WHAT COMES AFTER A FOUNDATION PORTFOLIO?
Sometimes it’s hard to see the light at the end of the tunnel when you spend years building a foundation portfolio of bread and butter properties. You might be asking, when can I start buying cake!?
There are a range of big-ticket opportunities out there for the investor who has built a strong foundation. Apartment blocks, motels and shopping centres are just some of the things Nathan Birch, co-founder of Binvested, has been able to purchase after building a foundation portfolio.
But, before you can move up to the next level of the game, Nathan says, “It’s important to play the chess board until you own all the pieces.” Staying focused on your goals and committed to your strategy will help you identify when you can start building an empire on top of your well-set foundations. Remember, you first need to be able to walk, before you can run!
WHAT HAPPENS WHEN YOUR FOUNDATIONS HAVE BEEN LAID?
In order to know whether you have built your foundation portfolio, you need to have a well thought out end goal strategy in place.
Nathan says, while every investor is different, a foundation portfolio will often consist of around ten to 20 properties. Depending on what you would like to achieve with your investing, this number may be more or less.
He says, it is important to remember, “The bigger the foundation, the bigger the next level can be.”
Nathan, being a man of lofty ambitions, built a foundation portfolio of around 100 properties – a big foundation for an impressive empire.
WHAT IS THE CONSOLIDATION PHASE?
After accumulating the required number of properties, the portfolio owner can begin the consolidation phase. According to Nathan, consolidating is about assessing your resources and getting the most out of them to take you to the next stage.
In the consolidation phase, investors will work to keep their portfolio in optimal condition and continually aligned with their goals. Increasing rent and capital value through renovating, subdividing or redeveloping can help to pay down debt or bring your investing to the next level.
WHEN CAN I START CONSOLIDATING?
When it comes to consolidation, it’s not an all or nothing approach. Even if an investor hasn’t reached their target number of foundation properties, they may need to consider consolidating parts of their portfolio strategically.
By strategically optimizing through micro consolidations, they can be in a better position to unlock further growth potential. Things such as renovations, rental increases and flipping can all potentially play a part.
Since APRA spurred on tighter lending practices, new house and land purchases negotiated at wholesale price through Binvested, have become a popular option to open up further portfolio growth.
In these cases, having a partially complete foundation portfolio supports investors in taking on these kinds of deals, and create chunks of net worth to use for later bread and butter deposits.
WAYS TO PAY DOWN THAT PROPERTY DEBT
For some investors, consolidating means paying down debt to enjoy an unencumbered portfolio. Here are some ways to get there.
1) SELL UP SOME PROPERTY
Say you purchased ten properties that have since doubled in value. You could sell half of those, to be able to clear the debt on the remaining five. Having five unencumbered properties renting at $350 each week will bring in more than $90,000 of passive income each year. Not bad hey?
2) DEVELOP AND FLIP FOR A CHUNKY PROFIT
Alternatively, you could hold onto all ten original properties and use your equity to buy land on which to develop a property (for below market value off course!). You could sell the property at market value and use your profits to pay down debt. If you do this a few times you could potentially end up with all 10 properties owned outright and debt free. Wooohoo!
3) WAIT FOR INFLATION TO RUN IT’S COURSE
The cool thing about investing in property, Nathan says, is that thanks to inflation, you end up paying off today’s debt in future inflated dollars. If you build a portfolio of neutral cash flow properties that have strong growth prospects, not only do they gain in capital, but rents also increase in time. This makes it possible to pay down debt and enjoy a cash flow that becomes more and more positive as the years go by.
WHAT IF YOU WANT MORE?
There are several other options available for those who would like to keep building as they pay down debt.
1) MOVING ON UP
Since building his foundation portfolio, Nathan has invested in all sorts of high-yield projects. He has purchased apartment blocks, motels, and shopping centres as well as engaged in different types of development projects, such as knocking down old houses and building apartment blocks, buying cheap land and building on it, and purchasing parcels of land in order to subdivide and sell it off.
It all comes down to what you as an investor would like to achieve. But only those who have a strong foundation portfolio can take investing to heights such as these without putting their financial security on the line.
2) STICKING WITH YOUR FORMULA
Even though Nathan now buys motels and shopping centres, he hasn’t stopped buying bread and butter properties.
“Maccas still make cheeseburgers even though they are a very successful business,” he says. “If you’re making profit on your properties and the formula has been working for you, why would you just instantly stop that and try to do something else?”
WHAT ABOUT THE ICING ON THE CAKE?
BUYING YOUR PERSONAL DREAM HOME
When Nathan began buying properties at the age of 18, he would have struggled to afford a to buy even a most home to live in himself. Now, he is in the process of building his end-goal dream house – a 2,200 square metre mansion that he never would have achieved without having first built a foundation portfolio.
He says, he used property investing as a vehicle to build his dream home, rather than struggle to pay back a “mediocre” house. The years of delayed gratification and slowly increasing cash flow have put him in a better financial position than he would have been in otherwise, he says.
For example, he says, if you had 10 properties that were $100 cash flow positive each week, that $1,000 would be enough to make mortgage repayments on a nice house.
Or, say you decided to sell five properties that had gone up by $300,000, that would give you $1.5 million to spend on a property.
For the many young Australians who can’t afford to buy their dream house yet, building a foundation portfolio could be the key to achieving their dreams.
GIVING YOURSELF A PAY RISE EACH YEAR
Having a strong foundation portfolio gives you options, says Nathan. Not only can you invest in big ticket items knowing you have the equity and resources to back you up, you can truly live life on your terms.
For Nathan, living life on his terms means he is not stuck working at a job for which he has no passion. He can take holidays whenever he wants, for however long he wants. He can wear thongs instead of a suit (or with a suit! — >> ), and he doesn’t have to worry about what society thinks.
He can also give himself a pay rise every year if he wants. All it takes is an email to his property managers to increase weekly rents by $10 or $20 – a small increase that really adds up for someone who owns more than 200 properties. That’s what you call putting the icing on the cake!