Building A Larger Portfolio
Property investing has been a fantastic way for Australians to create their wealth or a future nest egg for a considerable amount of time in our country’s short history. If you speak with anyone at a family event, party or anywhere with a BBQ really, they are likely to have a story to tell or an opinion to share on property investment.
The trouble is, even though investing in property seems to be our blood, most investors do not get past 1 or 2 investment properties. For whatever reason, the investment journey stops here and the nest egg (while it has a start) is never fully realised and much of the potential is lost.
Some of the hurdles faced by most investors can be overcome, however, but it does take persistence, hard work, awareness and slice of humble pie.
Invest with the end goal in mind. What is the fastest way to get from A to B? In a straight line, right? Cliché I know, however, the power of having a plan, cannot be underestimated. Adopting the right mindset is also critical if you want to achieve your goal on time. How is your journey travelling right now?
Be accountable for your actions, take the initiative, talk to professionals about the strategy, the finance, protecting your assets and build a team to allow you to take hold of that plan and stick to it.
Below is a snapshot of the difference in investment property value, where Investor 1 stopped at 2 properties and Investor 2 bought property number 3 over a 15-year period (assuming buying every 2 years). I haven’t included any tax benefits or reduction of interest repayments with an offset account – it’s a simple exercise showing the power of leverage.
As you can see, in year 15 there is a significant difference of almost $940,000!
Fear plays a large part in the investment space. This includes other asset classes, not just property, however, specifically to property investing, the following psychological blockages stop property investors from taking it to the next level: fear of failure; debt, opinions from family and friends and uncertainty of the process, just to name a few. At the end of the day, the only person that is really going to allow you to achieve your property goal sis you. Ultimately, it is you who can drive the outcome and not let fear get in your way.
Clearly a big one in the eyes of most investors, but the truth is with the recent APRA reforms and the Royal Commission, lenders have been forced to take a more conservative approach. This has restricted many investors in gaining access to borrowed funds and invest in that next property. This includes not only borrowing for the next investment but also refinancing to acquire the additional equity experienced over the last 5 years through growth.
Another approach is to speak to your financial planner or investment savvy mortgage broker about the lending strategy alongside your property strategist. As many of the lenders have different lending criteria, ideally you want to work from the most rigid and difficult lender and move through to the less stringent as your debt increases and the initial lenders start to tighten their lending. The main reason is so that you do not become trapped between say, property 3 to 4 due to lenders not allowing further borrowing.
Remember, there is no reason to stay loyal to a specific lender. In a perfect world, it would be nice because it means less hassle and paperwork but ultimately, you need to do what is best for your investment journey.
Finally, build your team of professionals around you so you have the latest and best advice possible when trying to make an informed decision about your portfolio’s next move.