$5 million in 10 years part 2: strategy

Previously, we have looked at whether building up $5 million in property in 10 years was an achievable goal for everyday investors. This month, we look at which strategy investors can use to move towards this ambitious goal.

There is no sure-fire approach to building up a multi-property portfolio. The strategy you employ will depend on your personal circumstances, including your starting capital, income and future plans, explains Steve Waters from Right Property Group.

Brendan Kelly from RESULTS Mentoring also believes your cash, buying capacity, time and skillset are all key considerations.

“Once you've got an assessment of those four, you start to marry your strategy up with those components,” he says.

Buy and hold

The most common strategy recommended by our experts is ‘buy and hold’. With this approach, investors acquire a portfolio of properties, hold onto them and let equity accrue, says Multifocus Properties & Finance director Philippe Brach.

“Someone wanting to build a $5 million portfolio can do it in two ways: being very active by doing renovations, or the easy way, which is basically accumulating a portfolio,” Mr Brach says.

Cate Bakos from Empower Wealth says the hardest part of this strategy is the first purchase, since investors need to provide their own starting capital. The second one can also be challenging, she warns, as you need to wait for equity to grow in the first property before you can finance further purchases.

“Once you've got two working in tandem, if they're growing at a reasonable rate, you've got two sources of equity to tap into. It's a multiplier effect. It compounds,” Ms Bakos says.

For a well-performing metro property, Ms Bakos says investors should be able to access equity every few years for new purchases. She only believes in selling if the property fails to perform as expected.

“If it wasn't the most intelligent investment, you have to be prepared to cut your losses. If your money could be working for you better somewhere else then that's the way to do it,” she says.

Although all investors face a unique set of circumstances, Helen Collier-Kogtevs from Real Wealth Australia believes there is one overriding model for building wealth.

“It’s what I call the '10 in 10' strategy. In simple terms, this means buying one property every year for 10 years, which will ultimately create a portfolio worth upwards of $5 million,” she says.

“The real power of this strategy is that it allows investors to buy property in a balanced way.”

She believes this safe, methodical approach allows investors to create a large asset base without over-extending their finances. However, she says there is scope to move more slowly or quickly depending on the current market.

Mr Brach, on the other hand, encourages investors to “go full on” when first starting out.

“Through the accumulation phase, you actually don't build capital growth in your portfolio because as soon as you do, you extract it and move on to the next one,” he says.

This approach means incurring a substantial amount of debt in a short period of time. While Mr Brach admits carrying a heavy debt burden can be stressful, he believes the risk is worthwhile.

“Once you rationalise it, you're actually acquiring more assets so it's fine,” he says.

After this phase, Mr Brach says investors can “just sit there and let the equity grow”.

“Every two months, I could see the gap growing between the equity I had and the debt I had,” he says of his own experience with this approach.

Ms Bakos agrees that debt is not necessarily a cause for concern, provided the asset is appreciating in value.

“I'm not fearful of debt at all, as long as it is good debt, I have my cash flow covered and have contingencies in place,” she says.

On the contrary, Mr Waters promotes paying down debt as soon as possible. His strategy is a variation on the traditional buy and hold model.

“Our philosophy is that the best asset is one that is unencumbered because you own it. Up until that stage, the bank owns it; you just control it,” he says.

Under his approach, investors acquire a range of good performers then pursue value-adding strategies and timing the market on other properties to pay down these initial purchases.

“Not all properties will double in value every 10 years – that's a fallacy. But some properties will double, and as they do, you can sell down portions of your portfolio to pay down your debt on other portions,” Mr Waters says.

However, not all property experts believe buy and hold is a sound strategy for generating million-dollar results. Mr Kelly is sceptical that you could achieve a $5 million portfolio in a decade by relying on capital growth alone.

“You will not do it with buy and hold and never sell,” he says. “You would have to ride a wave of growth that lasted 10 years straight, and that just doesn't happen.”

If it wasn't the most intelligent investment, you have to be prepared to cut your losses.

Value adding

An alternative to simply buying and holding may be seeking to add value to your asset, Mr Kelly suggests.

He advocates a 33 per cent rule, where projects are deemed worthwhile if they are likely to cost less than 10 per cent of the purchase price but return more than 33 per cent on the sale. Investors complete the work in a short timeframe and jump into the next renovation.

“You start to build that up. You reinvest the profits back into the next deal,” he says.

Followers of this strategy might start with cosmetic touch-ups then move into full structural renos. Their next project might be a subdivision, then a unit block.

“Suddenly you've got a four-unit development coming up that might profit you in the order of $350,000. If you've got 10 years to do that, over a period of time you'll accumulate more than $5 million,” he says.

However, Mr Kelly warns this approach requires large reserves of time and energy to be successful.

For conservative investors, renovating can also form part of a more traditional strategy. Ms Collier-Kogtevs says her ’10 in 10’ plan “generally involves buying and holding, but there are opportunities to renovate and develop along the way”.

Mr Waters sees value adding as a tool for accelerating future purchases by forcing equity.

“If there's the possibility of adding a little bit of value through cosmetic renovations, I'd be jumping all over that,” he says.

Timing the market

A final option is to attempt to “time the market”. In this strategy, investors buy into a suburb at the bottom of its cycle and sell as it reaches peak growth, Mr Kelly says. This approach is well-suited to investors with strong research and analytical skills.

“You find a suburb that is going to go up in value, then pick the right property in that suburb and ride a wave of growth,” Mr Kelly says.

“When the prices begin to plateau, that's when you sell. That could be a 10-month, 18-month, 24-month period.”

As a caveat, however, Mr Kelly warns this strategy is more volatile because investors cannot control how the market will perform. Moreover, he does not believe an investor will be able to achieve $5 million in a decade with this approach unless their starting capital is high.

Another drawback, according to Ms Bakos, is that properties take a long time to mature.

“Short-fire buy and sell is, in my opinion, not a clever idea,” she says. “If someone is selling a property in under seven years, that's a shame because they should be maximising the opportunity to let that property grow and perform for them.”

Before you purchase a property, you need to know how it's going to perform in a bad market as well as how it's going to perform in a good market.

Choosing your market

So, the multi-million dollar question is: where should I buy?

Ms Bakos’ approach is to look for areas with multiple strong growth drivers and appealing lifestyle factors. Positive factors that are unlikely to change, like proximity to the city, are particularly valuable, she suggests.

She also emphasises the importance of analysing the rental market.

“Understanding what’s happening with vacancy rates is paramount. You don't want to be exposed in some areas that are either volatile or could turn into ghost towns,” she says.

Mr Brach suggests investors look for areas where the market has hit the bottom of its cycle and is poised for an upswing. He says identifying the first signs of growth, indicated by historical trends, population growth and infrastructure spending, can be a good way to find a hotspot.

“You rely on trying to pick, within the cycle, the most bottom time. It's fairly hard to pick. Once the green shoots are there, it doesn't matter if you've lost a little bit of growth,” he says.

However, he reassures investors not to be discouraged by a period of flat or faltering growth. Investors with a long-term strategy will be able to ride out slow periods, particularly if the market has pent-up demand, he believes.

He also recommends spreading your properties over a range of markets, including interstate.

“You need to diversify because some areas have boom and bust cycles that are different,” he says.

Mr Waters also advocates portfolio diversification. In particular, he urges investors to consider how their investment would hold up in a market slump.

“Before you purchase a property, you need to know how it's going to perform in a bad market as well as how it's going to perform in a good market,” he says.

Mr Waters believes investors need to ask themselves: what is the population doing around it? What zoning or infrastructure changes are happening around it? What new developments are around that could entice your potential tenants away from your property?

Generally speaking, investors should aim to have a portfolio that includes apartments and houses in a mix of cities and towns throughout Australia.

What type of property?

The type of asset you buy will be heavily determined by your strategy, budget and circumstances, Mr Waters says.

Ms Collier-Kogtevs suggests a diverse approach to property types can bolster your portfolio in a downturn.

“Generally speaking, investors should aim to have a portfolio that includes apartments and houses in a mix of cities and towns throughout Australia,” she says.

The greatest challenge to building a large portfolio is often cash flow, so Mr Brach looks for properties where the weekly yield is about a thousandth of the purchase price.

“It's a big rule of thumb that will usually, for a normal property, give you cash flow that is manageable, even if it is a little bit cash-flow negative,” he says.

Ms Collier-Kogtevs believes both positive and negatively-geared properties can be advantageous.

“You need the capital growth properties to increase your overall wealth, and you need the positively-geared properties to boost your income,” she says.

When Ms Bakos was building her asset base, she “see-sawed” between positive and negative properties to keep her portfolio balanced. In particular, she kept an eye on how each property impacted her serviceability to ensure she would continue to qualify for loans.

Mr Waters encourages investors to assess their portfolio as a whole rather than on a property-by-property basis. If the overall portfolio pays for itself, it gives the investor a degree of protection.

“They might lose their job, there might be another GFC, or whatever else. We are always asking ‘Can they hold the portfolio during that worst-case scenario?’” Mr Waters says.

Mr Brach likes buying new properties to take advantage of depreciation benefits, but both he and Ms Bakos caution against buying a property for tax advantages alone.

“If someone is making a decision on a property based on the benefits they can get in the short to medium term, they might be forgoing much more significant growth opportunities in the long term,” Ms Bakos says.

The property needs to stack up on its own merits rather than purely providing a tax incentive, she believes. In addition, she says new strata properties can come with high outgoings that may catch investors unawares.

Mr Waters says he tries to identify properties selling below market value because “you make your money on the way in”.

The dominant message from all the experts is the importance of research and planning.

“People can spend more time researching a $5,000 holiday than they do researching a $500,000 investment property purchase,” Ms Collier-Kogtevs says.

“You really can't do enough research when you're deciding where to park your hard-earned funds.”

While there is no magic formula to transform an investor into a multi-millionaire, a well-planned strategy can put them on the right track.


Case study: Renovating and subdividing

Heroly Chour

Heroly Chour
Heroly Chour


Number of properties: 15

Estimated portfolio value: $4.5 million

First investment purchase: February 2007

Heroly plans to use value-adding projects to pay down his existing stable of high-yielding properties.


My goal as an investor is to become financially free. Financial freedom to me means I can replace my income, say $150,000 net per year. Life is short. It's essentially about buying time.


In phase one, my strategy was to build a solid portfolio with properties we know will be in high demand and give a high yield. I've done that now, with investments in Campbelltown, Blacktown and Granville in New South Wales. These are never going to have problems with rent and the rent is always going to go up. They're the safe properties – the boring ones.

Now, phase two is to pay off the loans on the phase one properties. We're going to try to manufacture value where we see opportunities. We'll then sell these and use the proceeds to pay down some of my current loans.

Current projects

I have a property in Ipswich in Queensland, which was built in 1910. We bought it for $208,000 and we're going to renovate it, put in an extra bedroom, and fix up the kitchen, with a potential revalue of $310,000. Once we do that, we may look to just sell it and use the funds to pay down other loans.

I also bought a house in Ambarvale. If we subdivide, we potentially get an extra $60,000 to $100,000 in equity.


Case study: Hold for 30 years

Mitchell Burge

Mitchell Burge
Mitchell Burge


Number of properties: 8

Estimated portfolio value: $3.25 million

First property purchase: late 2012

Having acquired a large positively-geared portfolio, Mitchell plans to let it mature over the coming decades.


I read an article in Smart Property Investment about getting 10 properties in 10 years. That was my original goal – but I've now bought eight in 17 months.


I put together a business plan that was quite conservative. We were planning to buy one property every second year or so. But the market was moving quickly so it made sense to keep going.

My goal is to buy properties quite considerably below market value, usually from someone in a distressed situation or a mortgagee sale. Every sale has been $30,000 or $40,000 under value, so we make our money as soon as we settle.

Because I already had equity in my home, I've never forked out one cent of my pocket. Each time, we just go back to the bank and use equity for the next property.

Every single place is positively geared. My home loan used to cost me $1,100 a week. We re-mortgaged my residence so the whole portfolio, including my house, now only costs me $500 a week.

I have no intention of selling anything for a long time. In about 20 or 30 years, I'll sell a portion of it, own the remainder outright and enjoy a big income.

Current projects

The first property I bought was in Minto in New South Wales. We got them down to $260,000. Fifteen months on, I've just been offered $330,000 to $340,000 for it.

At the moment, we're going to stop for a little while because we're starting to get to the end of the cycle. We'll sit on it for a year, re-asses and go again.

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Highest annual price growth - click a suburb below to view full profile data:
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