Let’s face it. Growing your property portfolio is not an easy feat. There are a number of hoops you must jump through and you need to have nerves of steel to deal with unexpected issues arising from your investments.
Yet there are many ordinary investors who are creating extraordinary wealth through property. So why are so many investors getting stuck with just one property?
Why the vast majority get stuck at #1
- Unsuccessful first attempt
There’s nothing like a failed first attempt to put you off investing altogether. It’s human nature that when things go well you want more of it. Yet when things don’t go as you had hoped they would or as you were told they would by the smooth-talking marketing agent you bought the property off, then you don’t make that mistake again.
- Overwhelming fear of something going wrong
Fear is a potent force that cripples a lot of people into inaction, especially when it comes to investing. Many investors fear they’ll lose money so they hold off buying any more property.
- Lack of planning
Another common reason why people fail to grow their portfolio is that they don’t have a plan on what to do next after buying their first investment property. Without a clear goal, you won’t know what to do next.
- Inability to get a loan
Hitting your borrowing limit could seriously hold you back from expanding your portfolio.
Therefore, when you are buying your first or second property it is very important to keep these issues in mind. Ideally, you want to find a property that is both positively geared and has capital gain potential within 12–24 months.
- Buying negatively geared property
Buying properties that require you to put in your cash to hold them will severely limit your ability to grow your portfolio.
Without sufficient reliable income to pay your mortgage, the bank is unlikely to lend you money. This is equivalent to hitting a financial brick wall and is what stops many investors dead in their tracks from purchasing more properties.
Once you are in this position, it is a difficult one to escape from without making some significant decisions. In this circumstance, you are bound by decisions already made: you have purchased in your own name, your earned income is what it is, you rent is what it is, the value of your properties are what they are. Not a lot you can do.
Practical steps to help you expand beyond property #1
Step 1. If you’re just starting out, make sure you start right
Choosing your first investment property right will help you avoid the above mistakes and will make buying your second and third investments possibly come about sooner.
Remember that your first property’s performance is key to unlocking more opportunity later. If you buy the right property in the right area and it increases in value in 24 months, you’ll have another deposit and will be able to get right back in the market again. If your investment cannot get your capital (deposit) returned within two years, you will get stuck and it could be a decade before you buy again.
Your first property is what will propel your portfolio forwards, helping you to reach the magic number of properties that you need. If the experience was horrible, you may never want to buy again.
Step 2. Understand your financial situation and goals
Even before you start looking for your first investment property, you need to understand that you are limited by your financial capacity and therefore use this as a guide to map out your plan.
For example, it would be unrealistic for someone earning $35,000 with lots of personal debt to be able to get a $1million dollar-portfolio or create a passive income of $100,000 net unless they make radical changes to their finances.
You need to understand where you are at now financially, and work backwards to see what changes you need to make to get to a desired financial situation in order to start investing.
Step 3. Learn as much as you can about property investing
If you want to become a truly successful property investor, you need to learn everything you can about every aspect of the industry.
Study every aspect of property investing, from drivers of property price growth, to knowing how and where to do your due diligence, to being tuned into economic trends and property cycles. You need to immerse yourself in real estate until you understand every aspect of the game.
Step 4. Have a clear idea of how you’re going to make money
Investing is about making money and therefore you should treat it as a business and ask yourself the tough questions such as:
Step 5. Decide on your strategy
- When will I make money from the property?
- How will I fund the next property?
- Where is the next deposit coming from and how much will I need?
- Is the property I’m purchasing now going to help me with my next purchase or will it set me back?
Planning and understanding the different property investment strategies
will help you design your path and move past property #1 relatively smoothly.
There are plenty of ways to make money in property, but not everyone can do every strategy; or even the one that interests them the most. Often, it works well when there is a balance between different strategies. A balanced strategy enables you to move to the next property purchase more easily as there is less financial strain.
Step 6. Sell and start again
If you want to get it right and be able to move forwards, you may need to sell and start all over again.
It may be better to do all that you can to improve the property and present it really well for sale. Sell it, release the equity, free up the borrowing capacity, learn from the error in judgment, and buy the next property in such a way as to not get hamstrung again.
Nila Sweeney is the managing editor of Your Investment Property magazine, Australia’s favourite property investing magazine. For extra dose of inspiration and motivation, check out her personal blog at nilasweeney.blogspot.com
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Nila Sweeney is managing editor of Australia’s leading property investment magazine, Your Investment Property, Canada’s only property investment magazine, Canadian Real Estate Wealth and Your Mortgage magazine. An active property investor herself, Nila owns a number of properties in Australia and overseas. She has worked as a TV journalist for CNBC Asia and CNN International for more than 10 years and has been writing about the Australian property markets for more than eight years.
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