Most property investors want to gain financial success through building a multi-property portfolio than just being stagnant with one. They usually think of having a multi-property portfolio for their goal of having secure financial freedom during their retirement. Others consider this type of investment so that they can leave a property for each of their children. While some investors look into property investments to gain passive cash flow.
Whatever your motivation, getting a clear and efficient plan from the start will make this challenge more manageable. Most of the time buying one property can go smoothly without too much planning, but building a multi-property portfolio is a different thing. This requires proper management and strategies that will help you optimise tax, cash flow, and preserve capital while reaching your goal.
When building a multi-property portfolio, here are some of the few steps that you can take:
1. Confirm your current financial position
You need to know your starting position and what resources you have available to get started. How much “usable” equity or savings do you have? What surplus income do you have or are prepared to use in supporting your plans? Do you want new or older established properties? There can be a big difference in the cash flow, before and after tax for new homes. Purchasing a house and land package can save on Government stamp duty, therefore requiring less of your equity or savings.
Your current serviceability (borrowing capacity) and the deposit or equity you have available to buy properties are some of the factors which can hinder your plan. These factors will determine how many properties you can initially buy and how fast you can grow your portfolio. There is no point looking to buy say 3 properties at $400,000 each straight up, if your borrowing capacity is only $400,000.
2. Seek the help of a good finance broker
When looking for a finance broker, make sure that he/she:
- Understands how taxation works.
- Uses the smallest amount of your equity or savings.
- Knows what structures are allowed by the Australian Taxation Office.
- Optimises your cash flow.
- Reduces your ongoing commitments (home loan and mortgage).
- Protects your personal home.
Consulting with an experienced property investment company also helps. Your mortgage broker should have a holistic approach in developing a strategy for financing multiple property purchases. This will include looking at using different lenders, lender mortgage insurers and valuers for each property purchase. They will give you suggestions on how to restructure your current loans to increase your new borrowings. Financing for one property is easy; having the ability to finance a growing portfolio requires strategic planning from a specialist.
Note: Every plan to structure finances will be different as every investor’s personal situation is unique.
3. Put importance in releasing equity
Be very careful when asked to cross-collateralise your home. Cross-collateralization can be very inefficient. This type of structure gives lenders too much control over your home and investment properties and limits your flexibility for growth or managing your portfolio.
Your financial profile dictates the choices you have in releasing equity. There are a lot of easier ways to release equity when adding properties to your existing portfolio. Bank lending officers may not be able to help you out in this situation that is why getting an expert finance broker will be very beneficial. Widening your options with other lender products may also suit you better. Keeping your finances’ with the maximum flexibility, reducing risk, optimising the cash flow and minimizing tax deductions can still be achieved through these various ways.
4. Create the right plan and structure from the start
Always remember that the key to a successful and enjoyable experience with multi-property investments lies in planning ahead. Time spent in getting the right finance structure from the start is also extremely important. It is better to start off with a good plan than rushing head on into a purchase.
But most importantly – don’t procrastinate! Start taking action today! Book your FREE Strategy Call with us now.
Properties4U has many years of experience advising clients regarding their property investment portfolios.