First-time property investors often get confused between ‘yield’ and ‘appreciation’ (capital growth).
Today you will find a number of opportunities in the market that promise high yield. You will see advertisements splashed across magazines that promise high yield. Inexperienced investors tend to get attracted to them instantly since most people want lots of money and get rich now! After all, how many of us like to wait patiently to get the rewards in the long term?
Determine your goal before building a property investment portfolio
High yield properties normally are known to offer low capital growth. No one has a reason to complain if this is acceptable to you. If your aim is to retire comfortably with 4-5 properties, perhaps this approach could work. However, if your aim is to develop a portfolio with over 100 properties and become multi-millionaire, you need another approach.
Consider this scenario. In the first few years, most new properties located in either CBD or inner city won’t become cash flow positive. If you have invested in such a property, after the tax returns, chances are that you will be cash flow neutral or a little bit out of pocket. Or in some cases even a few dollar positive.
On the other hand, if you have purchased a High yield asset, you may get anywhere between 8% to 12% returns. This means you will become cash flow positive even before you file tax returns. Such properties are typically found near mining towns or in some other long distance locations.
Buying such a property is like buying a risky share. It does promise high return but may lose its value over time.
Most conservative investors would be contented with a decent yield of 5% per annum.
Whatever, be your objective, yield or appreciation, or both, it is important to build your property portfolio systematically.
These five steps will help you to meet your portfolio objectives.
5 property investment tips for building a property portfolio for Yield and Appreciation:
1. What type of properties do you enjoy the most?
Most successful property investors are known to zero in on either a geographic area or property type. Some investors make their millions by investing in apartments. While some others may specialise in luxury bungalows!
Whatever be your liking; you need to understand, before starting to invest, that diversification is the name of the game. You portfolio needs to have houses, apartments, townhouses and other types of properties since every product brings unique advantages and different profit potential to your portfolio. Similarly it makes sense to invest across States and Cities. Obviously this approach will give your property portfolio a huge competitive advantage.
2. Are you a saver or spender?
Well, if you are a spender and yet harbour the dream of building a multi-million dollar property portfolio, think again! It is often said that it’s easy to buy property even with virtually no money! Very few people know that almost every millionaire is a great saver. Saving, over time, however small, translates to the much-needed deposit for that first property deal.
Needless to say, as you start accumulating your millions, this discipline, of saving build sound money management, allows you to hold on to your millions.
3. How long will you wait to buy that million dollar property?
Well, you can’t wait indefinitely for the right opportunity. You need to start somewhere. Just like most property millionaires did at some point in time. It is important to take action! Starting small also means avoiding big risks and taking your time to learn along the road. Even a few mistakes won’t cost you too high and you can recover fast.
Remember, the most lucrative opportunities are not known to many. If you waste time in grabbing them they will no longer be real opportunities as everyone will be jumping on them (in a matter of days) pushing up the price! So, act fast when you sniff a good one!
4. A good deal always adds value to your property
Most investors buy properties and sit on them. Well, as they say, in the long run, you can never go too wrong with property investment. However, if you want a more predictable growth path, you need to buy into a good deal in the first place. This will always add value to your properties in the long term.
You need to ask yourself regularly – how can I make my properties more valuable. Make sure that you buy into a good location that is close to all amenities with easy access to public transport. Be aware of the government changes, if any. Check the trends in terms of population growth, job opportunities. Reputed developers and well-known architects also add value to the property.
5. Are you still using your money?
Have you ever used OPM? Well it simply means using Other People’s Money. This is the primary leverage property millionaires use to build their portfolio. Stronger leverage results in greater ability to investment improving your returns dramatically for the same amount of efforts. This is the only way to hasten your wealth building initiative.
Other people’s money simply means now you can aproach bigger deals! Leveraging bank loans is the easiest form of leverage available.
Investing in Properties in Australia requires wise investment strategies. At investinproperties.com.au we help you build wealth through property investment with little contribution.