The seven steps to beat the odds and build a large property portfolio

GUEST OBSERVATION

Most property investors usually aspire to building a portfolio of more than one investment property.

However statistics show that the large majority of Australian property investors (72%) own only one investment property – so what’s holding them back from buying more?

Most investors don’t understand the key seven steps they need to follow in order to set themselves apart from the average investor.

1. The first step to building a property portfolio is to develop a long-term plan on how you will achieve your property aims. Creating and following a property investment plan is a simple yet effective way to help you reach your goals.
   
   Developing a well thought out plan is key to achieving success in any facet of life, whether it be in your career, sporting event or personal ambition, and property investment is no different.
   
   The aim of a thorough property investment plan is to outline what you have to do in order to achieve your goals in the shortest possible time.
   
   Your plan should cover your risk profile, current situation and financial capacity. From there you should develop a long-term plan identifying the types of properties that are suited to your portfolio, the estimated time frames you can achieve those goals and what steps you need to take to achieve them. It is also important to break those big goals into smaller steps and develop a specific action plan to achieve them.
   
   
2. Once you have developed a plan, the second step is to organise your finances to enable you to purchase an investment property.
   
   Most banks and brokers do not know how to structure loans in order for property investors to build large portfolios. Make sure you deal with a broker who specialises with investors and who understands the dangers of cross collateralisation.
   
   
3. The third step is to acquire your investment property. This part is crucial, as the performance of the property you choose will have a significant impact on the time frame you can purchase your next property.
   
   Choosing an investment property requires substantial research into markets around Australia and also detailed analysis of suburbs and the individual property. If you don’t have substantial time and energy to dedicate to the process, then consider using a buyer’s agent to help you.
   
   
4. The forth step in building a property portfolio is to look at ways you can add value to your existing property. Rather than wait for the market to increase in value, savvy investors look to add value to their properties through renovations or development, which speeds up the wealth creation process.
   
   
5. The fifth step is to effectively manage your property to achieve maximum returns. Unfortunately, many investors will choose the cheapest property manager.
   
   Ultimately you get what you pay for and a good property manager should be up to date with market rent reviews and be able to give you advice on ways you can cost effectively add value to the property in order to generate higher rents.
   
   
6. The sixth step is to work on your property education. If you have good advisors who can help you with the first five steps, then you don’t need to become an expert in property.
   
   However, it is still your money being invested and I’d always recommend you have some level of knowledge, as it will help you be more confident in your advisor’s recommendations.
   
   
7. The seventh step is to regularly review your portfolio. Sometimes along your property journey you may find that some of your properties are no longer suited to your investment criteria, or the property is no longer a good investment.
   
   Too many investors hold onto unsuitable properties. A regular review and honest analysis will help you make the right decisions.

If you follow the seven step strategy, then your next property purchase shouldn’t be too far away.

When you are ready to buy again, that’s the time to review and update your property investment plan and start the seven step process to help you continue to build your property portfolio.

Fast facts:

• 72% of property investors who own one property
• 18% of property investors who own two properties
• 5% of property investors who own three properties
• 2% of property investors who own four properties
• 1% of property investors who own five properties
• 1% of property investors who own six or more properties

Source: Australian Taxation office

Damian Collins is the founder and managing director of Momentum Wealth, a Perth-based property consultancy that specialises in building the long-term wealth of its clients by assisting in the strategic selection, financing, acquisition, development and management of their investment properties.