HOW LONG DOES IT TAKE TO BUILD A PROPERTY PORTFOLIO ?
When people see the results of our clients, they often wonder how they have been able to build a property portfolio of so many investment properties within a relatively short period of time. A webinar participant asks, “What is a realistic number of properties you can acquire in your first year of starting to invest in properties?” As Nathan says, this is a bit like asking how long is a piece of string? The number of investment properties you can acquire in your first year depends on the following five questions:
1) WHAT ARE YOU TRYING TO ACHIEVE?
Depending on your goals, your financial situation and your appetite for risk, you could take a more aggressive approach or a more subdued one to growing your property portfolio. Either way, it is important for your approach to be well calculated and in line with your personal goals and risk appetite. What is the point of building a big property portfolio with many investment properties if you can’t afford to hold them? Similarly, you should know what level of investment is safe for you so you can take the required calculated risk and avoid limiting your potential. It is vital that each property you buy serves a clearly defined purpose and helps you achieve the end goal, don’t just buy properties for the sake owning them.
2) WHAT IS YOUR STARTING CAPITAL?
You may have $50,000 to $60,000, or you might have $200,000 to invest. With $50,000 you should be able to purchase one property below market value and use its equity in six to 12 months’ time to purchase another (if your lender will let you). With the right strategy, you may be able to use one deposit to buy many investment properties over time, but probably not straight away. If you more savings, perhaps $200,000, you may be able to buy four properties below market value, then access the equity on those four to buy four more in six to 12 months. While you can buy property with lower deposit, you will also need to cover the cost of lenders mortgage insurance which adds a significant cost to the investment and increases the waiting time to withdraw equity. Is it worth waiting and saving up your pennies, or is it better to invest with what you have got right now? Are there other sources of capital or assets which you can use to generate a property deposit? Either way, the savings and the deposits you are able to affect the rate at which you can grow your property portfolio.
3) WHAT TYPE OF PROPERTIES ARE YOU PURCHASING?
Nathan says, he likes to purchase “bread and butter properties” – that is, properties with expected continual growth. If your properties are growing by around five per cent each year, then your portfolio will be paying for itself in the background while you focus on living your life. Aside from purchasing with an upside for growth, you should always buy below market value so you can establish a net worth position from day one, and leave a buffer in case you need to sell quickly. For this reason, it is important to be wary of all bargain cash cows, not all positive cash flow properties make good long-term low-risk investment prospects. Buying properties with a neutral to positive cash flow means that your portfolio will be taking care of itself and not hurting your personal cash flow each week.
4) HOW HAVE YOU STRUCTURED YOUR FINANCING?
It is of utmost importance to set up the right borrowing structure from the very beginning of your investing. It is no good to go and buy your first property, only to find out 12 months down the track that you can’t access your equity in order to purchase more. Choosing the right broker with experience in financing large property portfolios can be the difference between accumulating a large portfolio quickly, and getting stuck after purchasing one or two properties. The same can be said about your success team at large. The right financial planner, accountant, solicitor and buyer’s agent will all partner with you to help you achieve your goals. The wrong ones – those with no knowledge or experience in the property investing strategy you have chosen – will do nothing for your success.
5) WHAT IS YOUR MINDSET?
Are you committed to achieving your goals? Do you believe they are possible? You may be held back by fear of what could happen, or you may not want to invest in properties that you wouldn’t live in yourself. Either way, fear and negativity will only hold you back. Replace your fears with due diligence, and research the market and your finances thoroughly. If you are making the right sort of purchases, in the right order and in line with your goals and the suggestions of your success team, you are minimizing the risk the best you can. After you have done this, you just need to stick to your strategy – and do it with guts.
In the end, it is your mindset which determines how fast you will grow your property portfolio. If you set your mind to the task of achieving your goal, soon you will find it materializing in front of you. At Binvested we have seen investors start with very little and traded in their car in order to get a deposit who have now built bigger portfolios than those who have started with hundreds of thousands in savings but never fully committed themselves to living out their dreams. We have many young staff within Binvested who are great examples of what you can do when you put your mind to it. You can watch video’s about their stories here.
How many properties are you looking to accumulate in your portfolio? What is your plan of attack? Please share your experiences in the comments section below.