HOW TO BUILD A PROPERTY PORTFOLIO
Building up a property portfolio doesn’t need to be every property purchaser’s end goal. In fact it wasn’t even on my radar when we bought our first home. It was an offhand comment made by our mortgage broker that made us start on that path and truly, that comment made all the difference just by changing my perspective on property.
Even if you never buy Property #2, #3 or #4, just know that as a home owner, you are essentially an investor. The house you’ve got is an unacknowledged part of your superannuation that will help you on the back half as much as your savings, retirement funds and any pension you get from the government.
That was a while ago, and things have changed a bit now that the cost of 1 property can be super prohibitive to even getting on the ladder, but if this journey has showed me anything, it’s that time really beats down your current mortgage and really builds up the current value of the property you bought.
Pro Tip #1: When you do get your first mortgage, try to pay it down as quickly as possible and at the same time, do not watch your outstanding balance vs. your interest payments for the first 5 years. Interest is all front loaded in mortgages, so you may feel like you’re going backwards. Look the other way.
Pro Tip #2: While you’re trying to clobber Mortgage #1, put your savings and extra payments into an offset account that drives your interest payments down. That way you won’t pay as much interest and you can make a dent in your principal faster.
Homeowners are investors already, without ever having to buy another property!
There are a lot of great investment strategies, all designed to achieve different goals - capital gains, rental income, tax writeoffs - and I recommend that you research strategies based on what your current employment situation is, and what you want your future to look like.
EXAMPLE TIME:
Here’s a property strategy that I see used by independent builders in the building industry all the time – I don’t see why it wouldn’t work for home buyers going through a good quality volume builder.
This is the technique:
Buy a block of land and build on it.
Move in to that house and live (very lightly) for a year or two - however long it takes to save up the deposit for the second house
Sell that house – do not pay Capital Gains Tax as it was their PPR
Move in to a rental and repeat the process
And what about this technique work for already established homes?
Buy a house and move in to it.
Do some cosmetic improvements and live there for a year or two
Sell that house without paying Capital Gains Tax /or keep that house and rent it out if you can afford to
Buy another property that is likely to experience capital growth soon
It’s disruptive and of course it helps if Handy is in your skill set, but this is just one example of Thinking Outside the Box when it comes to property!
If you’re interested in learning more about it all, head to the First Home Buyers Hub and have a look at the resources there (paid or free).
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