We are often asked by clients how to buy more investment properties – and there is no simple answer. Every individual has a different investment strategy which is shaped by their unique objectives and financial situation.
There are many reasons why people buy investment properties. For some, they may purchase an investment property, and that’s it. Their goal is one property to supplement their income, or to provide for their family in the future.
Others may have more ambitious goals, with an aim to create a portfolio of investment properties.
But regardless of your end goal, it’s not something you can just jump into.
To help you get started, we’ve created a step-by-step guide on how to minimise your risk when buying more investment properties.
Here’s how to do it.
Step 1. Evaluate your current equity position
The first tip on how to buy more investment properties is to evaluate your current equity position. The equity you have in your current home could be the key to starting your investment property journey.
Equity is the balance between the market value of your home, and the balance you still have owing on your home loan. We’ve discussed equity before, as it can be a significant financial resource that you can leverage when looking to invest.
So, your first step should be to review your equity position with your finance broker. They can evaluate your current position, and tell you if there’s equity within your existing property, or portfolio, that you may be able to leverage. They’ll then be able to identify how much you need to save for a deposit on your next property.
Step 2. Consolidate any unnecessary debts
Reducing your level of debt improves your position to borrow.
The fastest way to reduce debt is to pay down any unnecessary debts. It could be credit cards, personal loans, or a HELP or HECS debt.
But when undertaken in isolation this can be difficult. Part of your finance review will be to identify opportunities to consolidate your existing debts.
Your broker will work with you to identify opportunities available. It could be getting rid of unused credit cards, or reducing credit card limits that are higher than necessary. After all, how much do you really spend on your credit card? These are liabilities, and serve to weaken your investment position.
Your finance broker can also ensure that you’re getting the best interest rate on your mortgage. Sit down with them and find out if your interest rate is still competitive. Could refinancing help you reduce your monthly repayments? Or are there ways to increase your number of payments to reduce the amount of interest you pay?
Step 3. Review your existing portfolio
Owning investment properties isn’t a set-and-forget affair—they need regular management to ensure they’re still performing the way you need them to.
Your finance broker can help you review the performance of the properties in your portfolio. They may be able to identify opportunities to improve your portfolio’s performance, maximise your cashflow, or optimise your equity position. It may be as simple as renovations to your properties that enhance your capital and increase your rental value—but it’s always worth your time to seek out this advice.
An important question that can get overlooked is whether your existing properties are aligned to your property goals.
As an investment, just owning a property isn’t enough to help you reach your goals. So, review your properties and confirm they’re all actually working towards your goals.
There may be the opportunity to sell a property, enabling you to free up equity, and open up the chance for new properties, sooner.
Step 4. Establish the right property strategy moving forward
Once you’ve reviewed your property portfolio, cut any dead weight, and improved your equity position, your property adviser can help you establish a robust investment strategy for the future.
Whether it’s acquiring more residential properties for capital growth, or acquiring more cashflow-focussed properties to diversify and balance your portfolio, having a clear goal in mind helps define the types of properties you want to acquire for your portfolio.
To do this, you may want to consider factors likes:
- Do you already have too much exposure to a certain asset type, or in a specific location?
- When are you planning to retire? It may be a long way off, or it might be within the next ten years; it’s wise to consider property strategies that support your life plans.
- What’s your appetite for risk? You might be comfortable opting for a low-risk strategy—or you could be the type to feel comfortable taking on more risk in exchange for higher return potential.
Step 5. Structure your loans correctly
As your property portfolio grows, your lending portfolio naturally becomes more complex. So, it’s crucial that you have the right loan structure in place across your properties.
Having the right loan structure can help you to expand your portfolio further in the future, while potentially limiting your risk exposure in the case that one or more of your properties underperforms.
It’s also wise to avoid cross-collateralisation. This is when you have loans secured by multiple properties.
In doing so, things can get messy. Lenders typically won’t issue second mortgages because this takes away their control over the property, and they can’t hold the existing property title as security—it’s already in use.
So be sure to speak to a mortgage broker who understands your needs as an investor. They can talk to you about ways you may be able to structure your portfolio so that it minimises your risk, while maximising future borrowing potential.
Make an investment in your investment strategy
Growing your real estate investment portfolio can be exciting, there’s no denying it. But it’s important that you go about it the smart way.
Getting the right advice is an investment in itself. Partnering with a property investment company that gets you, enables you to gain the confidence you’re making the right choices for your investment strategy—and peace of mind that you’ve got the right support in your corner.
For more information on how to buy more investment properties, to discuss your investment strategy, or to find out more about our service offering, please contact our friendly team today.