There is a certain type of investor who dreads a low growth environment. These investors are missing an important skill that investors who build big portfolios all possess. They are too reliant on just one strategy for growing their portfolio, and the coming era of low growth exposes that vulnerability.
For property to be the trustworthy wealth creation vehicle you want it to be, you must develop more than one strategy to profit from it. Relying purely on market growth is a strategic error that will push back your wealth creation plans by a decade, and quite literally cost millions of dollars in lost opportunity.
The key to growing a portfolio consistently and reliably becomes obvious in these times. This key was always there but it can go unnoticed or simply seem like “just another option” when the markets are booming.
In this three-part series I want to look at the tried and tested approach that’s common to every successful portfolio I have seen. Looking at some of Australia’s most famous and successful investors, we see that they have taken this exact same skill to a completely different level again.
Find what’s working and copy it… that’s what this series is all about.
In my career I have had the opportunity to take a very intimate look at the portfolios of hundreds of investors. I have noticed a common element that those who succeed have, and those who get very modest results don’t. Working in a property education company with thousands of clients, it became clear to me that education wasn’t the key. If education was the answer, why did so many clients get such meagre results?
Something else was clearly going on.
Building a property portfolio is a 5 step process, and one of these steps is the leverage point. Know how to control it and you can control your portfolio growth. The process is…
1. Get a deposit
2. Invest in a property
3. Create equity
4. Refinance your deposit back out
Step 3, creating equity in your portfolio is clearly the big leverage point and this is the key to understanding portfolio growth. Most investors make the mistake of being 100% reliant on market growth to give them the equity they need to step up into their next property. Successful investors operate in a very different way and take control of this process so that they can keep growing their portfolio.
When you know how to control step 3, and you know how to create your own equity in a deal, you open a whole new world of property investing. The people who do this well get amazing results.
Tim Gurner, took the $34,000 his grandfather lent him and turned that into $460 million in 15 years. He didn’t do that by choosing a quality suburb and then waiting for market growth, he created his own equity. Harry Triguboff created a $9billion empire in less than 50 years and he didn’t do that by sitting around and waiting for market growth. These men knew how to create their own equity at step 3 and keep pushing their portfolios forward no matter what the rest of the market was doing.
Do you know anyone with a substantial property portfolio who hasn’t use some kind of equity creation strategy to get there? I certainly don’t.
I believe 2018 will be the beginning of a renaissance or rediscovery of equity creation and forced value strategies in the property investing community. This is not new to property investing, that’s not what I am saying. I am saying that investors who once saw equity creation strategies as optional, just one choice amongst many, they will discover that they now need to add this to their foundational skillset to keep their portfolios growing.
What’s the best way to create your own equity and get through step 3 quickly?
That’s the subject of part 2
where we will look at the advantages of working with existing property to create equity or go with the new custom build option.
If you’d like to see how we implement this knowledge into building property portfolios for clients visit AutomaticEquity.com.au
Until next time.