Updated: Jan 13
1. Have an end in mind
It is essential to have clarity of what your goals are.
Let’s say, you want a passive income of $100k per annum. As a guideline, considering 4% annual return (or rule of “multiply by 25”), this implies that you may need a debt-free portfolio of $2.5m. This end goal will define exact Accumulation and Debt-consolidation stages for you, taking into your account your circumstances and risk appetite. This goal can lead milestones to:
1. Build a leveraged portfolio of $2.5m;
2. Let it double in value, and then
3. Sell half of your portfolio to pay off your debts.
2. Define your investment strategy
Everyone is different and will prefer a different investment strategy. The strategy depends on investor’s knowledge, attitude to risk and level of involvement. An important thing to remember when developing an investment plan is to be realistic. Focus on taking simple steps in the beginning and buying one property at a time.
3. Pick your property
Once you’ve decided on your investment strategy, you can begin looking at what properties are available on the market and where you want to buy. Be selective about the properties you choose to invest in. Your primary focus should be on purchasing reliable assets.
Consider diversifying your property portfolio through investing in several smaller value properties in different geographical areas. Diversification will ensure that where some properties may be falling in value, others are rising.
Quick tips on selecting properties:
- Buy with an opportunity to grow
In an ideal investment, you want to create wealth rather than just rely on capital growth. Beside other active ways, the easiest way would be buying under market value. Finding discounted properties warrants proper research.
- Buy for your tenants
Avoid any emotional trap and buy with your target tenants in mind appreciating their preferences like proximity to public transport, schools and shops. Once you have those tenants, be kind to them, as they keep your investments afloat.
- Plan for the long term
Building a property portfolio requires commitment over the long term. The longer you keep your property, the more likely you’ll be able to ride out any downturns in the market cycle.
- Properties within the median price
Buy properties that are within 10%–20% of the median price for that area as that means the majority of the population can afford to rent them. You want properties that are going to be easy to rent because as a property investor, that’s what pays your mortgage.
4. Repetition by duplication
An investor needs to gain a grasp of the principle of duplication. Repetition involves finding a workable but straightforward system for your investments and then duplicating it. This ‘system’ should focus on identifying ways to turn capital growth into equity. You can release equity based on this growth to use on a deposit for new investment.
This idea of freeing equity based on your investment’s growth in the market underpins property investment and building an extensive portfolio.
Remember that there are risks associated with any investments, and we need to embrace them to get rich and retire early. It’s essential to make sure you do as much research as you can. Stories of savvy investors acquiring numerous properties and generating a passive income are enough to inspire many of us to look for ways to build an investment portfolio. After all, investing in real estate is how many of Australia’s wealthiest people have made their fortunes. You too, can!
Next steps: Should you want to learn how the author built his $5m balanced portfolio in 7 years, and aspire to own something similar, feel free to get in touch via email at email@example.com or book an appointment here.
Disclaimer: This article is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where applicable, seek professional advice from a financial adviser.