Six steps to building a property portfolio

Building a property portfolio is a rewarding yet often complex process that requires planning, research, consulting, and most of all strategy.

Knowing where to begin can often be the biggest hurdle that prospective investors face. 

Here are six key steps to follow when starting on the process of building an investment property portfolio.

Define goals and expectations

It is important to have goals when investing in property, as well as a realistic way to achieve them.

This is where professional advice can be handy. A financial adviser will determine if property investment is appropriate for your personal financial scenario. They will determine your risk tolerance and find the most effective way to achieve your set goals while protecting personal assets and wealth.

It pays to study the market and the financial requirements of borrowing as time spent in reconnaissance is never wasted.

Put equity to good use

Home equity is the difference between the market value of a house and the outstanding balance of the mortgage. For instance, if a property is valued at $800,000 and the remaining amount left on the mortgage is $300,000, there is $500,000 in equity. The $500,000 in equity can then then be used as a deposit on another property.

This method allows you to purchase property without putting down another cash deposit, which removes one of the largest obstacles of property investment.

Look for capital growth opportunities

While no one can accurately predict which areas will have substantial capital growth, there are strong indicators to look out for.

When purchasing an investment property researching the area is essential – it’s important to consider plans for housing developments, proximity to schools, hospitals and shopping precincts, commute times and local job opportunities.

For instance, you may find an investment property in a regional town two hours out of a major city that’s quiet now but if there are plans for expansion it may be a gold mine for capital growth within the next five to ten years.

Buying a property that appeals to a large demographic of tenants is key to building a successful property portfolio.

Consider rentvesting

Rentvesting is a progressively popular way to get into the property market, especially for first-home buyers.

Rentvesting is a strategy in which you purchase an investment property in an area that fits within your budget while renting a home in which to live in an area that suits your lifestyle.

It also allows investors to maintain their lifestyle while building their investment portfolio. It holds valuable benefits other than homeownership, including negative gearing, depreciation deductions and equity build-up. 

Renovate, renovate, renovate!

While style preferences differ between tenants, renovated homes are highly sought after.

Renovating even small areas or a couple of rooms in your investment property can increase your rental return considerably. Installing built-in wardrobes, updating flooring, adding a fresh coat of paint and updating areas like the kitchen or bathroom will all attract tenants and can further increase capital growth.

And these aren’t the only benefits of making improvements. You will also benefit from heightened depreciation deductions.

Optimise cash flow by claiming depreciation

Depreciation is the natural wear and tear of a property and the assets within it over time. The Australian Taxation Office (ATO) allows owners of income-producing properties to claim this as a tax deduction.

Claiming tax depreciation reduces your taxable income, meaning you pay less tax. You may be eligible for thousands of dollars in depreciation deductions each year.