Growing Your Property Portfolio
When it comes to an investment that consistently brings a substantial return on investment, property is still the way to go! Few investments offer the same combination of leverage, stability and predictability. In a period of stable, post-crisis growth it’s also one of the most recession-proof investments you can make. Whatever the financial climate, people will always need somewhere to live. Property is also way simpler than the stock market and far easier to understand. There’s no question that property makes money. Just look at the Forbes Billionaires list and see all the property tycoons on there.
But how do you get from where you are to the Forbes list? Well, unfortunately there’s no magic formula to transport you magically from humble homeowner to property magnate, but there are some helpful hints that can aid any investor in growing their portfolio in a stable and sustainable way that offers consistent return on investment and healthy growth. Property can make you rich but it can just as easily make you broke if you don’t box clever if you don’t think about where and when you invest.
Heed these simple caveats and you’ll be on a safe, sustainable path to growing your portfolio.
Have a Focused Investment Strategy
Not every property is a great investment, (or at least it may not be a great investment for you). Indiscriminately purchasing property is one of the surest ways to make a loss on your investment. If you’re only looking to invest in one or two properties then this isn’t so bad but if you’re building a portfolio it’s a recipe for disaster. Different investors have different needs depending on the size of their portfolio, the amount of capital they have to invest and the long term goal of their investment. Some invest to gain passive income, others to repeat the cycle of cashing in on equity and re-investing.
What do you want to do with your property? Do you want to buy properties in need of renovation, do them up to increase their value and let them out? This is a nice stable model for investment but may take time to generate any sizeable yield.
When you start building your portfolio it’s important to know your endgame and establish long, mid and short term goals. Create a list of what you want from a property and prowl the market for properties that meet your criteria, be it a condominium in Singapore or the two bedroom bungalow at the end of the road. You’ll be a better investor if you specialize in the specific type of investment that works for you and get really good at it by reading, researching and attending seminars that specialize in that particular kind of investment.
Know When To Cut Your Losses
When an investment turns out to be a dud, many investors make the mistake of continuing to nurture it, hemorrhaging money into it in the process. They tend to do this out of pride, vanity or a stubborn refusal to admit that they backed the wrong horse. There’s no nobility in keeping hold of a property when it begins to lose its value, and it’s better to bite the bullet of negative equity, allowing you to better invest your money elsewhere than it is to keep hold of a property for years (and in some cases decades) before its value starts to increase.
It’s important to avoid this “opportunity loss”, as refusing to take the upfront hit of a loss on a property can tie up your capital, keeping you from the money that you can be raking in on a better investment.
Be prepared to refinance to create positive cashflow
One of the most important balances an investor has to manage is between ensuring that sufficient funds are attributed to managing their properties while still being able to establish the cashflow and liquidity that will allow them to jump on the next golden opportunity when it presents itself.
Many investors miss out on opportunities that could potentially make them a fortune because they can’t afford it at the time their window of opportunity is open. Remember that every property you own adds incrementally to your disposable income, allowing you to further invest or simply fund your lifestyle, so don’t be the one to miss out on opportunities when they present themselves.
Strategically refinancing one or more of your properties can allow you to expand your portfolio, generating greater revenue from rental income than mortgage and maintenance costs.
Diversify your locations
Investing heavily in one area is a great strategy if rental demand is consistently high, generating a consistent rental yield. However, it’s never a good idea to keep all of your eggs in one basket. If something happens to compromise the value of the property in one area, then you want to ensure your safety by diversifying. As important as it is to find your specialism and stick to it, it’s equally important that you hedge your bets by investing in your favored property in a variety of different locations, even if they are (for all intents and purposes) identical in all but location to where you’ve originally invested.
By retaining your specialism while spreading your investment over a range of locations, you can ensure growth if one specific location has a difficult year.
Avoid cross-collateralizing
Cross-collateralizing is the practice of spreading one load across several properties, and it should be avoided at all costs. The reason is fairly obvious. If something goes wrong then you may be forced to sell multiple properties in order to service one loan, losing the valuable income from across those properties in the process. This can seriously stunt your portfolio’s growth, robbing you of your tax breaks and severely impeding your cashflow. When this happens, it can be years before you are in a position where you’re able to invest again. Just think of all the revenue you’d be missing out on!
Watch the market like a hawk
Success in property investment is a strange alchemy that depends on numerous factors but if there’s one key to success in the property game it’s the ability to find the right property at the right time. Searching through the market can be a lot like panning for gold. Every now and then an unmissable nugget will present itself. Properties in need of renovation, desperate buyers in need of a quick sell or even properties that have just been severely undervalued are all fantastic opportunities that won’t stick around for long. You don’t want your attention to be elsewhere when a golden opportunity (pun intended) passes you by.
Back in the day, this meant ruthlessly scanning the newspapers and realtor’s windows but thankfully, living in the digital age makes it all so much simpler. With a wealth of online tools and resources, keeping an eye on the market is something that you can do quickly and easily while on your coffee break.
Do what you can to increase the value of your properties
Even if buying dishevelled properties to renovate isn’t your style, you should still be mindful of ways in which you can increase the value of your properties. Even cosmetic flourishes like repainting the walls, resurfacing the floors or laying new carpet can all add to the value of your property.
Don’t shy away from properties that look like they could use a facelift, as these are often sold off at bargain basement prices. So long as they don’t need any major structural work, you’d be astonished how little extra investment it takes to add real value.
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