Professional tips for growing your property portfolio

The common denominator amongst High-Net-Worth Individuals (HNWI) globally is that real estate features prominently in their investment portfolios and the fact that they allocate an average of 11.2% of their investment share to property is a good indication of property being good route to financial independence.

Because property is a tangible asset as well as one of life’s essential commodities, investing in real estate remains one of the best ways to accumulate wealth, both in terms of appreciation in market value as well as generating a reliable monthly cash flow.

However, it’s by no means a sure thing and it requires expertise, planning and focus to be really successful in this sector. But, with a bit of luck and careful planning, you can join the many investors with profitable property portfolios.

Starting out in property is relatively easy and one doesn’t need much money to do so, however, making the jump from owning one or two properties to a real estate portfolio is a little more complex.However, if you take the right approach, do your homework and consult with experienced professionals, building a property portfolio can be a very profitable long-term investment.

It’s therefore imperative that each party clearly understands what is expected of them and is fully aware of the implications of failing to meet the stipulated conditions as failure to so could have far-reaching and often costly consequences.

Seek advice

Real estate may be a proven path to wealth but it also has a multitude of potential pitfalls and all too often, prospective property investors try and go it alone, only to fail miserably.

Consult the most established letting agent in your area, get financial advice from a reputable broker, and do your homework by reading as much information as you can.  books such as 

Make a plan

Begin as you mean to carry on by being professional from the get-go. Devise a business plan and include both short- and long-term goals which enables you to visualise the big picture and focus on the important goals rather than getting side-tracked by minor setbacks.

Lay out a 12-month, five-year, and ten-year strategy with financial plans incorporating buying, selling, and borrowing to give yourself the best chance of success.

Make sure your plan includes factors such as estimated outlays and inflows of cash, the optimum number of units to yield projected returns, when to refurbish or upgrade, potential demographic and potential market shifts and anything else that could impact your investment over time.

Begin with one strong investment

Building a good property portfolio requires solid foundations so your initial investment can strongly determine future growth and success so it’s essential to ensure that your first purchase is the right deal.

If done correctly and the numbers stack up, you’ll have a sound foundation and can move on to your next acquisition and so forth, but if your first investment is a dud, it can not only derail your plans, it can also leave you in a precarious financial situation.

Keep abreast of markets and trends

As with any business, it is important to be au fait with the current laws, regulations and trends which form the basis of your investment sector because by falling behind, you risk losing momentum and could also be vulnerable to legal ramifications if laws are inadvertently ignored or broken.

The most successful real estate investors are those who stay educated and are able to adapt to any regulatory changes, emergent economic trends and changes in tax or lending laws.

Be aware of and understand the risks

Forewarned is forearmed and prudent investors who are aware of, and understand, all the potential risks are able to adapt and adjust their businesses to reduce the risks and minimise the impact they could have should the unforeseen occur.

Get your financial ducks in a row

In a competitive market like real estate, you need to have all your financials in order as you simply can’t afford to leave borrowing and freeing investments until the last minute.

The best deals won’t wait for you and having financial evidence you can immediately present to the seller or estate agent, puts you in a stronger position as a serious buyer and can also give you an edge in negotiations. 

Know your market

If you are entering the rental market, it’s essential that you understand your target market. Factors such as lifestyle, use of public transport, proximity to commuter links, how much secure parking is required, demographics etc are all important to consider.

Without this information, it’s impossible to determine exactly the type of property that will realise the best return for your type of investment. Furthermore, understanding who your potential tenant is, prevents you from wasting time chasing unsuitable properties.

Know your seller

Whether you’re investing in property as a business prospect or as a long-term home for yourself, you need to buy at the lowest price possible and buying from a motivated seller often gives you a stronger negotiating angle. For investors, the best price is below the standard market rate.

Learn to recognise a good deal

Being visually appealing, very well-priced and in a great neighbourhood are important but they don’t necessarily make a property a good investment. The most important factor to determine is whether it’s structurally sound - or will it be a money pit?

High ongoing maintenance costs drain the coffers and significantly reduce the return on an investment property so take a close look at things like the type of roof, wall surfaces, quality of fixtures and fittings, the state of the garden and pools etc.

For sectional title properties, make sure the body corporate’s financial standing is solid and the monthly levy amounts are also important – the higher the levy the lower your return.

Choose location carefully 

Over and above the property being structurally sound, location is the next most important factor and, for a successful buy-to-let, you should choose an area that has a high rental demand and limited supply.

However, this can change from street to street within the same area, so take the time to do your homework. Location also impacts resale, so this should also be borne in mind.

There is a significant difference between buying a property in which to live and making an investment so emotional considerations must never be a factor and each purchase must be approached logically and systematically with your long-term financial goals in mind.