Beyond property #1: How to scale your property portfolio

By Zarah Mae Torrazo 05 February 2022 | 1 minute read

Stuck on your first investment property? We give you the basic tips on how to move past beyond your first buy and create a sustainable portfolio.

How to scale your property portfolio

Many investors start their real estate investing journey with the goal of building a multiple-property portfolio, but few get beyond that first purchase.  

It’s estimated that around 70 per cent of all Australian property investors get stuck at just one property.

Unfortunately, many first-time investors will stay just that way – one-time-only buyers who never progress beyond having that one solo property in their portfolio. Others just hang up their boxing gloves and entirely give up the dream of building a property portfolio to achieve financial freedom. 

In this article, we’ll discuss why so many investors fail to go beyond their first property and give you tips on how you can overcome this. 

Why do the majority of investors get stuck at property number one? 

Here are some of the reasons why some investors never make it past property number one:  

  • Lack of financial planning – A lot of property investors never make that second buy because of their lack of financial planning. In some instances, this means they’ve chosen the wrong investment property loan to suit their strategy, or they’ve failed to account for or do their homework on unexpected expenses that eventually derail their budget, as well as their entire financial situation.  
  • Rushing into an investment – Jumping headfirst into the next investment is another reason why investors never make it past the first property purchase. Usually, these investors fail to research the market and have a clear understanding of their financial position before they invest – they are now aware of their borrowing capacity, how interest rates can affect their finances, and other factors. This means they do not have the right financial foundations in place, which often leads to failing to take their portfolio to the next level.  
  • Fear of failing –  On the one hand, fear of failure also cripples a lot of investors into inaction. This is more typical with first-time investors, who get discouraged after their dreaded worst-case scenarios such as losing money, buying in the wrong location, or not finding good tenants become a reality.  
  • Failing to stay educated – Complacency is another reason why some investors never get to scale their portfolios. The mindset of these types of investors usually goes: “It worked once, so it will work again, right?” The truth is, real estate – especially in Australia – is always changing, and investors need to continue educating themselves about the rental market if they hope to expand their portfolio further.  

 How to build a multi-property portfolio 

  1. Get it right the first time

It’s important to get your first property investment right for several reasons.

While the concept of starting on the right footing may seem trite, there is a lot of sense of starting with something solid. Building a good and sustainable property portfolio requires solid foundations, so your first property could arguably be your most important. 

First, getting things right from the start will make your life a whole lot easier in the long term. If you’ve bought the right property in the right area, you’ll likely see enough capital growth in a couple of years to fund the deposit for property number two, and eventually, more properties down the line. 

On the other hand, if you don’t see strong capital growth with your first property, it will be very hard to save the deposit for that second investment.

Buying the wrong property or chasing positive cash flow over capital growth is why so many first-time investors never move past having one property.

Secondly, having a property that is performing well in terms of capital growth or producing passive income is the best motivator for moving on to the next purchase.

So, take your time, and do your research before buying your first property. Look into all the key factors of successful properties, such as location, historical growth for the area, distance to major cities or infrastructure, supply and demand and rental yields.

To help you get started on your research, check out Smart Property Investment’s Suburb Search Page to get a profile of every suburb across Australian states and territories. 

  1. Understand your financial situation and goals

Experts advise investors to have a deep understanding of their financial situation when scaling their portfolios.  

Remember that your investment strategy will also depend on your financial capacity, and therefore you should use this as a guide to map out your plan.

For example, if you are earning just enough to sustain your expenses or you have a lot of personal debt, it would be difficult to build a million-dollar portfolio unless you make radical changes to your finances. 

When it comes to planning for multiple investments, there are a lot of financial factors to take into account. What type of loan will best suit your investment strategy? Does your margin account for unexpected expenses? How are you planning to finance your second investment? If you intend to grow your property portfolio, you need to plan how you will get into the right financial position for that next buy.

Here are some tips to get your finances in line: 

  • Know your numbers and do a budget based on worst-case figures.
  • Don’t overextend your budget and keep financial buffers in place.
  • Be comfortable with good debt and realise it can be your friend when used wisely.
  • Get professional advice from a mortgage broker or a financial adviser.
  1. Have a solid and long-term investment plan in place 

Many starry-eyed investors dive into the property market expecting instant capital growth that will blossom into wealth. 

However, if you want to be successful at property investing, then make sure you have a written business plan before you even get started — preferably a long-term one. 

Enumerate your objectives and lay out a detailed plan outlining exactly how you’re going to go about building your portfolio to reach them.

Most investors structure their goals around their preferred retirement age and how much money they will need as a passive income stream to live comfortably in retirement. 

If you have the same end goal in mind, you can use that as your target and build a portfolio with the assets that will produce your desired income. 

This means that when you’re purchasing your first property, you’re already thinking ahead of several properties and assessing if this buy will help you reach your next target.

You must be clear about how each property needs to perform in your portfolio, such as the rental income it needs to make or how much capital growth it needs to achieve in a certain time frame.

This will also help you have a good checklist of what you need in your next property investment.  

  1. Learn as much as you can about property investing

If you want to truly thrive as a property investor, it’s important to learn everything you can about every aspect of the industry. 

When you’re building a property portfolio, you’ll need a more detailed understanding of how property investment works, how to keep an eye on the local market, and when to utilise opportunities than if you’re sticking with a single purchase.  

This also involves learning about drivers of property price growth and keeping up with economic trends and property cycles. 

  1. Sell and start again

But what if your first property is underperforming? What should you do then?

If you’re stuck with one underperforming property and unable to move forward, it can be difficult to escape this situation without making some significant decisions.

In this situation, you have several options, from waiting to see if the market moves in your favour to cutting your losses and selling your property.

However, if you want to get it right and be able to move forward, you may need to sell and start all over again.  

For some people, the idea of selling up and starting again may sound like a backwards move. But if it’s what allows you to purchase another property that hits the targets you’ve set for your financial future, then it’s actually a step forward.

If you choose to sell, you can release the equity in the property and also free up the borrowing capacity. This will allow you to start again with your next property – ideally, a little wiser than the first time. 

Remember to seek the right advice to structure yourself appropriately and then begin to learn all about different investing strategies that will allow you to invest in a sustainable manner. 

Want to learn more about how successful investors grow their portfolios? Tune in to the Smart Property Investment Show, where we feature investors and their inspiring investment journey. You can also check out our other amazing podcast series to gain more insights about every aspect of the property market!  

 

RELATED TERMS

Interest rate

Interest rate is the percentage of the principal amount charged by a lender for the use of the amount loaned.

Interest rate

Interest rate is the percentage of the principal amount charged by a lender for the use of the amount loaned.

Real estate

Real estate is a type of real property that refers to any land and its permanent improvement or structures that come with it, whether natural or man-made.

Real estate

Real estate is a type of real property that refers to any land and its permanent improvement or structures that come with it, whether natural or man-made.

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Beyond property #1: How to scale your property portfolio
How to scale your property portfolio
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