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Is it really possible to develop financial wealth by building a substantial property portfolio in Australia today?<\/strong><\/p>\n The answer is yes. It\u2019s simple, but it\u2019s not easy. And that\u2019s not a play on words.<\/p>\n But it\u2019s not easy, as the majority 92% of Australian property investors never get past the first or second investment property.<\/p>\n But the better way of looking at it is that if tens of thousands of Australians have managed to develop financial freedom through the property, there\u2019s no reason why you shouldn\u2019t be able to build a multi-million property investment portfolio yourself.<\/p>\n So, here\u2019s everything you need to know about building a successful property portfolio.<\/p>\n In short, yes.<\/p>\n Property is an excellent way to take the next step to gaining financial freedom and create a passive income because both property value and rental income from a property are almost guaranteed to increase each decade.<\/p>\n So how do you make passive income from property?<\/p>\n Here are two ways to do it.<\/p>\n This is a simple one to grasp.<\/p>\n A positively geared property<\/a> is simply one that generates a return that is higher than the property costs to own.<\/p>\n For example, if you rent out a property for $700 per week but your combined mortgage and any outgoing expenses amount to only $500 per week you\u2019d be able to enjoy a $200 per week positive cash flow.<\/p>\n Just to be clear\u2026 positive or negative gearing is not an investment strategy \u2013 it\u2019s just a result of your financing situation.<\/p>\n A simple way to have your investment property return positive cash flow is not to borrow against your property. But clearly, that\u2019s not possible in the early stages of growing your property portfolio, is it?<\/p>\n On the other hand, you might be able to get a positively geared property if you\u2019re able to put down a large deposit on purchase, which will then reduce the amount you need to borrow.<\/p>\n Of course, residential real estate is a relatively low yield, but high capital growth investment asset class; however in today\u2019s low-interest-rate environment it\u2019s not as hard to buy properties that are positively geared or at least neutrally geared.<\/p>\n Alternatively, buying a property during a time of strong rental demand and low-interest rates could mean you\u2019re able to rent the property for more than your outstanding debt repayments.<\/p>\n As with any investment, it\u2019s important to be fully aware of all the benefits and disadvantages of owning a negatively geared property.<\/p>\n Aside from a favourable rental income from a positively geared property, another way to make a passive income in real estate is through accessing the equity in the property as it increases in value.<\/p>\n The equity in your property is the value of your property minus the loan against the property, meaning that when your property increases in value, your equity also increases.<\/p>\n For example, if you buy a property for $700,000 and it increases to $800,000 then you have an equity increase of $100,000.<\/p>\n And there are two ways that you can access this equity.<\/p>\n This second option is the golden egg here because the more properties you own, for each that increases in value, the more equity you\u2019ll have; and you may be able to borrow this money (if you meet the bank\u2019s servicing criteria) allowing you to buy another property enabling you to leap frog the growth of your property portfolio.<\/p>\n Meanwhile, if the value of the property has increased, the rental income would likely have also \u00a0increased also, meaning you\u2019d get the double benefit of equity plus <\/em>a positively geared property bringing in passive income.<\/p>\n So now we\u2019ve talked about how to create a passive income through property investment, let\u2019s look at how to build and manage the property portfolio of your dreams.<\/p>\n Of course, investors typically live in one of their properties and rent out the others.<\/p>\n There are many benefits to building a portfolio of investment properties as opposed to either owning no properties or owning just one investment property.<\/p>\n Here are four of those benefits:<\/p>\n It has become clear that Aussies can\u2019t rely on the government to look after them in their old age so more and more of us are looking at securing our own financial future through owning investment properties.<\/p>\n It\u2019s hard to achieve financial freedom with just one investment property as the income, even for those positively geared, isn\u2019t enough to also cover any other financial commitments.<\/p>\n Having several investment properties, however, with multiple rental incomes and multiple opportunities, can really set you up financially.<\/p>\n Of course, your financial freedom won\u2019t depend on owning a particular number of properties \u2013 more importantly will be how much equity you have, and how hard your properties are working for you bringing in rental income.<\/p>\n I\u2019d rather own one for Westfield shopping centre than 50 properties in regional Australia.<\/p>\n Obviously, the more properties you own, the more equity you have access to as they increase in value.<\/p>\n Another great thing about having a property portfolio is the ability to diversify your investments which gives the opportunity to grow your portfolio faster.<\/p>\n But if you diversify your properties and scatter investments in different high-growth locations and spread in our 3 large capital cities and investing in different types of properties you\u2019re more likely to be able to hedge your bets \u2013 if one area declines or stagnates for a while but another one grows you\u2019ll still have access to increasing equity.<\/p>\n Think of it like putting all your eggs in one basket.<\/p>\n Diversification helps to protect against risk.<\/p>\n Much like more properties in a portfolio give diversification, having a property portfolio rather than one property also means you\u2019ll have several streams of income.<\/p>\n If you have a vacancy in one property your others are all still earning a rental income, and your income gap won\u2019t cause quite as much stress to your cash flow because there is cash flow still coming in from elsewhere.<\/p>\n When it comes to property investment, most investors have the same goal: financial freedom, i.e. a \u201ccash machine\u201d from a property portfolio which pays for itself while also consistently growing in value.<\/p>\n To do this you\u2019ll need a portfolio of properties with a mixture of properties with high rental yields <\/strong>and properties which are more likely to give high capital returns<\/strong>.<\/p>\n Put simply\u2026 cash flow will keep you in the property game, but it\u2019s capital growth that will get you out of the rat race.<\/p>\n Rental yield<\/strong> is the annual income generated from rent as a percentage of the property\u2019s value.<\/p>\n However, while most investors chase rental deals by buying in secondary locations I prefer to invest in commercial properties which have high hills and still an element of capital growth.<\/p>\n Meanwhile, high capital returns<\/strong>, which is simply the return on investment, are more likely in aspirational suburbs with a long-term family appeal or areas which are \u2018up-and-coming\u2019 and gentrifying.<\/p>\n A balanced portfolio is a portfolio which is a mixture of the two and which also has enough diversification (as we discussed earlier) to reduce exposure to any location-specific market downturns.<\/p>\n I\u2019d generally advise that any property investor steer clear of what I call \u201cinvestor stock\u201d \u2013 \u00a0you know \u2026.those cookie-cutter-style units in high-rise apartment towers, with few distinguishing features.<\/p>\n These have a long history of poor capital growth.<\/p>\n This may at first sound counter intuitive\u2026<\/p>\n Why avoid \u201cinvestor stock\u201d, but these properties which are typically built by developers to make a quick profit and sell on to investors are very different to \u201cinvestment grade\u201d which are properties that outperform and deliver wealth producing rates of return.<\/p>\n Attaining wealth doesn\u2019t just happen, it\u2019s the result of a well-executed plan. Planning is bringing the future into the present so you can do something about it now!<\/p>\n You see\u2026 building a strongly performing property portfolio is a process that takes begins with education, and then building a strategic plan<\/a> to get you to your end goal.<\/p>\n So here are 15 tips which should help cover off everything that you need to think about for how to build a property portfolio.<\/p>\n Why?<\/p>\n Because most investors know why they want to invest in property but some do it for the wrong reasons.<\/p>\n Property investing is not a competition \u2013 buying an investment property just to keep up with friends is not a good enough reason to take the plunge.<\/p>\n Just because prices have been growing consistently for a number of years doesn\u2019t mean they\u2019ll go on indefinitely.<\/p>\n The truth is, growth in value is rarely consistent and linear.<\/p>\n Some years you get growth spurts and in other times it\u2019s stuck in the mud.<\/p>\n In short, capital growth is hard to predict.<\/p>\n You could also face vacancies or tenants that default and destroy your property.<\/p>\n While there are ways to reduce these risks, they, unfortunately, do remain a part of property investing..<\/p>\n Investments don\u2019t rocket overnight.<\/p>\n While some areas may experience rare short-term surges, the majority of suburbs go through periods of slow to no growth before values rise.<\/p>\n Therefore, you\u2019ll need to be prepared to hold your property for at least one cycle of around 7 years if you want to make a solid gain.<\/p>\n This means you need to ensure you have a solid enough cash flow to maintain the property in the meantime to avoid selling prematurely.<\/p>\n While you\u2019re building your deposit, continue to learn everything you can about property investing.<\/a><\/p>\n Buy a few books from a range of authors to get a variety of opinions but be cautious of expensive courses which promise to teach you everything, it\u2019s often not true.<\/p>\n Property investing is a game of finance with some houses thrown in the middle, so make sure you create a budget to help you live well within your means \u2013 stretching yourself too thin puts your whole portfolio at risk.<\/p>\n You need to set an end target so that you have something to aim for.<\/p>\n You can then work out how to achieve it and pick strategies, properties and budgets to suit.<\/p>\n By setting an end goal you\u2019re helping to ensure that your investment strategy is focused and structured.<\/p>\n It will also give you something to refer back to when you need to make a difficult decision.<\/p>\n To build a property portfolio you\u2019re going to need to leverage and gear by borrowing from the bank.<\/p>\n While banks love to see that you have equity in your home or other investment properties they will require you to prove serviceability to borrow more funds.<\/p>\n This means you\u2019re going to need to have a secure day job and strong income to make the banks comfortable in lending you more money.<\/p>\n Overtime you won\u2019t have to go out to work because your properties will be working for you bringing in cash flow, but again, this will take time.<\/p>\n Remember\u2026owner-occupiers make up around 70% of our property market, so it makes sense for investors to only buy properties that would in demand from these buyers.<\/p>\n Buying a property which would only appeal to investors or tenants will greatly limit your capital returns because demand would be much lower.<\/p>\n To do this you need to look at the suburb, neighbourhood, local amenities, and liveability because its things which help to drive good capital growth.<\/p>\n In the long term, it\u2019s these properties which will outperform versus \u201cinvestor stock.\u201d<\/p>\n Start off with the basic strategy of buying and holding property investments to get capital growth.<\/p>\n Capital growth is the ants\u2019 pants of property investing so don\u2019t look at making quick profits by flipping.<\/p>\n Over time you can introduce other investment strategies such as adding value through renovations or development<\/p>\n The most noise in the property investment industry comes from people trying to sell you something.<\/p>\n Then there is the new breed of property investment \u201cgurus\u201d who haven\u2019t really got a track record but have built fancy websites and large Instagram followings from overseas\u00a0 paid \u201cfriends.\u201d<\/p>\n Sometimes it\u2019s hard to know who to trust and who to ask for investment advice<\/a>, but being able to recognise when someone has something to gain from your investment decisions helps you know how to protect yourself and your investments.<\/p>\n Leave your emotional connection to your local suburb at the front door, the best investments are often further afield, not just in places we already know and are comfortable with.<\/p>\n Consider looking at growth areas in different property markets across the country to work out what the best investment is to suit your budget.<\/p>\n New properties come at a premium and like driving a car out of the showroom, can drop in value soon after purchase.<\/p>\n Instead, you should look for existing properties, ideally with renovation or development potential so you don\u2019t have to wait for the market to do the heavy lifting \u2013 you can \u201cmanufacture\u201d some capital growth.<\/p>\n If you can get an old period or character house, they usually make great long-term investments, because of their scarcity and wide appeal.<\/p>\n It used to be the case that the closer to the CBD, the more convenient the property will be for tenants and therefore those properties have a huge demand drawcard.<\/p>\n Gone are the days where our \u2018home\u2019 was simply the place we rest our heads.<\/p>\n Nowadays, buyers are looking for properties which are a short trip to a great shopping strip, your favourite coffee shop, amenities, the beach, a great park.<\/p>\n Prices rise when demand exceeds supply, so you\u2019ll want to make sure there is the highest demand-to-supply ratio in order to get the great returns.<\/p>\n And look for a market where there are is strong demand from a wide range of prospective buyers creating sufficient market depth to avoid the volatility we tend to see in small regional areas or country towns.<\/p>\n So we\u2019ve covered off how to build a successful property portfolio, but how do you then manage it?<\/p>\n But what does this really mean when it comes to the long term management of your asset?<\/p>\n Here are six top tips on how to manage a property portfolio<\/a>.<\/p>\n When you fail to plan, you plan to fail as the old adage goes.<\/p>\n In order to succeed in property investment, you need to have a detailed strategy mapped out and keep sight of your long term goals.<\/p>\n![\"Property](\"https:\/\/cdn.propertyupdate.com.au\/wp-content\/uploads\/2020\/12\/property-invest-house-300x200.jpg\")
It\u2019s simple if you do what many other savvy property investors have done and built a substantial asset base of investment grade properties that generate sufficient passive income to give them financial freedom.<\/p>\nCan you create passive income in real estate?<\/span><\/h2>\n
Positive gearing property generates passive income<\/span><\/h2>\n
The pros and cons of positively geared property<\/span><\/h2>\n
The pros:<\/h3>\n
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The cons:<\/h3>\n
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Making passive income in real estate through Equity<\/span><\/span><\/h2>\n
![\"Wooden](\"https:\/\/cdn.propertyupdate.com.au\/wp-content\/uploads\/2021\/03\/wooden-blocks-with-the-word-value-up-arrow-and-woo--300x171.png\"){kind=icon}
So what exactly is<\/em> equity?<\/p>\n\n
What is a property portfolio?<\/span><\/h2>\n
![\"Portfolio\"](\"https:\/\/cdn.propertyupdate.com.au\/wp-content\/uploads\/2021\/05\/portfolio-300x174.jpg\")
The real estate portfolio definition: A property portfolio is a collection of property investments owned by an individual, a group, a trust or a company.<\/p>\n1. Financial freedom<\/h3>\n
2. More equity<\/h3>\n
3. Diversification<\/h3>\n
![\"Oliver](\"https:\/\/cdn.propertyupdate.com.au\/wp-content\/uploads\/2018\/09\/oliver-diversification-300x220.jpg\")
There is a risk inherent in owning several similar properties in one area because if one property type or area doesn\u2019t grow then you don\u2019t have the equity to invest in more properties.<\/p>\n4. Multiple streams of income<\/h3>\n
So, what does a balanced portfolio look like?<\/span><\/h2>\n
![\"Cash](\"https:\/\/cdn.propertyupdate.com.au\/wp-content\/uploads\/2018\/12\/cash-flow--300x166.jpg\")
Building a property investment portfolio takes many years and the first stage involves building your asset base with high-growth properties and then, over time, you can add higher-yielding properties to balance out your portfolio<\/p>\nWhat shouldn\u2019t be in your portfolio?<\/span><\/h2>\n
![\"High](\"https:\/\/cdn.propertyupdate.com.au\/wp-content\/uploads\/2019\/08\/high-rise-apartment-buildings-300x200.jpg\")
<\/p>\n15 tips to start building a property portfolio<\/span><\/h2>\n
Tip 1: Know why you\u2019re investing in property<\/h3>\n
![\"Decision](\"https:\/\/cdn.propertyupdate.com.au\/wp-content\/uploads\/2019\/10\/decision-question-300x149.jpg\")
The first tip to help you on your property investment and property portfolio building journey is to answer this question: Why are you choosing to invest in property rather than any of the other investment asset classes such as shares?<\/em><\/p>\nTip 2: Understand all the risks involved when investing in property<\/h3>\n
Tip 3: Be prepared to be in it for the long term<\/h3>\n
![\"Long](\"https:\/\/cdn.propertyupdate.com.au\/wp-content\/uploads\/2020\/05\/long-term-invest-300x196.jpg\")
Even if you bought in the right area and picked the right property, there\u2019s no guarantee that you\u2019d see growth come through quickly.<\/p>\nTip 4: Learn everything that you can<\/h3>\n
Tip 5: Get your finances sorted as soon as you can<\/h3>\n
Tip 6: Set an end goal<\/h3>\n
![\"Goal\"](\"https:\/\/cdn.propertyupdate.com.au\/wp-content\/uploads\/2019\/08\/goal-300x166.jpg\")
Whether your target is a passive income of $2,000 per week or $200,000 per year by the time you retire, or whether it\u2019s something more directly related to your overall wealth.<\/p>\nTip 7: Focus on your income<\/h3>\n
Tip 8: Only buy properties with strong owner-occupier appeal<\/h3>\n
Tip 9: Start your process with \u2018buy and hold\u2019<\/h3>\n
Tip 10: Identify when someone has a vested interest<\/h3>\n
![\"Fake](\"https:\/\/cdn.propertyupdate.com.au\/wp-content\/uploads\/2019\/01\/FAKE-BLCKCHAIN-EXPERT-300x192.jpg\")
While not all of them are sinister, you will encounter plenty of well-meaning individuals who are simply mistaken.<\/p>\nTip 11: Don\u2019t just buy in your own backyard<\/h3>\n
Tip 12: Buy existing, not new properties, preferably with renovation or development potential<\/h3>\n
![\"House](\"https:\/\/cdn.propertyupdate.com.au\/wp-content\/uploads\/2018\/10\/house-for-sale-buyer-agent-investor-buy-300x172.jpg\")
As a general rule, don\u2019t buy a new property.<\/p>\nTip 13: Target properties with character<\/h3>\n
Tip 14: Think about neighbourhood<\/h3>\n
![\"Neighbourhood2\"](\"https:\/\/cdn.propertyupdate.com.au\/wp-content\/uploads\/2018\/12\/neighbourhood2-300x157.jpg\")
But if the Covid-19 pandemic has taught us anything, it has taught us the importance of the neighbourhood we live in<\/a>.<\/p>\nTip 15: Make sure you understand the market for supply and demand<\/h3>\n
6 tips on how to manage a property portfolio<\/span><\/h2>\n
![\"House](\"https:\/\/cdn.propertyupdate.com.au\/wp-content\/uploads\/2021\/04\/house-search-investor-300x185.jpg\")
I\u2019m sure you\u2019ve heard it said that you should treat your property investments like a business.<\/p>\n1. Be business-minded<\/h3>\n
![\"Emotion](\"https:\/\/cdn.propertyupdate.com.au\/wp-content\/uploads\/2019\/07\/emotion-logic-300x197.jpg\")
Allowing your emotions to get in the way when it comes to your property investments is a huge mistake.<\/p>\n![\"Rent\"](\"https:\/\/cdn.propertyupdate.com.au\/wp-content\/uploads\/2021\/01\/rent-300x119.jpg\")
Ensure your property manager conducts annual rent reviews to ensure you achieve market rentals and therefore the best returns on your asset.<\/p>\n![\"Real](\"https:\/\/cdn.propertyupdate.com.au\/wp-content\/uploads\/2018\/09\/tenant-300x200.jpg\")
Firstly, there\u2019s more chance of complications when it comes to the tenant paying their rent in a timely manner, as they might feel they can take advantage of your personal relationship.<\/p>\n