Many would have you believe that building a large property portfolio is easy. The reality is there are a few very important things you need to get right in order to achieve it.
Unfortunately, not everyone is going to be able to get there, but if you know what you need to get right ahead of time, it can help you avoid making some big mistakes.
Get comfortable with debt.
As interest rates rise, some people are getting concerned about taking on debt. In reality, debt is not bad if you’re investing the funds in high-quality assets, and you’ve got a plan in place to manage your repayments.
However, the real catch with debt is actually getting access to it in the first place. Typically, you only get access to debt when you have enough income to service that debt. That means you need to have a job or a business that not only earns you enough income now but is also going to increase in the future to let you continue to grow your portfolio over time.
It’s OK if you haven’t got a huge income right now. But make sure you’re looking at ways to increase your income in the future, whether that’s through your own business or within your career. To succeed in property, you will need to have a certain level of income, especially if you’re looking at buying high-quality blue-chip assets. Go away and put that part in place first.
Capital growth.
The most powerful thing about investing in property is that it allows you to grow a large portfolio from just one initial deposit. The way it works is that you purchase your first property, and then when it increases in value, you are able to tap into the equity in the property and use it as the deposit on the next one. Then the cycle continues.
There are two key considerations here. The first is that once again, you have the income to be able to borrow. If you haven’t got the ability to access finance, you can’t get that equity out of the property.
The second factor is that you need to be able to achieve the capital growth in the first place. Ultimately, rental income helps pay the mortgage, but it’s the capital growth that actually grows your portfolio and gives you the ability to expand. That’s why you need to buy the right assets in the right locations. It’s the very reason I am looking to buy in blue-chip locations like the Eastern Suburbs of Sydney. They have a long-term track record of consistently high capital growth.
As you can see the debt and equity components both work together when you’re investing in property. You can’t have one without the other. Get comfortable with debt and invest in high-quality locations and you’ll be well on your way to building an impressive property portfolio.
If you are interested in the above, feel free to reach out to a Henderson buyers agent today for more information.