Property Portfolio: The Four Pillars of Property Investing

There are four pillars for building a successful property portfolio. Smart buyers know these pillars can become huge advantages when you are buying a family home as well.

Without foundations, any structure is bound to fail. So why do people dive into property buying and try to build a property portfolio without first having the proper understanding of the industry? Why do people make the biggest investments of their lives without researching what it is they are even up against?

You don’t need to be special or unique to be successful in property and build your property portfolio. Anyone willing to put in the hard work can have every chance of success.

The problem usually stems from parents and well meaning friends. Are they property experts? Probably not.

Would you trust a friend who once went skydiving (or watched a couple of youtube videos) to pack your parachute and show you how to jump out of a plane? Yet people often jump into the world of property buying and building a property portfolio without a chute strapped to their back at all.

There are countless misconceptions when it comes to buying property. Be prepared yourself and you can avoid the massive mistakes others make.

Perspective, mindset and the right source of knowledge is everything.

This sets us up for Pillar Two. You simply can’t buy property and build property portfolio by yourself. You need a team around you to help best execute your property strategy.

Here are the essential members of your team and what they can do for you:

Checking investment forecast figures, preparing tax returns, advising on tax structures (companies and trusts) and asset protection

Preparing the transfer of property from seller to buyer

Managing legal affairs, transferring property, advising on legal structures (companies and trusts)

Financial planner
Arranging insurance cover and overseeing other investments that you have

Property valuer
Advising on current property valuations

Building inspector
Reporting on the current state of a property and predicting future repairs

Pest inspector
Advising on current state of a property from a pest perspective and what treatments may be necessary

Strata search
A report which is prepared to check on state of finances and insurances of the Strata body corporate – mainly for units

Real estate agent
A seller of property who works for the vendor

Quantity surveyor
Someone who calculates the cost of buildings and fixtures and fittings for depreciation purposes

Buyers agent
A buyer of property who searches and negotiates to buy property for you. Better still, a good buyer’s agent can introduce you to expert team members and even manage a lot of these processes. This really is the property buying “cheat code”. That’s what we do for clients (click here if you want to have a chat and see if we’re a good fit for each other).

At this point, some people think, “no problems, I have an accountant, mortgage broker and financial advisor… I’m good to go”. However if those members of your team aren’t all in alignment and are successful investors themselves, then you could have big problems down the track (and you may not even know it before it’s too late).

Getting any property team is not good enough. Think of any team sport in the world. There are always good teams, average teams and bad teams. Don’t make the mistake of thinking any team is good enough.

The general suggestion is, if your professional team advise clients, as well as invest in property themselves, they are more likely to know of more factors that you need to consider, than those that don’t invest themselves.

It is hard to get a very good feel of how well you are going to work with someone in the future, until you actually have some dealings with them. However, if you interview more than one and ask them a series of questions, you are more likely to come across some that you can bond with and get a better feel that they really have the kind of service that you need.

With decades of property buying experience, it probably shouldn’t surprise you to know that we have built a very robust system and anyone entering the property market needs to make sure that they have one too.

Not just any old system. You need to be ready for battle (and trust me, buying property can easily turn into a war)!

Here’s what you need to know:

You will require different members of your team at different times. Know who you need to talk to and when before you start searching for properties.

Have your finance in order BEFORE you get serious about looking for property. One of the biggest mistakes people make is that they are not in a position to buy when they find their ideal property and by the time they have their finances in order, the property has already been sold.

You need to have a specific budget and don’t fall into the trap of ending up paying your maximum. It’s funny how people think they were “lucky” that their “dream property” cost exactly what their maximum was they were willing to spend. *spoiler alert* These people just got beaten in the negotiation phase and had every last cent sucked out. Harsh, but true.

You need to know exactly where you are looking to buy and why. For investors, this is simple; Blue Chip.

Here’s some items from our basic property checklist for all investor clients:

  • Buy close to (but not in) CBD areas
  • Ensure there will always be low supply and high demand (for example, people will always want to live in
  • Bondi in Sydney, though you can’t magically make new land appear)
  • The area should not depend on a single or a few industries (this controls supply and demand and you never want this out of your control)
  • Second hand established property
  • Two double sized bedrooms
  • Parking
  • Try to avoid things like lifts, pools, gyms, gardens etc (as this significantly adds to strata fees)

Get ready to research your area – and see a lot of properties. Most people start their property search and think they can see a handful of properties to find their dream purchase. It’s just not that simple. Mentally prepare yourself to spend significant time in this phase and be ready for a lot of disappointment.

And finally, have a specific list of “must have” and “like to have” before you start your search. That makes it easy to eliminate properties from the search so you can save a lot of time.

Be prepared.

Once you buy the property, it doesn’t end there.

If you haven’t already, you should have a plan in place to make sure you have secured your investment. Have a buffer against your mortgage, because you never know what unforeseen circumstances may occur. These could be either globally (such as the GFC or pandemic), or personally (such as an unforeseen health issue).

Are you going to renovate?

If so, do you know:

Your budget?

  • Where to extract the best ROI
  • Cleaning
  • Paint
  • Carpet
  • Curtains
  • Fixtures and fittings
  • Kitchen
  • Bathroom
  • How to deal with tax implications
  • Are you planning on selling the property in the future?

Did you know that many wealthy people extract wealth from their investments and never pay tax?

How? They refinance, but never sell.

You only pay tax on an investment property if you sell it (Capital Gains Tax – CGT). However, if you NEVER sell it, you never pay tax at all.

Having said that, your investment still grows in value and lenders are usually willing to loan against the true value of the property.

As you can tell, there is a lot of detail that goes into this process (and this barely scratches the surface). Let me know if you’d like to hear more about any of these Pillars.

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