How to start a property portfolio

If you're looking to build wealth, generate passive income and start your property portfolio, here is an overview of the fundamentals to consider before purchasing.

Three steps before purchasing your first investment property

1. Know your motivation

   Building a property portfolio is not a small undertaking. It demans significant time, capital and a strategic focus. Be clear on why you're entering the market. Are you aiming to generate short-term capital and exit quickly? Or do you want to build sustainable wealth over many years to secure your family's financial future? Having a clear objective will help decide the right purchasing strategy. 

2. Decide your spending power

   Before inspecting properties, establish what you can afford. Seek advice from a mortgage broker who can evaluate your borrowing power, deposit requireents and find the right loan for you. 

3. Fast-track your market research

   Nobody becomes an expert in property investment overnight. Stay curious, ensure you're doing your market research and seek guidance from industry professionals, such as property investment advisors, agents and accountants. 

Where to start

• Leveraging home equity

  If you already own your own home, you may be able to tap into the usable equity in your primary residence to fund the deposit and purchasing costs of an investment property. 

• Rentvesting

  Even if you don’t own your own home, explore the possibilities of becoming a rentvestor: stay renting in your chosen area and buy a property that you rent to someone else.

Property investment strategies to grow your portfolio

1. Take a long term view

   The property market goes through distinct cycles of growth, consolidation and correction. A common strategy among investors is to hold on to their properties through cyclical downturn and use the equity in each to contribute to the next purchase. 

2. Understand positive vs. negative gearing

   Engage an experienced financial advisor and accountant to maximise the benefits of gearing. Some 1.2 million investors use negative gearing to maximise tax benefits when the annual costs of ownership (such as interest on a loan) exceed the income it generates from tenants. Don’t shy away from properties that you can gear positively – that is to generate profit. Usually, these are in regional areas where the rental market is tight. Unfortunately, they’re not usually great candidates for capital growth.

3. Renovation and flipping

   Buying to renovate and sell can deliver high returns. but can come with significant risk. To flip properties profitably, maintain strict evaluations of purchase pricing, renovation budgets, timelines and buyer demand. Focus on value-adding improvements, manage holding costs and sell efficiently once the work is complete.

4. Land of potential

   There are various strategies if you invest in land:

   - You can bank it and hold for long-term capital growth before selling it at a greater value

   - You could sub-divide or split the block into multiple titles, gain dual occupancy, or re-zone to increase the block’s value

5. Invest in property funds and syndicates

   You don’t have to be hands-on to be a property investor. You can invest in property trusts that offer a more diversified approach that might include retail and office buildings. Alternatively, you could finance a property developer and share in the profits. This can produce quick profits but success depends on choosing a good partner, the right style of development and finding positive sentiment in the market when you’re ready to sell.