Strategies for Building a Safe Investment Property Portfolio

Strategies for Building a Safe Investment Property Portfolio

January 21, 2019

An investment property portfolio is more than just owning a lot of properties, it’s about building a passive income and equity through smart buying decisions.

When your investment property portfolio is built correctly you can amass a lot of money that will see you retire comfortably and securely.

The right property is far more important than the number you acquire. You can have 12 poorly performing properties that break even or lose value, or three incredible properties that bring in a healthy second income and increase in value. The difference is more than financial it’s about less stress, more flexibility and significant choices to enhance your future going forward.

Ideally the property you buy for investment should give back straight away, with capital growth strategy on your side for long-term benefits. Look to maximise capital appreciation over the long term by purchasing properties that expect high returns. Do your research, talk to professionals and take into consideration surrounding infrastructure, work availability and population growth. There have been times when property owners in Melbourne and Sydney have seen their investments double in value over short periods.  It pays to do your research and buy smart.

Rent as repayments

The rent you receive from your investment property should cover the bulk of your loan repayments, leaving you with only a small amount to cover from your own pocket. Smart property purchasing means you are fully aware of the potential rental figures and can estimate when the payments will commence, so you can effectively plan for the shortfall and have the financial means to meet it comfortably.

In some cases you can buy a property that is currently tenanted, ensuring income begins as soon as the title is yours, other properties might require renovations in order to get a viable rental income, in which case you need to have all the estimations for the renovation costs and timeframes so you know when the property will be liveable.

Property value

Most people have eyes on the long-term prize when it comes to increased property value, and that is the gain you make when the property is eventually sold. There is a midterm break here as well though. When the value of your property increases so does the difference between your equity and your loan. This, coupled with smart loan repayments to pay back your lender faster, creates a healthy gap between what you owe and what your property is worth. When you choose the right property that gap can become big enough, soon enough, to enable you to refinance your loan and borrow a larger amount, set against the new property value. This can easily give you the ability to make a deposit on another property off the dividends of the first one.

Can you have it all?

Typically a good investment property purchase will give back either in strong rental income or strong capital growth, but not both. A high quality property in a trendy suburb will cost you far more to purchase as well as higher council rates etc, so the rent yield will not be as high in comparison to a regional property where rent is high but purchase price and ongoing costs are low. However, a country rental property is not likely to make big capital gains, while the city suburb may increase in value incredibly quickly. It’s up to you to chose if you prefer instant cash flow or a long-term gain. When it comes to a professional investment portfolio the more attractive option is the property that yields stronger capital growth.

From a business point of view

If you have started an investment property portfolio and find that your properties are not performing well over time (let’s not be too hasty if you have just started out, you’ll need some time for things to settle in) the professional direction is to sell, sell, sell. Poorly performing properties that don’t look to be making capitol gain will keep you stuck in your current financial position. The aim is to create wealth and if the property or properties you purchased as investments are showing uninspiring long-term results then it is best to cut your losses and start over with high quality properties that will see results. Sticking with a poor decision isn’t business, it has become personal and it will cost you. Make sure when you invest that you are prepared to take emotion out of the equation.

The right start

Choose the right property to start with and you are on your way to a powerful investment portfolio, the biggest risk with this is the property you choose. Investing in the wrong property can hinder your ability to move forward and cost a lot of money and energy to get out of. While the right starting property will springboard you forward and set up a cascading flow where the finances gained from one property flow into the purchase of another.

Following the experts would see you looking for properties that are strong in capital gain. Many first time property investors might be tempted to look for a bargain and buy multiple affordable properties, in fact, you may only need two or three high quality properties to get the security and lifestyle you are looking for to retire in style.

Buying property, and in particular investment property, is a long term game, one that needs long terms planning and commitment to yield the best results.

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