Investment-Portfolio

Steps to Building an Investment Property Portfolio

If you would like to increase the number of properties in your property portfolio from a couple to 30 or 40, then the steps we have outlined below will help you move forward.

First Step in Growing Your Portfolio

Here at InvestmentProperty.com we know it’s purchasing that very first property that’s the most important one to get done. Most seasoned and successful investors will tell you that finding and buying their first investment property was the toughest one to get right. Having gone through that process from start to finish, they find things get much easier after that learning experience.

When you are going after that very first property, go slowly, take you time and take everything in. Doing your research in areas that you do not fully understand is essential at this stage. This is your learning curve and will serve you well when you go after more properties in the future.

People who are new to investing are going to make mistakes, and they will get better at things with the more experience they get. That means you too. You don’t have to come out of the gate like Usain Bolt, you should start small and study how things work.

That’s how you become a smart investor in the long run. Don’t worry, the larger deals will come later and you’ll be better placed to take advantage of them due to your increased experience. In the meantime, you need to start off with something you really can afford, but won’t break you if you invest in its potential.

Leveraging Your Equity

When you purchase a property for $250,000 and expect it to go up to $350,000, then you are building $100,000 worth of equity in the property. However, there are only two ways you can access it.

One is by selling it and keeping your profits minus your expenses.

The other is to take out a loan against the property you now own. Most of the time you can get around 80% of your total equity in the form of a loan. That would give you a loan figure of $80,000.

In this instance the main thing to watch is that you don’t overextend yourself on your debts. You want to know with confidence that you can repay the equity loan. You can do this by creating a positive cash flow.

Often times, people stop buying properties because they just can’t afford the payments. The reason is because they’re buying properties that “COST” them money. That limits them on how many they can buy.

If each purchase created money coming in as opposed to going out, then these investors would be getting paid from their properties. Simply put, they would have a positive cash flow as there would be money coming in that is over and above what their expenses are.

Once you have created this situation, you can then take the extra cash, and repeat the investment process. The bottom line is this – if you can continue to buy properties that bring in revenue, you will always be able to handle your loans, and will always have money to invest.

Increase your Property Value

A lot of investors will tell you to either increase your property value (capital gains) or invest in properties that bring money in. Smart investors believe you should do both.

You can make some minor repairs or even some huge renovations, and increase the property values. Just an extra coat of paint along with a little concrete work and new carpets can make a big difference.

Also, be on the lookout for properties that need a little work doing on them. You’ll find that these types of properties are sold at discount prices allowing you to quickly increase the value of your investment just by carrying out some small repairs here and there.

When you increase your property values, you have the opportunity of increasing rental income as well, which means more equity to purchase even more property.

Monitor Your Portfolio

An investment portfolio has to be constantly monitored. They don’t take care of themselves. This is even more important during your early stages, when you are learning how to buy correctly and improve the values of your properties. You need to keep an eye on your investments, learn how you could have done things better and keep on investing.

It can be very enlightening just to sit down with someone who is a seasoned investor, and just ask questions and chat about properties. You can talk to a real estate agent and learn all kinds of valuable information.

Another thing to watch for is how you select your tenants. Ideally you’ll want to rent to someone who will take care of your property, so meeting with potential renters is a good idea so you can get a better fell for their character. Eventually you will also need to consider finding a good rental manager who can help you stay on top of these issues.

Investing Wisely

I believe when you have both positive cash flow and are increasing property values, that’s when you are investing wisely. Increased values and positive cash flow will be the catalyst for the growth of your property portfolio.

If you are working toward retirement then you will be in good shape to pull it off nicely. That means staying away from properties that are negatively geared.

Never Cross-Collateralise

This is when you are using multiple properties to secure a single loan. It only takes one negative event to occur for you to lose out on all the properties involved.

Life can throw you a curve ball out of the blue, and with all your eggs in one basket, this type of situation can wipe out your entire investment in one go.

The way to avoid this is to get your financing for each property through different lenders. You can always consult with a specialist accountant about how to properly handle your investment finances. Having a good solid investment strategy is priceless and it will help you stay focused on the important things by putting a ‘step-by-step’ plan in place to keep focused and on track to meet your investment goals.

Again, there is a learning curve, but don’t let this scare you. Instead look at it as an opportunity to do better than your competitors. Knowledge is power, so the more you embrace the learning curve, the better of you and your property portfolio will be.

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