Time to take stock

Time to take stock, and buy that next one

If you own an investment property – just one – but are having an internal tussle about increasing your property portfolio, you might like to read on.

Wherever you are, there is a property cycle that is moving to its next phase. Prices may be falling, banks may be making it harder for people to borrow… and it may be a completely different scenario to when you bought your first investment property. What’s holding you back?

Did you get that first investment right?

Congratulations, you did your research before buying property #1 and looked into location, historical growth for the area, infrastructure, accessibility, supply and demand, and rental yields.

Yes, you purchased the right property in the right area and after a couple of years you are seeing enough capital growth to be positive with a deposit on number two.

Get strategic.

It’s time to review the performance of your current property portfolio – albeit a portfolio of one – and it is still a good performer. So it’s back to research, to find the type of property where the people are still going to be able to afford to buy and rent, where they’re going to have good jobs, where they’re going to have rising wages.

Real estate investment is a long-term strategy designed to help you reach long-term goals.

If you wish to build your investment property portfolio, you must have a strategic property plan that works for you, but you don’t have to go it alone. Invest in the expertise of others, the financial people and the real estate agents, to make your property investments work for you. Get that team of advisors on your side.

Check individual performance

Think of a property portfolio as a number of investments each having its own function. For example, how much rental income should a property bring in to ensure your portfolio is a good performer that allows for further growth? How do you expect each property needs to function in terms of capital growth in an anticipated timeframe.

Don’t feed the weeds

The worst thing about an underperforming property is that it can stall your forward momentum. But what if it is your only property?

Be strategic. Selling that first investment and starting again is not a backwards move if it allows you to purchase another property that better performs to the goals you’ve set for your financial future. And it is likely that lessons you’ve learned will hold you in very good stead.

It’s back to research again, this time as a seller. Reality is that sellers often overestimate the value of their asset. Sellers think their property’s worth a more than it is, and buyers inevitably think it’s worth less than what the seller thinks. That’s where you need the local real estate agents, to help you make an informed decision.

STOCKTAKING

• Re-assess your current portfolio. • Consider spending on improvements. • Check the asset that may be a high-profit sale. • Critically asses your debt management plan. • Understand that while debt is leverage, growing portfolios and reducing debts make for good company. • Watch for interest rate rises, which can reduce your return. • Rationalise - consider selling underperforming assets. • Aim to be cash-ready to take advantage of best investment buys. • Buy investment properties with solvable problems. • Choose markets where rental properties are in short supply/ high demand. • Pay good attention to the

‘what ifs’.

Growing an investment property portfolio comes from formulating an investment strategy that will help you achieve your specific financial goals. After all, there’s no one path to success in an industry as unpredictable as property investment.

Because each investor’s circumstances are different, it comes down to the objectives of the individual, whether you are you are looking for cash flow or capital growth, for instance.