Building a property portfolio with real estate investments remains one of the most lucrative ways to grow your wealth, but just how do you pull it off?
As you may expect, it’s not as easy as it sounds — but that doesn’t mean it’s impossible.
In fact, market evidence already shows that building a successful portfolio is achievable; hundreds and thousands of Australians across the different states and territories have built for themselves a burgeoning property portfolio that continues to deliver value over time.
So, is there a secret to building a property portfolio that these investors know about? This guide will cover everything you need to know about how to build a successful property portfolio and achieve a slice of financial freedom.
What is a property portfolio?
A property portfolio is a collection of property investments that are owned by an individual, a group, or an organisation.
What this means in simple terms is that, as an investor, your property portfolio refers to all the investment properties under your name.
Any property investor worth their salt will tell you that there are multiple benefits to owning multiple properties as opposed to just one, or none at all. Financial freedom is often the biggest reason for building a property portfolio — having the finances to afford the kind of lifestyle you want appeals to almost everyone.
What to look for when building a property portfolio
Every well-balanced property portfolio will consist of two types of investment properties:
- High rental yield properties that deliversubstantial returns, which are often used to cover ongoing costs such as mortgage repayments and property management expenses.
- High capital growth properties that are located in new or developing suburbs offer long-term capital returns over time as their locales become more established.
The key to building a robust property portfolio is to include a good mix of both types of investment properties. Think of this as a way to avoid putting all of your investment eggs in one basket. The investment term for this strategy is known as diversification.
Diversifying a property portfolio works by reducing the amount of risks that can affect the collection of owned investment properties. By having a variety of investment property types, often in different locations, experiencing a negative outcome in one area can be offset by the continued growth in other areas.
Of course, this is an overall strategy that applies to all types of property investment — when building a property portfolio of your own, there will be many other considerations that you’ll have to keep in mind.
How to build a strong property portfolio
1. Set property investment goals and develop a strategy
Every successful property portfolio starts with a clearly defined set of goals and strategy. Before you start anything else, think about what you want to achieve with property investment, and be as realistic as possible.
Examples of commonly set goals could be a certain level of weekly passive income or a certain type of property that you want to invest in or eventually live in.
Remember to factor in your current level of income and financial status. Aside from having enough funds to put down the initial deposit for investment, you’ll also need to have consistent financial resources to sustain the cost of investment. Working with a buyer’s agent like Aus Property Professionals can help you assess and create a strategy in line with your budget, current market, and portfolio goals.
2. Conduct research and evaluate risks
Building a property portfolio will require a good understanding of the current market as well as the risks involved. Each investment property purchase will involve big financial commitments, making proper research an essential part of the process.
3. Use existing equity
If you’re getting into investment property for the first time, you’ll no doubt realise that there are substantial upfront costs. Tapping into the equity of an existing home is something that many investors do to fund their investment ventures.
If you have paid off a significant amount of your current property’s overall value, you may be able to use it as a deposit on another property purchase, allowing you to avoid having to wait and save up for cash funds.
4. Consider rentvesting
Rentvesting is an investment strategy that has been gaining traction in recent years. It involves buying a property for investment in a more affordable region while choosing to rent a residence within another region that suits a desired lifestyle. We’ve covered the viability of rentvesting in Sydney in greater detail; the key takeaway is that it allows for greater flexibility in your choice of investment and living location.
5. Focus on properties with strong owner-occupier appeal
Owner-occupiers represent about 70% of our property market, so investors should focus on purchasing properties that appeal to these buyers.
Choosing to purchase properties that only attract investors or tenants can narrow the potential capital returns due to the lower demand for such properties.
Liveability is the key thing to look out for when assessing a property’s potential demand — factors such as community spirit, the availability of local amenities, and ease of access to transportation options all contribute to its perceived value.
6. Expand property searches to other markets
While it can be tempting to stick to the safety and comfort of your own local area or suburb for an investment property search, doing so can cause you to miss out on higher growth opportunities elsewhere.
It can be intimidating, but different property markets across the country can help you find hidden growth areas and provide much better value in terms of investment based on your budget.
7. Be prepared for long-term results
There’s no question that building a property portfolio takes time — growth doesn’t usually happen overnight. If the goal is to build a multimillion-dollar property portfolio, you will need to adjust your expectations accordingly and prepare to strap in for the long haul.
As an expert buyer’s agent in Australia, our team at Aus Property Professionals has helped many of our clients build lucrative property portfolios that continue to deliver value. If you are thinking of how to build your own property portfolio, reach out to our friendly team today to find out how we can help you reach your financial or investment goals.
