I’ve always said that you can never be too old or too young to start investing. And while that is still a valid point, an investor who starts building their property portfolio earlier generally achieves a far better end result than one who starts later.
It all comes down to the fact that property is a long term investment. If you are willing to wait it out from a young age, then you have a greater chance of building wealth and growing your property portfolio to its maximum potential.
Everyone chooses to start building their property portfolio for a different reason. You may just have excess cash in your bank account and want to find a forced way to save. You may be planning ten years ahead and want to create a better financial future for your family. Or you may even be thinking thirty years ahead and want to start developing a nest egg for your retirement.
Regardless of the reason behind that first purchase, if you are smart with your investment strategy then you are on the way to creating long-term financial independence.
So let me take a few steps back and explain how the process works. Building wealth through property is generally reliant on three things:
1. Having capital to invest (e.g. the down payment for your first investment property)
2. The ability to command satisfactory returns consistently (being able to pay off your mortgage and consistently renting your property out to tenants so you are receiving income from your property)
3. Time to allow the property portfolio to compound
Did you see how I left out “having exceptional assets”. Well I did that on purpose. You don’t necessarily need the “perfect home” in the “perfect location” to build wealth, however you do need patience, time and an understanding of compound growth.
Compounding growth, to which Einstein labelled as the eighth wonder of the world, is the process where the value of an investment increases and you generate equity which can then be reinvested to help you purchase a second investment property. You then have two properties generating equity to help you purchase a third investment property. This is called ‘compounding growth’ and the power of it works much like a snowball rolling down a mountain – it starts off small but the more snow it gathers the bigger it gets! The same can be said for building a portfolio – the more properties you leverage into, the better the compounding growth (equity).
Many young investors who are looking at purchasing their first property come to me and say that the money in their bank accounts just seems to disappear. Regardless of whether you are a good saver or a poor saver, attempting to pile up all of your money in a bank account just isn’t a smart way of saving for the future. Sooner or later, your hard earned money tends to get spent (on holidays, new cars, etc).
So why not spend it now on a property? You can set up a direct debit where your savings will go directly towards paying off your mortgage, rather than going into a savings account. Not only will you benefit from the fact that you are forced to save your money each month by paying off the mortgage, you will also own an asset and benefit from the added advantage of capital growth.
Once you have purchased your first property and started making repayments, it’s time to think about reinvesting your gains. This is the most efficient way for you to grow and compound your wealth.
If you get into the habit of paying just a little bit more of your mortgage off each month, then you will quickly be able to build the equity in your property. The more equity you have, the easier it will be for you to purchase another investment property. In many cases, you may not even have to save for another deposit, the equity in your property can be enough to cover this. The more properties you have, the more your equity will compound, leading to your original goal of creating financial freedom.
For more information on the benefits of building a property portfolio early, read this whitepaper where I further explain the benefits of compounding growth.
If you would like to speak to one of our property investment specialists, click here or call 08 9200 7200 and we can help you set up a free, no-obligations consultation.
I know it sounds like a cliché, but there is really no time like the present to invest and once you have purchased that first property … you will never look back!