Why should you expand your portfolio?
One of the reasons why investors expand their portfolio is to grow their wealth and equity. This can set them up for success in the future, such as when they retire or need to cash out the equity for a personal goal.
Expanding your portfolio equals more investment properties. And having more properties means there can be less investment risk. If something happened, like a tenant missed rent or a home got damaged, because the investment is spread out across multiple properties, the risk is reduced. But it’s always a good idea to get risk advice from the professionals.
What should you do before you start growing your property portfolio?
Before you find new properties to invest in, there are some things you’ll need to do first.
- Consider your plan of attack: Working out your goals and how much risk you’re willing to take can help you work out your portfolio expansion approach. Do you want enough properties for an inheritance? Or do you want to increase your capital growth? Think about your goals and how expanding your property portfolio can help you reach them.
- Research the market: Doing some investigating is something all investors can do to successfully expand. Staying abreast of the property trends can help you adapt your investment plan to what’s happening in the market.
- Draft up a financial plan: Making a financial plan can help you know where you stand with your money. What’s your borrowing power like? Do you have enough of a deposit for another investment property loan?
Smart strategies for expanding your portfolio
There are multiple methods investors can implement to expand their property portfolios.
Usable equity and cashing out
If you’ve got some usable equity available, you can cash it out to help you buy another investment property. Your useable equity is as the name suggests – equity from your existing property that you can use. Of course, you might not be able to access allyour property’s equity, so it’s worth speaking to your lender to work out how much you can receive.
Diversifying into different types of property
Diversification means you invest in different types of assets to make your portfolio diverse. When it comes to property, you can diversify your portfolio by buying a mixture of property types. Think an apartment in the heart of the city or even a block of land in a rural area. Another way to diversify your property portfolio is through geographical diversification. This is where you buy property in different states to try and capitalise on different markets.
Focusing on cash flow
When researching your future investment properties, you can do some hard work to make sure those properties have a higher chance of positive cash flow. This can help you earn a consistent passive income and make it easier to pay off your new investment loan. You can also reinvest the profits from your current property to buy another investment home.
When is the best time to expand?
There’s no one right time for expanding your investment portfolio. At the end of the day, it comes down to your individual personal and financial needs. You can ask yourself some questions to start thinking when you can expand.
- What is the property marketing doing?
- Can you afford to purchase and maintain an investor property right now?
- Do you have a steady and sufficient income? Will this continue for the next seven or 10 years?
- How will your financial needs change overtime?
How much deposit do you need for property investment?
You’ll need a deposit that’s worth at least 20 per cent of the new property’s value to avoid paying Lender’s Mortgage Insurance (LMI). We understand that saving for a home deposit can take a while – especially if it’s not your first investment. But you can access your usable equity and use those additional funds for the deposit for your new investment.
One more thing: Expanding your property portfolio takes time. You won’t see the fruits of your efforts straight away. But watching your wealth and wallet grow in the long-term will be well worth the wait.