What sort of properties should you be buying for your property portfolio

If you wanted to travel somewhere for a holiday, you might need to go and jump on a plane to get there. That plane is the vehicle to get you to your destination, but it’s not the destination.

It’s a good way to look at property investment. Each property you invest in is the vehicle that helps get you to where you want to be, but it’s not the destination.

Everybody’s journey starts and ends somewhere different, so it’s important to work out your destination and then choose the vehicle to get you there. It all takes structure, planning and strategy.

Work backwards

Do you want a little house that you will knock down later? Do you want a large property portfolio? Or something else?

You need to figure out what it is that you’re aiming to do and then work backwards from that position and work out what vehicle it is that you need.

Give the banks no excuse

A bank might not lend to you for one big property, but they might allow you to buy two smaller ones that add up to the same value.

That may be because each of those properties has less individual risk attached to it, plus its own rental income that is servicing its loan.

For banks, it’s not about the value of the property that you buy, but what you can give them from a servicing perspective.

Therefore you can buy all sorts of different properties to make up your investment portfolio. Houses, units, townhouses, commercial properties, etc, as long as you meet the banks’s needs. 

To do so, cashflow is very important. If you want to replace income, you need properties with cashflow.

Know when to hold ‘em

You might hear people out there wanting to do renovations on properties to make money. They might do them up and sell them for a profit.

But how many people have you heard say ‘I’m so happy I sold a house 10 years ago, now that it’s gone up in value’?

Renovating and flipping can work for some people but not if you want to tap into long term growth. If someone made $100,000 by flipping a property 10 years ago, that $100,000 is not worth the same amount today as it was then. If they had held that property from 10 years ago, it would be worth a hell of a lot more right now than then.

Cycle of success

If you can go through a property cycle, you might turn a $500,000 house into $1 million, or $5 million worth of assets into $10 million.

The ultimate would be to take the largest asset base you can through that cycle, while having the best cashflow you can on that asset base. If you have multiple income streams, from multiple properties, that’s a lot more money that you can benefit from when inflation comes into play. If you had one property and raised the rent by $10 a week, you get an extra $10. If you have 100 properties and do that, it’s $1000 a week that you’re better off.

Three main keys

Once you have your property portfolio, you can build out your asset base and your income stream the way you like, but you need to make sure you minimise risk along the way.

That’s why it’s important to remember the three keys to success:

  1.       Buy below market value
  2.       With an upside for capital growth
  3.       And with a strong cashflow

If you need help with your strategy, reach out to b Invested on 1300 367 925, or send us an email at admin@binvested.com.au.