Right Property Group's Steve Waters, as a buyer's agent, has been instrumental to the consistent success of the six-year property investment journey of Smart Property Investment's Phil Tarrant. As Phil continues his journey, he asks: What type of assets must be added to his portfolio to keep him moving forward in his journey?
"How much should you let what you plan to do with your portfolio in the future dictate what you do today? Should I be going, 'This doesn't really stack up that well as an investment for my portfolio right now, but in ten years’ time, I'm going to have the capacity to do x, y, z with it?'" he asks his buyer's agent.
According to Steve, one way to ensure a continuously fruitful property investment journey is to bring stability—or a "safety base" that one can leverage off—to the existing portfolio.
"Part of that leverage, part of that safety or mitigation, is your cash flow," he explains.
"You might be controlling a block of land now that you can do something with in the future (but) it has poor cash flow. You need to have that cash flow elsewhere, whether it be from your daytime job or your existing portfolio, to support it.
"You can have all the equity in the world and the best opportunity, but if you haven't got the cash flow to support it, especially with rates on the rise, well, you'll be a victim."
Essentially, a good property investor with a reliable financial team will be able to bring stability to a portfolio by learning to work around the opportunities of each property investment and use them to the investor's advantage.
As in many cases, it's all about balance, and if one cannot see himself handling a worst-case scenario very well, it just might not be worth risking at all.
"If you're holding something which isn't good on the cash flow side but it's quite good on the potential growth side (or equity) ... you want to try and pair it with something which is the reverse of that—something with really good yielding property," Phil says.
"It might not have the potential to grow at the same speed, but it's helping supplement the holding costs of the other property by delivering you the cash flow."
"But it still needs to have all the fundamentals around it," Steve adds. "
I certainly wouldn't be putting the cart before the horse and going to that massive negative cash flow area to begin with, if you can't sustain it in a worst-case scenario."
Steve's final advice for property investors is to be patient in finding your next investment and don't force the 'balance'.
After all, property investment is not a race of any kind. If you and your team are having a hard time finding a property that will complement your existing portfolio, don't be afraid to just sit on your hands for a while and consolidate. Think of it as an investment strategy instead of procrastination.
The buyer's agent concludes: "If you start to force the numbers because you get impatient, well, it's just going to hurt you. Everybody's in a different scenario [from] your position and what [you're] looking for."
Tune in to The Smart Property Investment's portfolio update episode to know more about how the team plans to manufacture equity in their latest "cosmetically challenged" property to increase its value, as well as how they will make the portfolio cash neutral in the future.