Beyond property #1: how to evolve your real estate portfolio

Many investors begin their real estate investment journey with the goal of building a portfolio of multiple properties, but few go beyond that first purchase.

It is estimated that around 70% of all Australian property investors are locked into a single property.

Unfortunately, many new investors will remain that way – single buyers who never progress beyond having that one property in their portfolio. Others simply hang up their boxing gloves and completely abandon the dream of building a real estate portfolio to achieve financial freedom.

In this article, we’ll explain why so many investors fail to go beyond their first home and give you tips on how to overcome it.

Why are the majority of investors stuck on the number one property?

Here are some of the reasons some investors never outgrow the number one property:

  • Lack of financial planning – Many real estate investors never make that second purchase due to their lack of financial planning. In some cases, that means they picked the wrong home loan based on their strategy, or they didn’t factor in or do their homework on unforeseen expenses that end up derailing their budget, as well as their entire financial situation.
  • Rushing into an investment – Going headlong into the next investment is another reason why investors never go past the first real estate purchase. Usually these investors do not research the market and have a clear understanding of their financial situation before investing – they are now aware of their borrowing capacity, how interest rates can affect their finances and other factors. This means they don’t have the right financial foundation in place, which often prevents them from taking their portfolio to the next level.
  • Fear of failing – On the one hand, the fear of failure also paralyzes many investors into inaction. It’s more typical of new investors, who become discouraged after their dreaded worst-case scenarios such as losing money, buying in the wrong place, or not finding good tenants become a reality.
  • Not staying educated – Complacency is another reason some investors never manage to scale their portfolios. The mindset of these types of investors is usually, “It worked once, so it will work again, right?” The truth is that real estate – especially in Australia – is constantly changing and investors should continue to educate themselves about the rental market if they hope to expand their portfolio further.

How to build a multi-property portfolio

  1. Do it right the first time

It is important to succeed in your first real estate investment for several reasons.

While the concept of starting on the right foot may seem trivial, there is a lot of sense in starting with something solid. Building a good and lasting property portfolio requires a solid foundation, so your first property could arguably be your most important.

First of all, getting it right from the start will make your life much easier in the long run. If you have purchased the right property in the right area, you will likely see sufficient capital growth in a few years to fund the filing for property number two and possibly other properties thereafter.

On the other hand, if you don’t see strong capital growth with your first property, it will be very difficult to save the deposit for that second investment.

Buying the wrong property or looking for positive cash flow versus capital growth is why so many new investors never outgrow owning a single property.

Second, having a property that performs well in terms of capital growth or passive income generation is the best motivation to move on to the next purchase.

So take your time and do your research before buying your first property. Look at all the key factors for property success, such as location, historical growth of the area, distance to major cities or infrastructure, supply and demand, and rental yields.

To help you start your search, consult the offer of Smart Property Investment Suburban search page for a profile of each suburb of Australia’s states and territories.

  1. Understand your financial situation and goals

Experts advise investors to have a thorough understanding of their financial situation when scaling their portfolios.

Remember that your investment strategy will also depend on your financial capacity, so you should use this as a guide in developing your plan.

For example, if you earn just enough to meet your expenses or have a lot of personal debt, building a million dollar portfolio would be difficult unless you make drastic changes to your finances.

When it comes to planning multiple investments, there are many financial factors to consider. What type of loan will best suit your investment strategy? Does your margin take into account unexpected expenses? How do you plan to finance your second investment? If you’re planning to grow your real estate portfolio, you need to plan how you’ll put yourself in the right financial position for that next purchase.

Here are some tips for getting your finances in order:

  • Know your numbers and set a budget based on worst-case numbers.
  • Do not exceed your budget and keep financial buffers in place.
  • Be comfortable with good debt and realize that it can be your friend when used wisely.
  • Get professional advice from a mortgage broker or financial advisor.
  1. Have a solid, long-term investment plan in place

Many starry-eyed investors dive into the real estate market expecting instant capital growth that will turn into wealth.

However, if you want to be successful in real estate investing, make sure you have a written business plan before you even start, preferably long term.

List your goals and present a detailed plan outlining exactly how you will build your portfolio to achieve them.

Most investors structure their goals based on their preferred retirement age and the amount of money they will need as a source of passive income to live comfortably in retirement.

If you have the same end goal in mind, you can use that as a target and build a portfolio with the assets that will produce the desired income.

This means that when you buy your first property, you are already thinking about several properties and evaluating whether this purchase will help you achieve your next goal.

You need to be clear about how each property should perform in your portfolio, such as the rental income it should generate or the capital growth it should achieve within a certain time frame.

It will also help you have a good checklist of what you need for your next real estate investment.

  1. Learn as much as you can about real estate investing

If you really want to prosper as a real estate investor, it’s important to learn everything you can about all aspects of the industry.

When building a real estate portfolio, you’ll need a more detailed understanding of how real estate investing works, how to keep an eye on the local market, and when to use opportunities than if you stick to one. single purchase.

It also involves learning about the drivers of house price growth and following economic trends and real estate cycles.

  1. Sell ​​and start again

But what if your first property is underperforming? What should you do then?

If you’re stuck with an underperforming property and unable to move forward, it can be difficult to escape this situation without making some big decisions.

In this situation, you have several options, ranging from waiting to see if the market moves in your favor to cutting your losses and selling your property.

However, if you want to get it right and be able to move forward, you may have to sell and start all over again.

For some people, the idea of ​​selling and starting over may seem like a step backwards. But if that’s what allows you to buy another property that meets the goals you’ve set for your financial future, then that’s actually a step up.

If you choose to sell, you can release the equity in the property and also release the borrowing capacity. This will allow you to start over with your next property – ideally a little wiser than the first time around.

Remember to ask for the right advice to structure yourself properly and then start to know everything about the different investment strategies that will allow you to invest in a sustainable way.

Want to learn more about how successful investors build their portfolios? Plug into the Smart Real Estate Investment Fair, where we feature investors and their inspiring investment journey. You can also view our other amazing podcast series to better understand all aspects of the real estate market!


Real estate

Real estate is a type of real property that refers to any land and its permanent improvement or accompanying structures, whether natural or man-made.

Beyond property #1: how to evolve your real estate portfolio

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Last update: February 04, 2022

Posted: February 05, 2022