Building a successful property portfolio

I don’t believe a successful real estate portfolio is about how many properties you have, it’s about their quality. That is of course if you want to build up a nest egg that will provide you with a reliable return on investment well into the future. 

It’s about selecting the right types of properties in great locations.  Ask any seriously wealthy property investor who has seen a few property cycles and they will tell you that you should purchase property in areas where there has been good demand in the past, demand for it now and likely to be good demand well into the future. Buy property that is land locked, property that is close to water, close to transport, property that is in limited supply... you get the drift. 

In contrast, let’s take an example of an investor who thinks more is better.  To have acquired say 10 properties in 5 years is remarkable indeed.  However, there are a couple questions that need to be asked here before it’s possible to tell whether this investor is likely to have a bright future or a speedy decline. For example: Where are the properties located? Does the rental market depend on the survival of just a handful of local major industries staying in business such as mining or farming?  

If the investor has bought properties simply because they’re cheap and they're in locations that don’t have strong investment fundamentals with a good track record of capital and rental growth (not just over the last few years but for a decade or two) then the risk of below average returns over the medium to long term are quite high and mortgagee in possession is a very real possibility down the track.  

Another important question is: ‘How much real equity is in the portfolio?  If there’s close to or less than 10% equity and the investor has been refinancing property after property to keep paying the mortgages and buy more, then it’s likely to be only a matter of time before the zero to hero strategy of buying property will start to collapse like a deck of cards. 

Why am I sharing this with you?  Well, I have had several people of late coming to me asking for help on how to sort out the financial mess they are in having broken several of what I would regard as fundamental investing rules.  

When investing, quality comes first whether you are looking to start or add to your property portfolio. Don't get hung up on how many properties you buy as I would prefer to have say two million invested in three or four quality properties than have two million invested in 10 average ones.  Your investments should give you peace of mind and financial security.  Don’t buy yourself a property for the sake of it – do your research and buy quality!  Keep in mind that different parts of suburbs, and different styles of properties within those suburbs, will give you different capital and rental returns. 

Don't stretch yourself with too much borrowing, always have a 20% or greater deposit for each investment property and never cross collateralize. Remember to always seek unbiased independent advice. And whilst there are exceptions from time to time in my opinion as a general rule I suggest you avoid buying properties that:

• are being sold through a marketing company,
• have FIRB approval, 
• come with a rental guarantee.
• are recommended by an accountant or financial advisor.

Why? Because of the literally hundreds of properties I assess each year, the ones that tend to underperform or where the owners have over paid regularly have one or more of the above connections. 

If you want to learn about several other investing rules to live by and how to select an above average performing property then order a copy of my book "The Insider's Guide to Profitable Property Investing" or click here to send me an email and myself or one of the team will be in touch.