Top 10 Investor Skills For Nailing A Large Portfolio
From the outside, property investing looks pretty straightforward. You just need to get your finances organised, work out a great place to invest, buy a property then find a tenant to help pay the mortgage… Simple! But this - what I call the hope and pray method of property investing - takes very little skill and no strategy whatsoever. Too often employed by too many people, it’s why 75% of investors own just one property, nowhere near enough to provide financial independence and long-term wealth. Joining the 1% of Australian investors who own six or more properties requires expertise, with 10 core skills critical to nail a successful large portfolio and greater wealth creation benefits.
- Research: Analysing the statistics behind the research is essential in order to understand why particular areas are experiencing population growth. Large infrastructure projects may create thousands of jobs, but how sustainable will they be into the future? There has to be some kind of longevity behind the figures to warrant investment and maximise capital growth opportunities.
- Finance: The way your finances are structured can make or break your ability to keep borrowing and building a large portfolio. Prioritise complete flexibility in your lending so you can change providers if required. Don’t be enticed by an attractive fixed rate - if you change your mind or want to reinvest, breaking the terms of a mortgage can be punitive and decrease your future options.
- Structure: Advice determining how the property should be purchased needs to be sought and finalised before you even start building your portfolio. Work with a skilled accountant specialising in property - and preferably with their own portfolio - to resolve this step. Depending on your circumstances, it may be more favourable to purchase in one name, joint names, tenants in common, in a trust or through a self-managed superannuation fund (depending on your age).
- Location: The best place to buy is in a depressed or flat market that is set for capital growth. If you follow the herd and buy in an area already at the top of the property cycle, you will most likely need to hold the property for many years to achieve any capital growth. It takes skill and resilience to purchase in those markets, but there are greater rewards to be gained from diversifying into various markets.
- Selection: Dwellings that appeal to you personally may not be desirable property types for residents of a particular area e.g. in Adelaide, three bedroom homes are most in demand. By purchasing a two bedroom apartment there, your investment may sit for a long time on the rental market. Prioritise affordability with something that most tenants can afford to rent (which can in turn also be easier to resell long-term).
- Strata-savvy: If you buy a strata-titled property, it’s crucial to read the past four or five strata reports. They will reveal any potential issues that have occurred or are likely to occur in the future e.g. Major plumbing works, structural flaws or specific levies that may incur thousands of dollars to correct a maintenance problem. This can happen with both newly constructed and older properties, so beware!
- Negotiations: A skilled negotiator can save tens of thousands of dollars off the asking price of a property. Achieving this can mean you’ve built instant equity into a property and achieve a higher than expected rental yield. There’s also more than just price to negotiate - contract terms and conditions can be altered to suit your needs, with settlement dates and deposit sizes just two examples.
- Inspections: When purchasing free-standing property, pest and building inspections are required to ensure it’s free of infestation and structurally sound (if purchasing strata-titled property, this information should be contained in the official strata reports). A diligent inspector will provide quotes for rectification works if needed - costs that can be further negotiated off the property’s asking price.
- Conveyancing: The ability to source a professional conveyancer qualified in the state or territory of purchase is often overlooked, but with legislation varying throughout Australia local knowledge is imperative. You will need qualified advice on the conveyance itself, the contract and any other associated documents, cooling off periods and how you can legally withdraw from purchase if needed.
- Management: Sourcing an accomplished property manager to oversee your asset and find a suitable tenant is the same process whether you’ve bought an investment property in the next suburb or interstate. You need to interview at least three property managers in the area where you’ve purchased to select the right one for the job - if you still have doubts, keep looking until you feel more than comfortable to go ahead.
Purchasing an investment property requires skills that may not necessarily be second nature, but awareness around these key focus areas means it’s easier to take that first step. You’re then able to draw on your own expertise or be mindful of the key areas where expert assistance is required. By getting the foundations right and removing barriers to success, building a successful large property portfolio becomes a reality. You may invest nearby or go further afield with interstate investment - or both! The real power of property is gained by strategically purchasing in different markets to provide strong diversification and capital growth options, shoring up your financial future for years to come.