As a successful property investor myself, let me share with you seven steps I have learnt over the years that will help you build your own property investment portfolio from the ground up.
Building a property portfolio isn’t just for investment gurus or millionaires with money to burn. Anyone who is financially stable can successfully build their own property empire. If you have a steady job and some capital, and are ready to dive in head-first then you are almost there.
Step one – talk to those who have done it (not just talking about it)
If you are new to the property investment scene, then chances are you don’t yet understand all the jargon. If you don’t if you don't surround yourself around the righ people then you can make some serious mistakes which may haunt you for the rest of your investment journey. If invetsing in property were that easy, everyone would be making millions! Which is why you need to understand the systematic process behind it all which is why it's always beneficial to speak with a property investment specialist for advice on picking a where to invest and the type of product suitable for that area, and then a finance broker, settlement agent, financial planner and later down the track, builder and property manager.
Step two – assess your financial situation and borrowing capacity
As soon as you start seriously thinking about investing in property you should sit down and meet with your finance broker to discuss your borrowing capacity. Every person has a unique spending limit based on their income, expenses and assets and this can change on a monthly or yearly basis. Constantly be aware of your borrowing capacity and know your spending limit before you start scouring the market.
Step three - create a plan
After you have assessed your borrowing capacity, think about creating a long-term investment plan that will help you stay focused on your goals. The plan should take into account your financial capacity (present and future income) and life circumstances (your relationship status, children and retirement plans). Identify the type of property suited to your portfolio, how many properties you want to achieve, the estimated time frame you want to achieve this in and any steps you need to take to achieve this. Break your plan into small, easy to manage goals and adjust your plan on an ongoing basis.
Step four – there is no time like the present
Purchase your first investment property as soon as you possibly can. As previous blog posts have stated, ‘there is no time like the present to invest’. If you don’t quite have enough capital to get started, think about ditching your expensive takeaway coffee habit and put that money into a savings account. Take little steps and remember that although it won’t happen overnight, you will be surprised how quickly your savings account will fill up until you have enough to buy your first property.
Step five – research, research, research
When you are choosing an investment property, don’t let emotional connections get in the way. It’s so easy to fall in love with a property because you like the kitchen or garden, however you need to really assess why the property would make a good investment and weigh up all the pros and cons before making a purchase.
I tell my clients to follow the hundred rule so they know they are getting value for money – visit a hundred properties (either online or physically) and compare the prices, location, features and amenities. Research what amenities are available in the areas you are thinking of investing in as this will help you narrow down your list. Once you have picked a few possible locations, check out their median house prices and use this to help you bargain for a lower sale price.
If you are working with a property investment specialist, they can help you use online data to pick out the best areas to invest in, and will also often have insider information about new amenities that are about to become available in these areas. If you can get in and make a purchase before amenities have been added to an area then you will often be able to purchase an investment for a lower price.
Step six – property and tenant management
The quality of your property management team will have a significant influence on the success of your investment. It is important to do your homework when choosing a property manager as they will be representing you and your investment so finding one that has your best interests at heart is highly recommended. Ask your property manager lots of questions (for more information check out this blog post) and make sure they are a good fit for the area you are purchasing in and the type of home you have purchased. Make sure your property manager treats your tenants well and keeps them happy. If you have happy tenants they are less likely to leave, meaning you have stability and a steady stream of income.
It might also be worth thinking about making small improvements to your property when necessary (repainting walls, fixing the garden) as these will help keep your tenants happy or attract new tenants when your old ones leave. Also don’t be scared to increase the rent when there is a market to do so.
Step seven – use your equity to expand
The final step is to use the equity from your first investment to purchase a second one. Some people choose to renovate their first investment property in order to create more equity, however I always say that if you are purchasing an investment property in the right area, then it will grow in value automatically.
Property is a long-term investment, meaning you may not see strong capital growth in the first few years of owning your home. For this reason, I recommend you hold on to your investment properties for as long as possible, renting them out and using the equity in them to purchase additional properties and expand your portfolio. In 15-20 years, your investment should have increased in value enough that if you need to sell it, you will make a great return.
Our aim at Investor Assist is to take the guess work out of deciding the best place to buy an investment property and how you can best expand your portfolio. Which is where our team of Property Investment Specialists come in. They'll help you understand the market, how to spot the golden opportunities and how to leverage your hidden income stream to grow your portfolio.