How To Build Investment Property Portfolio – What is a real estate investment portfolio? V-shaped circle to the right Indicator buttons How to build a real estate portfolio? V-shaped circle to the right of the Indicator button Why is it important to have a balanced asset portfolio? Circle with a chevron on the right Indicator buttons Some tips for financing your real estate portfolio Circle with a chevron on the right Indicator buttons How to choose your next investment property Circle with a chevron on the right Indicator buttons on the right Summary – the key to building a successful real estate Circle portfolio with right chevron Indicator button
You’ve purchased the property, found a tenant, and you have a property manager looking after the rental. The only thing on your mind right now is “what should my second real estate investment be?”
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Building a successful real estate portfolio depends on three main things: diversifying your investments, bridging capital to acquire more assets, and strengthening your base.
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When we talk about a real estate portfolio or real estate investment portfolio, we mean all the investment properties that you own. If you wrote down a list of all your current real estate investments, that’s your real estate portfolio!
If property demand falls, you will have better performing assets in your portfolio to hedge against these potential losses.
It’s also important to remember that once you get started, investing in subsequent properties often becomes easier.
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A popular tactic is to leverage the equity in your first investment property to help finance a second investment property (and reduce the upfront costs of your next mortgage by eliminating things like lender mortgage insurance).
Of course, in the beginning, most people only have one investment property in their portfolio. But after that, some investors continued to buy more.
In fact, about 10% of rental property investors own three or more properties and about 18,000 own six or more properties, according to the AFR.
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Not all investment properties provide the same rental income and capital gains. In general, you will see stronger long-term home value growth while apartments are expected to provide better rental returns.
But it’s not just the type of asset you need to consider. Location can have a big impact on your rental income and long-term profits.
Historically, real estate in Australia’s capital cities has delivered higher rental returns and capital growth, while regional real estate has provided more affordable housing, and some of these sectors have also delivered significant long-term growth.
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In fact, more investors are looking beyond Australia’s capital cities to capitalize on the regional property boom in 2021.
This ensures that you generate a reliable source of passive income (to cover repair and maintenance costs) as well as setting yourself up to earn a positive return when it comes time to sell, which can help you finance your next investment property purchase.
With a gated property, you build equity (which is the value of your property, minus the amount you owe on your mortgage).
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This is invaluable when building your real estate portfolio because you have a powerful new way to access real estate portfolio financing.
Here’s how it works: You can refinance your current property and use the equity in your home as a deposit on your next investment property.
For example: Let’s say you have a property worth $1,000,000 with an $800,000 mortgage. This asset increased in value to $1,300,000 in 1 year (yay!). You can refinance the property to get a new loan of $1,100,000. The difference is $300,000, which is the equity you have access to. You can then use this $300,000 as a deposit on a new mortgage on a second property.
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Additionally, your existing assets can act as collateral for your new loan, which can lower your interest rate (since you have assets that prove you are a risky borrower).
This can speed up the process of building your property portfolio as you won’t have to put down cash for your next mortgage.
Likewise, a balanced real estate portfolio helps you minimize the impact of real estate market ups and downs. Over time, supply and demand will change and will cause rental yields and property prices to fluctuate.
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By investing in a variety of properties in various locations, you will have a flexible portfolio that will continue to provide strong returns in volatile market conditions.
For many people, one rental is not enough. Most investors keep buying more real estate because they want more returns. Instead of having just one property that generates rent and increases in value, you can own two properties, effectively doubling your profits!
If you’re serious about financial freedom, early retirement, or whatever your goals are, building a real estate portfolio is an important step in getting there.
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Whether you invest in stocks, bonds, or real estate, building a balanced portfolio is a smart investment strategy.
It’s all about finding ways to minimize risks and increase your chances of earning higher profits.
The problem: none of us can predict the future. The real estate market is always changing, supply and demand is always changing between types and locations of real estate. However, one proactive step you can take to protect your money is to invest in properties in different zip codes.
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While there is no ‘silver bullet’ in choosing the perfect investment strategy, there are a few things to consider when deciding whether to follow a positive or negative investment strategy to finance your property.
Although negative leverage can provide you with capital to grow your portfolio, you face a high risk of loss. And while aggressive leverage is a lower-risk option, you may not be able to generate enough capital to finance your next investment property without taking out a jumbo mortgage.
So let’s look at some case studies on how to grow your real estate portfolio depending on your goals.
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The key to generating high returns on capital is understanding which types of assets and locations tend to increase in value.
Typically, detached houses on the outskirts of the capital show the greatest potential for capital growth. This is because these properties have higher demand and limited supply (unlike high-rise apartments or townhouses).
Additionally, you should consider a home that is strategically located in a regional location, with good schools, local amenities, and plenty of job opportunities in a variety of industries.
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This is becoming more attractive as more offices embrace remote working, helping to increase demand and drive up prices across regional Australia.
On the other hand, generating a reliable source of passive income comes from securing investment properties in high-demand areas.
By looking for properties with high rental yields (usually between 8-10%), you will be able to make a steady profit from your investment property.
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It is important to look for properties with low house prices and rising rents. This is often found in several small cities in Australia, such as Hobart (TAS), Canberra (ACT), Darwin (NT) and Adelaide (SA).
When doing your research, be sure to look at market trends in each suburb as high vacancy rates often indicate an oversupply of real estate in that area.
While buying an apartment in the capital may have lower initial costs, having too many apartments of the same style in the same area can lead to decreased demand and reduced rental profits.
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While the combination of high capital growth and high rental yields is hard to find, there are certain investment properties that can offer both.
Typically, townhouses and duplexes can be purchased at slightly lower prices, but still provide good rental yields and profit potential when sold.
Once again, capital city suburbs and strategically located properties in these areas tend to offer the best opportunities for long-term growth.
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Additionally, with fewer townhomes and duplexes on the market, you’ll also likely see rental prices increase over time.
Investing in different types of real estate in different locations can help balance your real estate portfolio, reduce the level of risk, and help you weather the ups and downs of the market with confidence.
By combining properties with capital growth potential and high rental yields, you will have a stable source of cash flow to manage your investment properties and equity to purchase the next property in your investment portfolio.
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Once you have more assets, consider engaging a property manager. More properties means more complexity, so using a property manager to manage multiple properties is very common.
Disclaimer: The views, information or opinions expressed in this blog post are for general information purposes only and should not be relied upon. We have not considered any specific situation, event or circumstance and no part of this blog post constitutes personal financial, legal or tax advice to you.
Property management circle with right chevron Indicator button Real estate investment circle with right chevron Indicator button: Property maintenance circle with right chevron Indicator button Real estate finance circle with right side chevron Indicator button: Update Circle with right chevron Indicator button Tenant circle with right chevron Button indicator Property rental circle with right chevron Indicator button Real estate news circle with right chevron Indicator button If you are interested in building your investment portfolio in Australia then investing in real estate can
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