6 Tips To Build A High-performing Portfolio
Many Australians aspire to build a portfolio to provide future financial security, but even with the greatest intentions, less than 1% of investors own six properties or more. They do their research and spend time finding that first property - sometimes taking many months to undertake due diligence required to purchase - then get stuck in the starting blocks. But those that do forge ahead and keep buying are the ones that reap long-term benefits with the many options offered by a larger, high performing portfolio. It all comes down to strategy for these investors - the 0.068% of portfolio holders with six or more properties - and here’s how you can follow in their footsteps:
- Get approved for a loan, then take the opportunity to consider how you can trim your current expenses, get rid of excess credit and store cards, plus any other debt that might prevent you from continuing to build your portfolio. If you’re addicted to credit card debt, you need to make some tough decisions and work out where your priorities really lie.
- Take time to learn about investing and formulate a targeted strategy, only seeking advice from those who have a portfolio of six or more properties. These investors have achieved what you’re trying to do and are extremely well positioned to show you how it’s done. If you don’t know anyone who has reached this milestone, seek help from a professional buyers agent (with their own large portfolio).
- Always consider the worst case scenario position e.g. If you were without a tenant for eight weeks, there was a downturn in the market or your property decreased in value, could you remake payments? Have a plan moving forward, be aware of how the property cycle works and what may affect your progress - and always maintain a cash savings buffer to meet unforeseen costs.
- Purchase properties in different states around Australia. This is an important consideration in any portfolio strategy as paying land tax can be a prohibitive and unnecessary cost. It can be completely avoided simply by purchasing well, even if the properties are in locations that are unfamiliar to you. The investment needs to work in your favour financially, or why buy in the first place?
- Stay on track to keep building your portfolio. It’s difficult to remain disciplined, so keep your focus on the end goal. Remember that each property needs to set up the next property purchase. The best strategy needs to consider what requirements your bank will require to be met in order to continue lending you money. This involves ensuring each property has high capital growth indicators as well as strong cash flow to guarantee your loan serviceability.
- Be certain that each property is bought well to guarantee your ability to build a portfolio of 6 properties (or more) in a relatively short period of time. This means buying at the right time of the cycle, at the best-negotiated price with high capital growth estimates and with a higher than 6% rental yield. If it’s done right, you stand to reap the rewards of a high performing portfolio for years to come.
By purchasing in different states and areas throughout Australia, investors with larger portfolios can take advantage of varying growth cycles when it comes time to sell - even divesting of one or two properties to pay down debt on others that they wish to hold for a longer period of time. Aim high with healthy returns and strong yields, always remembering that property investment is a long-term proposition: the more diverse your portfolio the better for your wealth-building prospects.