Mid-level investors – the portfolio builders

In the lifecycle of investors, those who’ve graduated beyond their initial one or two holdings are ready to start building a portfolio. These Portfolio Builders (PB’s) are in a seemingly enviable position. They’ve successfully cleared that nervous first hurdle of buying a property and may have even secured their second by drawing on the equity gains. It’s at this point so many become stuck.
Here’s some of the crucial lessons I’ve learned about this stage of the wealth cycle and clearing the mental blocks to building a portfolio.
PB’s are rare
Many PB’s appear primed to ramp up their acquisitions, so their multi-holding portfolio can start compounding in value to propel them toward a profitable retirement. Funnily enough, data from the 2016 census reveals this is the point at which most investors become stuck. Of Australia’s population of approximately 25 million, around 2.1 million people own some sort of investment property. Now here’s the kicker – of those 2.1 million investors, 71.3% (1.5 million) own only one investment, while 18.9% (400,000) own just two.
As you keep increasing the number of holdings, the percentage drops fast. 5.8% of investors (123,000) own three properties while just 2.1% (45,000) own four. If you’re in the rarefied space of owning five investment properties, you’re among just 0.9% of investors – or about 19,000 people. Similarly, those who own six or more investment properties reflect 0.9% of all investors as well. That’s about a quarter of the crowd at the NRL grand final holding six or more properties in their portfolio. This is a shame because the magic of compound growth really comes into its own when several well selected investments are locked away in a manageable portfolio and allowed to enjoy long-term gains and returns.
Why stall?
Investors who have reached the growth phase of investing have trouble because they can’t shift their focus away from starting a portfolio towards building a portfolio. When you begin investing, it’s easy to see what goals you need to meet in order to buy your property. You understand you need to put together the initial deposit, find your affordability price point, assess the level of borrowing comfort and begin the search. Even the second purchase can feel reasonably straightforward. However, when it comes to buying number three, the parameters begin looking blurry. What sort of property will I need? Should my strategy change? What does the future hold? You also begin to lose that first flush of buying excitement and start realising there’s a bit more work to do when you hit property number three (or more). In addition, you begin to explore some of the other strategies for investing both within real estate and other investment vehicles, and this can muddy your thinking and bring your strategy to a halt.
Freeing your mind
Getting up some momentum takes effort, but like most great rewards, determination over time will bring results. As I always say – property is not a passive investment. It requires landlords to be active and engaged with their holdings and financials. As a PB, your numbers are about to become even more complex. Make sure you’re ready to be part of the process, and be assured your efforts will bring a great long-term outcome. Secondly – revisit your goals and factor in life’s changes. Many PB’s will have family commitments and their future financial health is tied to elements such as schooling, healthcare, secure employment and household expenses. Think long and hard about what you want to achieve with your portfolio, and the significant events that will help or hinder your path to that goal.
Next – it’s time for a full and frank financial health check. Be open, honest and brave with your numbers. This is also the best time to lean on your team of professionals. Your accountant, mortgage broker and property investment advisor will have a protocol in place to help you assess your financial position, and prepare a way to go forward. With a plan under your belt to help navigate the path from now to retirement, start looking at what sort of properties you’ll need. As a PB, the options are open to you. Do you need cash flow? How about growth? Perhaps you have the capacity and risk profile to look at a small development project or even commercial property. Lean on your advisor and seek out those holdings that make the best long-term sense. In conjunction, now is the time to ensure your portfolio building via the correct entities too. Sometimes, purchasing property in your own name will have long term tax and legal implications. Before you make that next purchase, discuss with your adviser whether a trust, company or other entity mightn’t make more sense.
The key to success
If there’s one essential skill a successful PB investor will have, it’s their ability to pivot between different flavours of strategy and property type in response to changes in circumstance. Don’t become entrenched or complacent. Regularly assess your position and keep going in the direction your financial compass leads.
Portfolio building is a crucial stage in your wealth plan and having a knowledgeable property advisor on board is a must so you can join that rare crowd of multi-investment owners who’ll have the best of times come retirement.

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