Many property investors like the idea of living off the equity and cashflow of their property portfolio at some stage in life. There are a couple of key elements an investor must embrace to achieve this goal and be in the best position possible at this future date.
1. Diversify your property investments
Markets around the country are doing different things at different times. It is important to avoid having all your eggs in the one basket, and instead building a portfolio spread out across different streets, suburbs and States. This strategy not only reduces the risk of a concentrated portfolio, it also enables the investor to readily access equity for further investment as a result of the varying growth cycles in each different market. If one market is flat, chances are another market is prospering in a diversified portfolio.
2. Keep your borrowing capacity alive
Finance forms the foundation of any property portfolio. The ability to continue to borrow money for each new property is critical to growing a portfolio. Any income or expense that an investor incurs can impact the ability to service a loan in banks’ eyes. Some tips to keep gaining access to borrowed funds include: – increasing rents when possible, reducing credit card and other bad debt, avoiding high strata fees, refinancing to a lower interest rate, and, getting a pay rise. Find a good mortgage advisor to help you navigate through the different lending products and servicing calculations, as not all banks assess finance applications or borrowers the same way.
3. Grow your equity
Cash flow is important to maintain your lifestyle. However, capital growth can enable you to grow your wealth and refinance a loan to extract equity for the deposit and costs required on a new property. Various drivers can affect capital growth, such as the position of the specific market in its cycle, supply and demand, interest rates and other economic factors. Look for properties that show positive data from a range of our 15 Key Investment Drivers.
4. Adopt a business mentality
In order to scale to a substantial property portfolio, you will need to adopt a business mentality to run and maintain the assets by looking commercially at costs and expenses. This involves employing other professionals, such as property managers and accountants to assist and provide advice. Rather than using your salary or savings to cover cashflow shortfalls each year, it would be wise to keep cash buffers. Having an internal budget for the portfolio means you can sleep better at night knowing that in the event of rental vacancy or a downturn in the market, your personal lifestyle will be protected.
5. Assemble a team of professionals
Buying property involves many moving parts and assembling the right team will help you minimise risk and costs along your investment journey. A team of professionals can include a solicitor, mortgage broker, buyer’s agent, property manager, building inspector, accountant and financial planner… just to name a few. Their knowledge can unveil ways to protect yourself during the purchase process while achieving the best outcome. They must collaborate with each other, act promptly and share your success as a common goal. Although it is tempting to DIY, tapping into reliable professional advice can pay off beyond the initial transaction and have positive repercussions throughout the life of the investment. Buying property will be one of the biggest investments in your life, therefore you need the best support and advice available.
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This article is provided for general information only and does not constitute personal advice, as it does not take into consideration your personal circumstances. Please consult a licensed tax or financial advisor before making any decision to invest.