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Ben Kingsley Blog post by Ben Kingsley

Before You Build Your Portfolio, Ask Yourself…

Are you thinking about investing in property? Not sure how many properties you’ll need to retire on a decent passive income? Not even sure where to start? If you’re even remotely considering property as the wealth creation vehicle for you, it might be a good idea to read this Special Report from Your Investment Property Magazine because our founder and managing director, Ben Kingsley, gave away all of the things you want to do BEFORE you build your property portfolio – even including a checklist to make the process easy for you!

 

We’ve included a breakdown of the “best bits” of the report here, but for the full article, please click here or on the image in the corner.

Before You Build Your Portfolio, Ask Yourself…

  • Have you modelled the numbers in detail – not just purchasing costs but ongoing holding costs?
  • How much research have you done on location, regarding the level of demand and the supply of property in the area?
  • Have you factored in any change in income in the future? That is, if you plan to start a family, will you go down to a single income for a period of time? If so, how will that impact on your ability to keep the

    investment property?

  • Have you factored in an amount of funds as an emergency buffer? If (or more accurately, when) something goes wrong unexpectedly and you are left out of pocket, have you got a six month or 12-month buffer to cover you until you get back on your feet?
  • Have you factored in the change to your cash flow when your loan/s move from interest-only to principal and interest down the track?
  • If you are going to try to manufacture a return via renovations, subdivision, etc., how much knowledge, skill and time do you have to achieve this?

     

 

How Many Properties Do You Need to Retire?

“You don’t need 10 or 20 properties – two to five really good ones will do all the heavy lifting you need to achieve your financial goals,” Kingsley says.

At the very least, for those on average incomes, your goal should be to replace your income in retirement with your mix of superannuation and potentially other investments, which might include shares, managed funds or property. Those who shoot the lights out by generating over $100,000 in passive income in retirement would, more than likely, have been disciplined with their money, invested wisely and, more often than not, started their investment journey early.

But investing is NOT just for the rich.

Contrary to popular belief, and indeed a lot of misconceptions out there, you don’t need to have a big income to invest in property; you can look for properties that offer a good mix of rental income and capital growth. And you can move “The Four Levers of Property Investing” according to your unique situation.

 

The Four Levers To Property Investing

  1. Income is where it all begins, as it dictates how big a loan you will be able to get; naturally, it also determines how much your net profit will be after accounting for expenses.
  2. Expenditure is what many struggle with and what aspiring investors have to overcome, especially in today’s instant gratification culture in which the temptation is to live – and spend – in the moment. You need to balance being able to live comfortably today with budgeting well enough to live comfortably tomorrow. (Need help? Try Money SMARTS!)
  3. Time is your deadline: when you want to be free of the typical rat race. While most of us want to stop having to work as soon as possible, the feasibility of this varies, and so you have to set your own investment timeline based on your income levels and spending habits. Your timeline helps you refine your target, which ultimately shapes the kind of portfolio you construct.
  4. Target – or your goal – is the most crucial aspect of investing, whether you do it for the purpose of early retirement or not.

If your target is only to have a comfortable retirement income – no investor will be targeting a basic or standard living in retirement – then the time to achieve this target might be in earlier retirement. If you want a bigger wealth base and passive income in retirement, then you might need to extend the time frame out to, say, 65 years of age. You must be diligent in working through each expense item, based on essential spending and discretionary spending, to trap as much surplus as you can and then put it to work as soon as possible. (Again, Money SMARTS. It will dramatically change the game for you.)

With this in mind, you can begin to work out the right strategy to apply to your investment portfolio.

“Once you know the surplus you have and the borrowings you can obtain, you must go after the best-suited property you can. If your surplus is strong, you can focus on capital growth properties, given that, traditionally, these offer less rental yield and hence your own money can cover the shortfall,” he says.

If, however, you have less surplus, the pendulum swings in the other direction to chase high-yield, cash flow-style properties – just make sure they don’t also have high holding costs! Generally, most investors will be in the middle, with a surplus that’s neither particularly high nor especially low. As such, the best approach would be a balanced property portfolio composed of investments that produce ‘middle of the road’ yield but have potential for longterm growth.

 

Where Should You Invest?

Different locations and properties can deliver different returns. Right across Australia there are different price points you can enter the market at. Your job is to find the best locations that will deliver the best returns.

For more location tips, please visit our Property Research Videos.

 

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