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How to Start a Property Portfolio

By Olivia Hughes

Building a property portfolio is a great way to build your wealth. Here, we outline the most common approaches.

Know your motivation – Building a property portfolio is not a small undertaking. It comes with calls on your time, money and focus. Be sure you know why you’re doing it. For example, are you trying to make a quick buck and get out? Or do you want to build wealth over many years to guarantee the security of your family?

Decide your spending power – Be sure you know what you can afford. Seek advice from a mortgage broker on the appropriate size and type of loan for your strategy.

Fast-track your education – Nobody becomes an expert in property investment overnight. Be curious. Seek advice from the professionals. Explore the benefits of the many property investment courses going around.

Where to start – In all likelihood, you’ve already started by owning your own homes, even if a mortgage remains on it. The greatest benefit to owning your own home is that it has no capital gains tax hanging over it. Even if you don’t own your own home, explore the possibilities of becoming a rent-vestor: that is, stay renting and buy a property that you rent to someone else.

Take a long term view – The property market will always go through peaks and troughs, so don’t panic when prices dip. You only lose money when you sell. A common strategy among investors is to always hold on to their properties and use the equity in each to contribute to the next purchase. You’d be amazed how quickly your portfolio will grow over just a few years.

Positive and negative gearing – Make sure you have a great financial advisor and accountant to capitalise on positive and negative gearing. Some 1.2 million investors use negative gearing to maximise tax benefits when the annual costs of ownership (such as interest on a loan) exceed the income it generates from tenants. Don’t shy away from properties that you can gear positively – that is to generate profit. Usually, these are in regional areas where the rental market is tight. Unfortunately, they’re not usually great candidates for capital growth.

Flipping – Buy, renovate and sell can produce spectacular results but comes with significant risk. You need to be red-hot on your evaluation of the property, the costs and time to fix up, the market trends and the likely response of potential buyers. Stick to improvements that will add value, crunch the costs continually and move it as soon as possible.

Land of potential – There are various strategies if you buy land. You can bank it and wait for perhaps years before selling it at a greater value. Alternatively, you might sub-divide or split the block into multiple parcels, gain dual occupancy, or re-zone to increase the block’s value.

Invest in property funds – You don’t have to be hands-on to be a property investor. You can invest in property trusts that offer a more diversified approach that might include retails and office buildings. A variation on this theme is to finance a property developer and share in the profits. This can produce quick profits but success depends on choosing a good partner, the right style of development and finding positive sentiment in the market when you’re ready to sell.

Source: www.raywhite.com

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