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5 tips on creating a winning property portfolio

·5-min read
An auction sign outside a property. (Source:Getty)
Clarifying your reasons for investing is crucial. (Source:Getty)

If creating a winning portfolio was easy, everyone would be doing it.

The biggest reason most investors underperform is they ignore 80 per cent of the work.

Instead, they focus on the last 20 per cent: the technicalities surrounding purchasing a property.

Skip to the final tip if you’re focused on the 20 per cent. But if you’re just starting out in property investing, here are five key strategies to help you on your way.

1. Understand your ‘why’

Most investors don’t achieve desirable results because they put “how” ahead of “why”. You need a clear understanding of your purpose for investing.

People invest in property for many reasons, so why are you? To build a family legacy? To retire? To create an enduring charity?

Whatever your reasons, understanding your “why” helps you remain committed to your goals, otherwise you’ll never be motivated to pursue your objectives with determination.

2. Set clear goals in alignment with your vision

Align your strategy with your vision by defining where you are today, then planning the steps to get you to tomorrow.

This doesn’t mean a financial plan consisting of various spreadsheets. Rather, it involves outlining the steps to achieving your “why”.

List assets like property, shares, superannuation and savings, then liabilities like credit cards, loans and personal debts.

Deduct liabilities from assets to calculate your net worth. This helps your lending broker establish your investment capacity.

Aerial shot of a suburban landscape with the CBD skyline in the background. (Source:Getty)
Any investment should align with your overall plan. (Source:Getty)

Next, list financial and personal goals, insert achievement dates, and estimate what each goal will cost.

When you know how much you need, you can make choices about your career and lifestyle, and how much you should save to secure your next one, two or 10 properties.

Consider how each purchase affects your capacity to acquire the next, and so on. Always invest according to your plan. Every decision should relate to your goals.

Review your plan regularly; adjust accordingly.

3. Take a good, hard look at yourself

Assess your ability to stick to your plan. What are your weaknesses? Where could you use assistance?

Break this into three areas: emotional, educational and financial.

Each stage must be acknowledged - you don’t need to be 100 per cent ready, but be aware of how each area could impact results.

Emotional readiness

Consider the beliefs you have around money.

Empowering habits mean you find the idea of saving exciting. Doubts should be talked through with a trusted adviser.

This self-examination provides awareness of where you might fail. It feeds into your risk profile, affecting how and when (or if) you can achieve your goals.

Risk can be mitigated with education and by working with a team of professionals.

Educational readiness

There are many tactics investors can implement, but which ones work? It’s too easy to jump from one strategy to another without planning.

Education should relate to your specific goals and strategy. This saves time on research, allows you to reach goals efficiently without distraction, and prevents costly mistakes.

Financial readiness

This is the only area the average investor considers. Ensure your finances are in order, you have a good credit score, little or no bad debt and a financial buffer.

A woman counting australian money and using a calculator. (Source: Getty)
It's important to understand your money habits. (Source: Getty)

Analyse your income, debt, equity and superannuation, and determine what you can afford to invest. Not all property strategies require a lot of capital, and good money-management habits have nothing to do with income.

With the help of professionals, virtually anyone can become financially ready. Likewise, even if you have ample money, that doesn’t mean you should invest – not until you’ve considered all three readiness levels.

4. Build your team

Now you understand your weaknesses, assemble your team of property specialists.

They need the skills and knowledge to provide you with results-driven advice, and should include an accountant, mortgage broker, solicitor, conveyancer and property manager.

In property, it is often who you know, along with what you know, that makes the difference to your results.

5. Take action

With goals documented, strategy in place, an understanding of your limitations and your team ready, it’s time for action.

This is the last stage - the 20 per cent - most investors focus on. They purchase a property in a familiar area, but without planning.

If they’ve completed some due diligence, they’ve considered property and location fundamentals like stock on market, vacancy rates, infrastructure, population growth and property features.

However, it’s more important to consider if the property aligns with strategy and will generate targeted wealth results.

Are you investing for capital growth or rental yield, or pursuing value-added strategies like renovation, subdivision or development?

Only once your strategy has been confirmed should you move into technical analysis of the property.

Poor planning leaves investors going it alone saddled with underperforming properties, stifling chances of portfolio growth. And given that property is a huge investment, it pays to get it right.

Once you have your mindset focused, your goals set and an understanding of the commitment involved, you’ll see that the nuts and bolts of property investing - while important - are secondary, and that successful investing is a skill that can be learnt.

Luke Harris is the author of Property Fit (Major Street Publishing $29.95), and is the CEO of The Property Mentors, a Melbourne-based business that educates, motivates and facilitates clients from all around Australia to achieve financial freedom through property. For more information visit www.propertyfitbook.com.au.

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