Building A Property Portfolio
Investing in property is one thing, building a property portfolio on the other hand, is a whole other ball game. Learn how to build a property portfolio. Discover strategies of building a collection of investment properties to create wealth with MyFuture.
Building an investment property portfolio is a great way to build your net worth, diversify your investments, generate cash flow, and even build your retirement fund. Our experts at MyFuture have a wealth of experience in building property portfolios, making them lucrative for our clients and helping them achieve their long-term financial goals..
In general,the price of property is often considered to be less volatile than some other types of investments such as stocks / shares. New Zealand is consistently ranked well for quality of life, education, health care, air quality, and leisure activities meaning property is attractive as an investment or home and assuming the property is in the right location, should continue to appreciate over the long-term.
Avoid making costly mistakes by surrounding yourself with our professional team of Qualified Financial Advisors, use our knowledge to speed up your wealth creation.
What Is A Property Portfolio?
A property portfolio (or real estate portfolio) is a collection of assets in the real estate sector all owned or held by one group or individual. This catalogue can include both current and past investments as well as different types of property assets.
Property portfolios can look different for everyone. They can include real estate investment trusts, real estate mutual funds, existing and off the plan / new build investment properties. Different types of properties can all be included in one portfolio, such as residential family homes, apartments, townhouses, dual key or even commercial properties.
A property portfolio can bring you closer to reaching your financial goals, whether you want to put your children through college, save for retirement or dream of achieving financial freedom.
How Do I Build A Real Estate Portfolio?
Every investor’s property portfolio will have unique aspects but the creation process tends to follow a pattern.
1. Create clear financial goals
Having a clear vision and goals will make the process a lot simpler, help you decide on your investment strategy and set you up for success. There are many different strategies to invest in real estate but these are some you may have heard of:
- Buy and hold means you invest and rent the property out for the long-term.
- Fix and flip means you can buy a property, renovate it and sell it for a lot more than you invested.
- REIT or real estate investment trusts are similar to investing in stocks but are a more passive investment.
You can build your portfolio up over time to include a combination of these strategies, It’s also really important to understand how lenders view each type of property as you may be able to lend more and have greater tax efficiencies for some properties than others, which can often make a big difference to your long-term wealth creation potential.
2. Create a Plan
One of the most important steps in the process is actually getting clear on what it is you are wanting to achieve over the short, medium and long-term. Once you are clear on what it is you want to achieve, we can then figure out the best way for you to achieve that goal including what type of properties need to be part of your portfolio.
3. Buying your investment property
The most exciting step is purchasing the property. Make sure you have our team of experts to guide you through this process to help you identify the best property deals, financing methods and help you perform an investment property analysis to make sure it makes financial sense for you.
4. Invest in more properties overtime
Once you have your first property and can see the capital gains taking place, your property addiction is likely to begin! Once you have enough equity in this first property, you may be able to leverage this first one, to get into your second and third and so on.
5. Diversify your portfolio
Once you have all the investments you need to achieve your long-term financial goals, it’s time to diversify your portfolio.. A diversified portfolio ensures you’re taking less risk with your investments. There are a few ways to do this:
- Diversifying your market – spread out the risk outside the neighbourhood you are currently living in and investing further afield.
- Diversifying your asset class – for example going from home rental to commercial space. This helps to diversify your investments within the same asset class.
- Diversifying your investment strategy -It’s important to diversify across all asset classes, including shares, cash and fixed interest.
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Is Property Still A Good Investment In 2022?
Real estate is still going strong in 2022 and is an appealing long-term investment vehicle for a lot of people because it offers many attractive benefits. First of all it has the advantage of being a tangible asset, unlike stock and if you’re looking for a better return on investment, property has the added benefit of leverage.
The power of leverage
Property investments have a built-in benefit of the power of leverage. Using leverage can be a great way to grow your property portfolio and increase profits, but it’s important to know how to use it to your advantage while avoiding the heavy risks involved. When leveraging a property, you borrow funds from a lender, such as a bank, credit union or a private money lender, to purchase a property instead of covering the entire cost yourself.
The bank will lend you the loan-to-value ratio (LVR) for investment property loans in New Zealand, whereas you may not be able to borrow as much to invest in other asset classes such as stocks. This means you’re able to increase your spending power and use leverage to generate higher returns by investing in property..
This strategy is one of the reasons investing in property is so attractive. Leverage allows an investor to either purchase property that costs more than the amount they have available or to spread out the money across multiple properties.
Return on investment
Return on investment measures the performance of investment properties. It is calculated by the percentage of invested money that’s recouped after deducting associated costs. It’s important to investigate the potential ROI on a property before you invest as there are always many variables at play.
Return on investment in property versus stocks or bonds is generally much higher because you gain the ROI on the full amount invested including any loans. With stocks you only gain interest on the initial amount you invest.
There’s no guarantee you will get a ROI from your real estate, but our qualified financial advisors can help you assess potential ROI and navigate the complexities of property investing.
In addition to power of leverage and return on investment, there are other advantages to building a property portfolio:
Owning property to rent or lease can create positive cash flow as long as you have something left over once the mortgage and any expenses are paid. Even starting off small, once you put more equity into a mortgage, you can expand your property investments as well as your cash flow.
Our property investment experts have the knowledge and the know-how to increase your cash flow and build a steady income stream, or even replace your dayjob and support your retirement plans.
When a property’s value increases over time, it is said to be appreciating. While there are no guarantees that property will appreciate, understanding the market conditions and making smart choices within that environment can protect your investment.
Managing risk is a large part of investing. Diversifying your investments spreads them out across different asset classes, sectors, and strategies so that a downturn in a particular area is less likely to impact the whole portfolio. While there is risk when investing in real estate, by having diverse holdings consisting of properties, shares, or other investment vehicles, you can mitigate your risks.