Strengthening Your Property Portfolio
It is one thing to invest in a property and feel like a “Warren Buffet in the making” and quite another thing to have a successful property portfolio. Only 1% of the total investors hold more than 6 properties in Australia. Let’s figure out what proves to be the bane of the remaining 99%.
Mixing rental yield with capital growth
There are investors who are besotted with the idea of capital growth. They would give their right arm for the properties which show annual value growth. On the other side of the spectrum, there are many investors who have only high rental returns and increased positive cash flow in their minds. It is a consensus that the best style is to go for a mix of both kinds of properties.
This way, a few properties will always show capital gains and help you build equity even while there will be others which give a more than decent rental return and aid in positive cash flow.
For a successful property portfolio, it is also crucial to get your loans serviced via multiple lenders. If there is a single lender (lending institution), he/it will have access to your entire equity. In a short while, he/it will be able to command the kind of interest rates he/it wants on your mortgage. This can deeply affect your capital gains.
Moreover, you will always feel trapped while releasing equity. This is easy to understand. Some of your properties will show capital gains even as others will languish. With a single lender in the picture, the profits on a particular property’s capital gains will have been eroded by the loss made on the other properties.
You will also be well served by making the kind of renovations which work. Let me elaborate on this. If you buy a property for yourself you can give flights to your fancy and indulge in a swimming pool.
Contrarily, if you want to invest in a property, the ideal renovation would be to add a bedroom or two. Buyers are interested in extra bedrooms (FHB investments are on a decline and parents are expecting to have their children live longer with them).
Do you use a single lender or multiple lenders to service your loans?