How to Build A Property Portfolio Quickly In Just 7 Steps
I’m going to show you in this video how you can build a property portfolio in just seven steps. But I want to make you aware at the start that even though these steps look simple, you need to make very wise investing decisions as you go along. These steps only work if you choose the right properties and analyze your properties before you start investing. You can build a property portfolio quickly if you have all the right ingredients. Listen To The Podcast You can download this podcast and more in our members area. Click here to learn more Watch The Video You can download this video and more in our members section. Learn more here Let’s get straight into it.
Step #1: Have a starting deposit
Step number one, have a starting deposit. Very, very difficult in Australia to purchase a property without a starting deposit. You’re going to need a minimum 5 percent of the purchase price of your property just to get into the market. If you have a 20 percent deposit, then you’re not going to have to pay lenders mortgage insurance, which means there’s a lesser fee to get in, which gives you more equity. That fee’s not eating up your equity.
Step #2: Have a decent income
Step number two is to have a decent income. Now, when I say a decent income, I don’t mean you have to be earning $1 million per year. All you have to have is a steady income that means you can get a loan from the banks or from a lender. If you don’t have a steady income or if you’re earning too little money, then the banks won’t lend you anything, and you just won’t be able to get into the property market. So it’s really important that you have a decent, but it doesn’t have to be huge, income.
Step #3: Buy Your First Property
Step number three is to buy your first property. This is going to be the most important step, so don’t rush it. Don’t just go out and buy the first property that you see and that you can afford. You need to be really smart with your investing. You need to buy a property that you can grow the equity on and that you can leverage against to launch into your next properties. Just make sure when you’re buying it that it’s a great investment.
Step #4: Add Value to Quickly Gain Equity
Step number four. Add value and gain equity. This is a very important step, and this also goes back to step three, which was when you buy your property you need to buy a property that you can add value to, otherwise you’re just not going to be able to grow your portfolio as quickly as you would like. So step number four, add value and gain equity. There are many different ways you can do this. You can add value by doing renovations. You can add value by subdividing the land. You can add value by adding a dual occupancy. You can add value by changing the property so it moves from a three bedroom house to a four bedroom house. You can add value by doing all sorts of different things. But the goal is to increase the value of your property so that it’s worth more money.
Step #5: Borrow Against The Equity To Buy Another Property
Step number five is to borrow against the equity in that property to buy another property. If you’ve added value, then you’ll have what’s called equity, which is untapped value in that property. Say you owned a property, you bought it for $500,000, and you have a $400,000 loan. Effectively to start with, you have $100,000 equity in that property. Let’s say you increase that property’s value by $100,000. That property is now worth $600,000, and you effectively have $200,000 worth of equity. Most often banks will only let you borrow 80 percent of the value of the property, otherwise they will charge lenders mortgage insurance. So that $500,000 property which became $600,000, we can borrow 80 percent of that, which is $480,000. We can draw out another $80,000 in equity to go and purchase our next property.
Step #6: Repeat Step 4 + 5 over and over
Step number six is very simple. Repeat step four and five over and over. Buy a property, add value, draw on equity to buy another property. Continue doing that.
Step #7: Ensure you are growing your rental income so you can continue to service your loans
Step number seven, insure a strong and growing rental return. This is extremely important if you want to grow your property portfolio quickly. What’s going to happen over time is that the value of the loans will exceed your ability to pay those loans as an income earner. So what you will then need to do is use the rental returns and the rental income from the properties to help to pay for your loans. As you’re increasing the value of the property and then drawing on that value, your loan and repayments are going up, so you need a strong rental return to start with, and preferably a growing rental return so you can continue to borrow more money. That’s it. That’s the seven steps to build a property portfolio quickly.