By Victor Kumar
The start of a New Year means experienced as well as new investors are considering how to grow their portfolios.
But there are a few things that you need to look at before deciding on the number of properties you ultimately want in your portfolio.
Quite simply, every year, if you have enough funds behind you (say you’ve got $100,000) you should be able to buy four properties – so that’s one property every quarter.
At the start of the year, for example, you could buy two properties and then revalue them to give you access to the equity to buy the other two.
It really could be as simple as that for anyone with $100,000 provided, of course, you can qualify for the loans to buy four properties.
The thing is, it isn’t about the number of properties, it’s about what you’re trying to achieve as well as the money you have to play with.
What I mean by that is the capital that you’ve got and the ability to qualify for finance.
If you set yourself a goal of buying five properties this year, then you decide to change jobs in March, you have to factor that in because you’re likely out of the market for at least three months because you won’t qualify for finance.
This is even more important for people who become self-employed because you’re likely to be out of the market for one year (in the best case scenario) but probably more like two years on the property sidelines.
You also need to consider whether you have the ability to grow your portfolio as well as whether you have the time, the mindset, and the right support structure or team – comprising a mortgage broker, accountant or property strategist – behind you.
Fundamentally you need to evaluate that first before you even buy your first property of the year.
Most importantly, you must learn why you want to buy “x” number of properties in one year.
By understanding the “why” behind your property targets or goals then you’re more likely to buy the right properties.
The “why” also needs to be linked to the cash flow that you want at the end, whether it’s in 10 or 20 years time, to calculate how much you can afford to chip in to your portfolio to hold the properties so it doesn’t impact on your lifestyle.
Understanding these numbers can help guide you to buy the best properties for your goals and will also stop you from speculating on the market, which is always a bad idea.
At the end of the day, how do you eat an elephant? It’s a bite at a time so investors have to focus on buying one property first, then re-evaluate, and repeat the process without changing the specs.
For new investors starting their property journey in 2017, my advice is that your end goal doesn’t have to be 100 per cent clear from the very beginning.
Instead, perhaps you could focus on a gross rental income that’s equivalent to your salary in the first stage and that the portfolio only costs you, say, $200 or $300 per week depending on how much you can afford.
By setting an early target like that it will define the portfolio as well as how rapidly you’re able to buy and what properties you choose to buy.
A lot of people focus on a picture that’s too big and get lost because there’s too much open space or potential to lose your way.
But if you brought it back to a tighter snapshot, the picture becomes clearer because while you may have an end goal, you’re concentrating on achieving yearly milestones instead.
One of my catch phrases is “plan your decade”, which is your global goal, but you have to reverse engineer it to calculate what that means for the current year.
How many properties do you need or want to buy this year and how is your cash flow looking?
Once you’ve calculated that then you make it smaller still by bringing it back to quarterly milestones.
So, you’ve got a major goal, then milestones underneath it, so you concentrate on achieving the smaller milestones along the way, which will eventually enable you to reach your final goal at some stage in the future.
I’ve seen far too many people concentrate on the end goal and not develop any steps to achieve it.
However, you also need to be flexible with your milestones because life can, and does, change.
Sometimes investors are so fixated on buying four properties in a year that they buy the wrong properties in a panic as the end of the year approaches.
After each property purchase, you must recalculate your equity situation, your cash flow position and whether there are any life changes on the horizon like children or redundancy.
But as we head into 2017 my number one piece of advice for investors is don’t procrastinate!
Don’t wait for the “best time” to invest – invest now because you’re investing for the long-term and time in the market is always superior trying to time the market for “optimum” conditions, which generally don’t exist at all.
By Victor Kumar