Building a property portfolio from the ground up can be truly challenging, especially, when you have no prior experience. However, with proper strategic guidance this can be done with relative safety to your capital.
Investing in properties is like a marathon race and not like a 100 meter sprint. There are many lucrative offers on the market that promise unbelievable promises in terms of both appreciation and yield. Such gains may be possible sometimes when you get a ‘windfall’ property deal.
However, seasoned investors agree on one virtue – patience. When you are building a property portfolio of at least 7-10 properties – you need to have a long-term view and sound strategy.
Basic strategies for building a property portfolio
You may want to consider 5 basic investment strategies and property investment tips before embarking on your property investment journey.
Buy and hold: In this strategy, you could buy a property using a loan and service the loan until property value starts rising.
Cash flow positive: Buying a cash-flow positive property allows you to generate income since the rental income exceeds all costs.
Renovation: In this type of investment you could buy and older property and carry out cosmetic renovation to add value. Post-renovation, you could either sell the property for a cool profit or use ‘Buy and Hold’ strategy until you reach a desirable exit point. Renovation also increases rental yield in this scenario.
Subdivision: Investors use the subdivision strategy to purchase property on a large piece of land. The vacant portion of the property can be sold or developed and sold.
Construction: Investors, individually or collectively, buy a large block of land and develop apartment or townhouse project to be sold at a profit. Though comparatively riskier, you can have a handsome upside in the long term.
How to choose the best investment strategy?
Out of all the above strategies, ‘Buy and Hold’ is the one that can be safely exercised by even the amateur investors. Investing in Cash flow Positive properties is also a good option. However, what needs to be understood is that only a sound ‘Buy and Hold’ type of investment will eventually yield the rent required to cover all the expenses and make a profit. The factors that can accelerate this process are the ones that transform an area and increase its value. Population growth, economic development creating more job opportunities, higher demand for housing, lifestyle shifts are some of the factors that push up the rental income.
Buying into a good deal will give you tremendous confidence to multiply your wealth that will eventually secure your life.
Develop your unique property portfolio strategy
A well-defined strategy will give you a roadmap to guide all your investments – in the short and long term. However, it is essential to ask yourself a few important questions before you make any investments:
- What will be my investment structure?
- Who will buy the property – me personally or through a registered company or trust?
- How will I put together the initial deposit?
- How will I finance the property – loan from the bank, borrowing from friends & relative or any other sources?
- What is my risk appetite – high or moderate?
The answers to above questions will allow you understand the pros and cons of various styles of investing.
Theoretically, you could come up with various combinations using the 5 basic investment strategies described above. Construction, renovation and subdivision may sound like great options but here’s what you need to consider.
Most retail investors like you have a full time day job. The question you need ask is, “do I really have all the time and skills required to master these fancy styles of investment?” The answer is probably negative. There are innumerable cases where inexperienced investors ventured into options such as construction, renovation, subdivision etc., and failed miserably simply because they did not know how to play that game! It is risky to use these strategies without enough experience.
Here’s why long term players always succeed
Investors with a long-term strategy know that rewards of a carefully build property portfolio far outweigh a quick bonanza. Here are five reasons.
- It is wiser to choose a strategy and stick to it.
You will always have many styles in order to be a successful property investor. To be fair, no one strategy is superior to other options available. With practice, you will eventually discover your own style. Once you find it stick to it. For example, Warren Buffet has followed his value-oriented strategy over the last few decades steadfastly. This helped him to stay away, during the dotcom bust, from tech start-ups that had no earnings and eventually crashed. You can use his wisdom while building your property portfolio.
- Long term players have a winning team
Long term investors always share views and ideas with other seasoned investors. They also build an investment ‘team’ comprising a good property-specific accountant, solicitor and finance broker. They are in a position to advise you on the best investment structures for your financial situation. They can analyse potential property purchases from a professional, dispassionate perspective.
- Have a long-term perspective
Property Investment newbies are the most vulnerable people. They may fall prey to the lure of huge short-term profits. Long term perspective helps you stay away from deals that require making a killing mentality!
Investing in Properties in Australia requires wise investment strategies. At investinproperties.com.au we help you build wealth through property investment with little contribution.
Our team members are active investors and owners of several properties across Australian capital cities. If you want more Investment Property Tips, please sign up for our updates.