Taking The First Steps
Most successful investors will agree, purchasing your first investment is the hardest and it will only get easier from there. Generally speaking, this is due the hard yards that were put into years of saving for the initial deposit.
In regards to ‘it gets easier from there’, well that will all depend on the performance of the property. If the property increases in value over the next 18-24 months and substantial equity is created, whilst the investor continues to save, they could potentially look to increase their property portfolio by extracting the equity and applying leverage.
Leverage The Equity You Have Created
Saving a deposit can be a slow process, however if your first investment property purchase was well selected, in a growing market, you could potentially access the equity created and grow the wealth of your portfolio much quicker. If you originally secured a property for $400,000 and assume it goes up in value to $500,000, the property has effectively created $100,000 in equity.
Now you could look to sell your property and keep the cash left over; in this case $100,000 (minus expenses). But, if you’re looking to build a property portfolio, create long term wealth, and generate passive income, it is ideal to hold onto the first property (and the second property) as this will increase your total asset base.
You can borrow money against the equity generated from the first property (usually up to 80% of the value of the property). In the above example, the investor could access $80,000 equity. This is the beauty of property investment and when building a portfolio truly does ‘get easier’. You can use your equity so that you don’t have to use your hard earned savings anymore to purchase another property - the deposit for the next property is paid for by the equity generated by your previous purchase.
With increased exposure in carefully identified markets, a savvy investor can potentially generate a larger amount of equity in a shorter time frame. In turn, this equity can be utilised to accumulate further properties and expand one’s property portfolio; allowing an investor to realise their net-worth goal sooner.
As an investor, you never want to overextend yourself when it comes to taking on debt. Make sure you can comfortably make the repayments on all loans and always aim to have a healthy savings buffer in place, for any unforeseen circumstances; remembering to review your current portfolio every 12 months.
As always, the first step is awareness and education, so be sure to speak to a qualified mortgage broker in regards to your current borrowing capacity, as well as reviewing your current equity loans, and discuss potential for growing your property portfolio.