How to build a multiple property portfolio in 2021
Multiple property portfolios are pretty rare in Australia. And by multiple, we don’t mean two or three, which is what most investors in this country aim for. We’re talking about buying 10 or 20, which is very different, but it’s achievable, so here’s what you need to know.
Start from the end goal
First, work out what your goals are and then work backwards to figure out what you need to be able to get there. Breaking it down further, what does the finance look like? What do the assets look like that you need to be able to acquire, to be able to build to that position?
Say you’ve got a strategy – for example you might want to have 10 properties bringing you in $300 a week in rental income, which makes $3000 a week, or $150,000 a year – how do you actually go out and buy those 10 properties? You may not be able to save a deposit for all, so where’s that money coming from and what about the money to service the loans?
Half comes down to finance structure and the other half to property structure, which is understanding what type of property to buy, and how many, and going out to buy those properties. These two structures need to work hand in hand if you’re going to get anywhere.
If you need 10 properties, work out what each deposit would look like. Is it $30,000 per property? Then, the finance. What is the bank requiring from you? How will the bank allow you to borrow for 10 properties? Do you need properties that are going to increase your cashflow, or do you need properties that will enable you to quickly pull out equity, to then be used for subsequent purchases? It’s important to have help from someone who understands finance structures.
A lot of people say ‘OK I’ve bought two properties, what do I do next?’ And then it turns out the properties they bought have screwed up their finance and they can’t go on and buy properties three and four. They get stuck by buying the wrong assets and getting themselves jammed up.
It’s important that even when buying your first and second properties, you’re also thinking about how those properties will help you be able to buy numbers three and four, five and six and beyond.
To do so, you want to make sure you’re buying them below market value, with an upside for capital growth and with good cashflow.
Think outside the borrowing box
Say you go to a bank or a broker and they say you can borrow $500,000, a lot of people think ‘great, let’s go spend that $500,000 on one property’.
But should you be doing that? Or should you be spending that money on two or three properties for your portfolio? And if so, how will those properties help your position?
If you get the right structure, the bank might say you can borrow $500,000 today, break it down to buy two or three properties, then you go back to the bank and they say you can borrow another $300,000.
Most people use the money to buy just one property. But it’s important to remember the property is the vehicle on the drawing board, it’s not the destination. It gets you from where you are to where you want to be.
It’s happening now
In 2020 we saw more people being able to build large portfolios due to the fact they’ve been buying properties below market value and then pulling out that equity.
Binvested just did a deal in Sydney city on a property that was bought for $400,000 and revalued for $585,000. The investors were able to pull out $185,000 of equity and use it to buy more properties.
There are many more deals to be found out there if you know where to look, have the right help in place and get your finance and property structures right. For help with your strategy, reach out to us at firstname.lastname@example.org or on 1300 367 925.