Last Updated: 24th August, 2022
If you wish to start making a living, create an extra income stream or achieve financial freedom through investment in properties, popular advice is to start small. Invest in a single property to begin. Select the property after thorough due diligence to ensure the investment will not burden you financially and that you can expect it to increase in value. That is a good start, but understand that one property might not be enough for you to achieve your goals. Working with just one property limits how much you can benefit from rising property values. Also, the financial risks are much higher with just one property, as you may not be able to sell it at a good price if it is not performing well.. This is where a property portfolio comes into play.
What Is A Property Portfolio And What Are Its Benefits?
A property portfolio is a collection of all the properties owned by a person or a group of people. Your portfolio consists of all your current investment properties, and can hold many kinds of assets in different locations. Start building a property portfolio and you can reap the following benefits:- Maximise your chances of good returns by investing in properties in many locations and price ranges (diversification).
- Gain access to more equity, which can help you expand your portfolio further.
- Minimise financial risks in case a property investment fails, through diversification.
- Increase profitability from rental yield and property value.
- Create a unique strategy for future investments through trial-and-error.
- Achieve your financial goals faster.
How To Build A Property Investment Portfolio
The right strategy for building a property portfolio is unique to each individual investor. While there are no rules, having a plan and sticking to it will make it easier to expand your portfolio and achieve your financial goals. Here are some tips for beginner investors starting a property portfolio.Set Your Investment Goals
Determining your investment goals is the most important step in building a property portfolio. Your goals will dictate the sizes and types of investments that are most profitable for you. What is it that you wish to achieve through your investments? Is it financial freedom, security for your retirement years, or an extra source of income through monthly rental yields? Having a set goal will help you create suitable investment strategies and make decisions more easily.Create Your Investment Strategy
The next step after determining your goals is to create an investment strategy that will ensure you can achieve your goals. You can choose to invest in different types of properties, such as single-family homes, apartments, detached houses, and commercial properties. You can apply proven strategies like buy-and-hold, fix-and-flip or rent it out, to maximise your return on investment. Study how each of these property types and strategies will affect your profitability and choose the ones that best suit your needs.Select Your First Investment Property
As real estate involves huge sums of money, due diligence is a must for all property purchases, especially your first. The equity and profit from this initial investment will determine how quickly and effectively you can expand your portfolio. Invest a feasible amount into a property with high growth potential to begin your investment journey. As it is your first purchase, consulting with experienced industry experts can help increase your chances of success. Mortgage brokers, real-estate agents and buyers’ agents can help identify the best property deals and loan options for you.Expand Your Portfolio Steadily
After a successful first purchase, use the profits and equity from it to create a diversified portfolio. Investing is a long-term endeavour and requires patience, both while purchasing and selling. Add assets within your budget after checking with a financial adviser. It is best to build at your own pace so that you do not overburden yourself financially. Before investing in new properties, learn about the upcoming trends in the market and how they will affect the prices of your investments. Making an informed investment slowly is better than making an uninformed one quickly.Diversify Your Portfolio
Building and diversifying your portfolio go hand-in-hand. Both contribute to increased profitability, when done right. Choose to invest in properties across various locations and asset classes, and use different investment strategies so you can understand which options are best for your financial goals. If you have been investing within the city, try to look for properties in rural or regional areas. You can try to navigate the commercial real-estate market if you have been buying residential properties and apply new strategies suitable to those properties. Example: Try to look for a commercial building that you can rent out as office space instead of the usual residential rental properties that ensure monthly income. You might be pleasantly surprised by the difference in profits!Track The Success Of Your Portfolio
A property investment portfolio is successful in the long term only if it continues to provide positive returns on investment over the years. Keep track of all the purchases and sales, along with the strategies used for each of the properties.How Do I Measure The Success Of My Property Portfolio?
Use these metrics to determine how your properties are performing.- Annual positive net cash flow: property’s income minus its expenses, to check whether the property is making or losing money.
- Cash-on-cash return: Net cashflow divided by initial investment, to check how you are performing in comparison to market prices.
- Appreciation: The increase in the value of the property over time, to decide whether to hold or sell.
