Growing your portfolio can be challenging especially when you’ve hit your serviceability limits. But there is another way to expand your portfolio. Mark Kelman explains
Whether you’re just starting out or already have an established portfolio, it can be difficult to move forward due to interruptions, finance limitations, or temporary constraints you need to overcome.These include:
- Running out of money
- Running out of servicing capacity
- Not knowing how to get started
- Not having a “team” of advisors (accountant, solicitor, tradespeople, real estate agents, book-keeper etc)
- Not knowing what sort of property deals to do, or what to do next
- Not knowing the risks in the networkingcurrent market, or for the future
- Mental fatigue
- Not having enough time to research and carry out property deals
Each of these issues is a valid reason for being held back in our investing. By slowing down, it might actually take us longer to reach our goals, miss opportunities, or – worst case scenario – we might lose our momentum and never regain it.The good news is that successful investors are overcoming these obstacles every day. By leveraging off the knowledge and success mindset of others, we can all be successful in our investing!
Networking your way to success
We often think that our successes are achieved alone, however in investing, this could not be further from the truth.
In my investing journey I have found that most of my successful deals can be linked to a “networking” beginning and I’d encourage all investors to network at any opportunity.
You’d be surprised just who you meet when you are open to talking about your property investment. In the most random places I’ve met real estate agents, one of the top surveyors in Australia, bankers, millionaires, developers and other investors.
A lot of these people have helped me in my journey. Mostly I meet people who are really interested in getting started in investing – and here it’s my turn to offer the help – yet aunever knowing where we might work together on a project in the future or where they might yet return the favour.
As well as random meetings (planes, airline lounges, pubs, at parties etc) there are other places where you can almost certainly be guaranteed to meet active investors and property people – such as at a property meeting event. When we are looking to network it’s prudent to attend these events and keep our eyes open for people to talk to.
So how can networking help?
Networking – meeting new investors, speaking to them, exchanging details, and possibly contacting them again in the future – gives us a number of benefits.
Firstly just by speaking to others who are investing right now helps us realise that there are countless opportunities in the property market. And this is true all the time, not just in today’s current economy, but the economy this time last year, even during the highs and lows of the GFC, and back in the 1980s when interest rates were through the roof.
Sometimes it’s easy to get into a pattern of thinking that whatever is happening in the economy is a reason to stop investing for a while.
In fact it’s possible that this is actually the best reason to start investing. So, you may want to start speaking to people who are capitalising on the current market opportunities and see how you can join in, instead of watching from the sidelines.
Overcoming serviceability and money issues
One of the biggest issues facing investors who are starting out is a lack of money, or a lack of serviceability. There is a difference between the two.
Money is the “deposit” you might need to make up a loan or to pay for building costs in a development or renovation. If you are taking a loan with a 90% LVR (loan to value ratio) then you will need to come up with 10% cash to do the deal. If the property is being purchased for $300,000 then you will need $30,000 cash, plus closing costs just to buy the property.Serviceability is your ability to repay the interest the lender charges on your loan. Depending on how much you earn and spend, and the cashflow or income generated from the investment property that you buy, you may or may not be in a position to service the loan without assistance.
Banks will look at both these criteria when assessing you for a loan. If you don’t have enough cash or enough servicing ability, don’t despair! There are ways around both these issues that investors use every day. And it might come as no surprise that networking is a great way to find people who can help.
Finding money partners
Experienced investors use money partners or joint venture partners to help overcome these issues. Money partners will lend a lump sum to an investor (eg the $30,000 discussed above) in return for a set return of interest either throughout the deal (eg monthly) or at the end of the deal (capitalised onto the amount they get back).
If you are unable to obtain the full loan for a property, having a money partner can give your investing a boost of additional capital to help you carry out property deals that would otherwise not be possible.
The cost of interest to a money partner is generally a few per cent higher at least than the standard variable loan rate. And it is absolutely mandatory that the money partner gets paid back on time. And where can you best find money partners? You guessed it, by networking.
Finding joint venture partners
Joint venture (JV) partners may be more useful where serviceability issues come into play. A JV partner will go into a deal with the investor, and have a share in the profits at the end. There’s no hard and fast rules to what the JV partner contributes – sometimes it’s capital, sometimes they buy the deal outright and the investor gets a cash return at the end; sometimes all the partners share the financial and time commitments equally.
A JV is a way of making a deal work where due to a lack of “something” the deal would not have gone ahead with one investor alone. Yes, this involves sharing the profits, but as it is said, 50% of something is better than 100% of nothing.
One important note – in both cases, a money partnership and a JV partnership must be organised with a well-written legal agreement drafted by a solicitor. No question on this. There is a lot involved so do get professional advice if you are considering one of these arrangements. There are some things that can be done “on the cheap” and this isn’t one of them. The documentation is for if things go wrong, not when things go right.
Networking with other investors through attending property meetings is also a great way to overcome investing mental fatigue. It helps inspire and motivate us with new ideas for areas to invest and techniques that work in the market today.
The truth is that anyone can be successful in property investing, but not everyone will be. The key to success is focus and momentum – and building a strong network of investor friends and colleagues is a great foundation on which to build a successful property investing portfolio.
Mark Kelman is the leader of the Sydney Property Meeting Group. He is an active investor with a significant property portfolio and is passionate about helping others to achieve success in property investing. Find out about the property meeting in your state at www.propertymeeting.com.au
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