. Your investment strategy must hold structure in order to be fulfilled properly.
If you are throwing darts in the air with the hopes they’ll land, you might not see the results you’re searching for. A target goal can be something like gaining a passive income of $1000 every week or, on a grander scale, $100,000 by the end of the year.
From there, you can ask essential questions like how to get there or how many properties are required to reach that goal. This information can lead to even more specific questions like what property types are worth investing in to reach your goal.
Income is key when building a property portfolio
There is a wide range of options to choose from in Australia’s property market but finding where you will be most successful is what matters most. Your income matters when investing because without a high enough income, you will not be able to put down a deposit or service interest repayments on a loan.
Therefore, you either have to only invest in low-capital growth, high-yielding properties to increase your income or wait until you have enough money to cover rental losses on high capital-growth, low-yielding properties.
Owner-Occupier appeal is…also key
Statistically, owner-occupiers make up about 70% of the real estate market. This means that buying properties that are only attractive in the eyes of investors sets a limit on your capital returns because demand for these properties would be substantially lower.
Your real estate portfolio should be comprised of properties with personality and charm, located in areas that are deemed highly livable with good amenities. These characteristics provide for good capital growth.
Building a property portfolio
When building a property portfolio, you must consider your position, your financial situation, and your goals. If you are just starting out with an average income, prioritizing neutral or cash flow-positive properties may be the move in order to assimilate into the industry.
When creating your portfolio, dreaming big is a great mindset, but you must also be realistic. If you dive in head-first with little to no knowledge, overestimate your abilities and finances, or even neglect to use the strategies proven to be effective, your journey may be cut shorter than you would like.
What should not be in your real estate portfolio
In order to avoid ultimate failure, you must do all that is mentioned above along with staying clear of investor stock. This is because there is not much appeal when it comes to assets in the resale market.
You can consider these identikit units found in hi-risers with little to no personality. If you are debating on whether to include units, be wary if it is not in a small, well-positioned block along with being one of six or even one of four.
Units like these typically have lower holding costs, are less exposed to oversupply, and have a higher demand.
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