Building wealth through a successful and strong investment property portfolio requires the right mindset and a well-thought-out approach. If you make the right decisions and put the right strategy in place it can set you up financially for years to come. And in case you’re wondering – NO it’s not too late to start!
First, you need to identify your goals
Identify your goals for each investment property and what you ultimately want to achieve through property investment. Get a good understanding of your long-term plan and the time and effort you’re willing to put into your investment portfolio. Think about:
- Why do you want to invest in property? e.g. to build wealth with capital growth, for tax benefits, to retire earlier, for passive income through rental returns?
- How much passive income would you like to achieve by investing?
- How many properties would you need to own outright to achieve this?
Don’t just buy anything, buy with a strategy. For each investment property you need to consider:
- Which state and suburb do you want to buy in?
- What are local vacancy rates like?
- What type of property do you want to buy? e.g. house, unit, apartment?
- How long do you want to hold the property? Short-term? Long-term? Unsure?
- What is my investment strategy for this property? e.g. buy and hold, negative or positive gearing, renovate and hold, subdivision, renovate and sell?
- Will the loan be principal and interest or interest only?
- Will I need to carry out any renovations in the next five years?
Research the area you want to invest in
Location, location, location! It’s a key factor to consider when creating a successful investment portfolio and requires a forward-thinking mindset. Around 80% of your property’s performance will be due to buying in the right location. Look for suburbs that you expect will benefit from infrastructure development, has great schools/education facilities and other amenities like shops, parks and transport.
You should make an informed decision on where to buy based on:
- Population growth
- Rental property demand – does demand exceed supply?
- Current and future infrastructure
- Demographic statistics including employment growth, disposable income and age ranges – is it primarily young couples and families who are looking for more bedrooms and a bigger backyard?
- Average property prices and auction clearance rates
- Rental yield and vacancy rates
Make a financial plan
As the cash flows in from your property rental income, expenses also flow out. Investment properties can quickly become more of a burden than a benefit without a sound strategy. Seeking assistance from qualified professionals such as a financial planner, mortgage broker and conveyancer will help you evaluate your current and future financial situation and ensure a strong property investment portfolio.
When it comes to your finances you should also consider the following:
- What is your income now, is it steady and what is it likely to be in the future?
- Do you have a deposit saved or are you tapping into equity?
- What are your initial purchasing costs? e.g. conveyancing, taxes, stamp duty
- What are your ongoing costs? e.g. loan interest, council rates, insurance, property management fees, general repairs
- What is the rental income potential (incorporate any maintenance or times when the property may be vacant)?
- Will you need additional money to renovate or improve the property to increase its value?
- How much do you have in savings as an emergency buffer?
- How will you repay the property loan and how long it will take?
- If rates increase dramatically, will you still be able to afford and maintain your investment portfolio?
- Do you plan to have a baby or expand your family in the next five years? Will this impact your income stream? How will you cope with the extra expenses of having a growing family?
Are you looking to engage a trusted conveyancer and advisor for your next investment property purchase in Victoria, New South Wales or Queensland? Get in touch with the team today!