We all like the idea of building a large property portfolio in the tens of millions of dollars. However, there are a number of factors that will limit how you’re going to be able to achieve those types of lofty goals.
Here are three factors that you need to take into consideration when planning how you’re going to build your property portfolio.
Without a doubt the most important factor for modern-day property investors is income. Without the ability to service a loan you simply can’t move forward with building a property portfolio.
If you’re looking to buy high-quality assets as an average income earner that are neutrally or slightly negatively geared, then at some point you will likely not be able to service the debts. You might be able to purchase two or three properties before the banks will effectively shut you down and you can’t borrow any more.
The two key ingredients of property are leverage and compounding. Without the income to get a loan your property investing journey will stop in its tracks or you’ll have to slow down the rate at which you can acquire properties.
When the market is strong like it is at the moment along the East Coast, it’s not difficult to locate areas that are going to see some capital growth in the short term. However, markets are cyclical and they don’t always run as hot as they have in the past 12 months.
If you’re going to build a large property portfolio the only way you’re going to get to that point is if the assets you purchase increase in value. You’re then able to tap into that equity to help buy additional properties.
With that in mind, it’s important to plan your strategy in advance and look to invest in areas that will see strong growth such as blue-chip inner-city locations. History tells us that these types of locations have performed incredibly strongly over a long period of time and unless the way we live our lives drastically changes, we should expect to see these locations continue to outperform.
If you want to build a seven-figure property portfolio, you’re going to certainly need to have both income to service debts and capital growth.
However, you will also need to be very aggressive in the way you go about constructing your portfolio. In years gone by, you might have simply been able to buy and hold like our grandparents or parents did. But these days, if you want to become a serious investor, you’re going to have to look to acquire properties aggressively.
That might mean pushing your borrowing to the limit with banks and being able to service any debts based on your income. You should also be prepared to save money and put those funds towards deposits and costs like stamp to duty to help your portfolio move forward. It could also mean adopting other types of strategies that manufacture equity, such as renovating and flipping or getting into small scale developments and subdivisions.
The good news is that you can build a substantial property portfolio if you’re prepared to plan and put things in place both in your life and by getting a good team around you to help get you where you want to go.