How many properties does it take?
A great question from one of my property investors:
A little question was nagging me today Brett. In the current property investment circumstances, how many properties (or in cash terms if you prefer) do you consider as being the “tipping point” for a momentum to ensuring one can achieve the 7-10 properties without further leveraging one's other resources such as one's residential equity, other saving, other loans etc? In other words, is there a point where you consider a portfolio as having developed a self-sustaining momentum to ride on its own steam but not having to wait for yonks for the equity to grow?
Great question Borie! OK – the easy way to answer these questions is – it varies. The harder way I will detail below but it still leads to the same answer as before.
There are so many factors at play in your portfolio that no-one can say exactly when your portfolio will run off its own steam.
This is always the starting point for every portfolio answer. The investment strategy you use will depend on the results you achieve. If you are prepared to put the time in researching and finding deals, developing relationships with agents then you can probably pick up a deal here or there. The specific strategy I use is a newly built one. This means that I choose to have lots of time over some of the best deals that are out there.
Let me explain what I mean. If you are prepared to put the time and effort in you can search down some fantastic deals. Now, normally these are simply one property here and one property there. The deals are everywhere but you need to put a lot of time and effort into finding them. More often than not these deals are better than any property club or investment consultancy could ever provide and the reason for this is simple. Property investment clubs need to do bulk deals so they simply cannot provide the best of the best deals as they lose sometime in the volume. Now what you lose in the deal you pick up in the ease of purchase and the fact that you are putting very little time into the deal. This frees your time up for your lifestyle. For my lifestyle is more important than constantly pushing for the best deal.
So it will depend on the structure you adopt, if you are doing all the work and searching a deal here or one there then this will decrease the time to momentum, if you are using a property club then it will be increased.
How you structure the deal is vital. Using an investment company means that you can structure the deal in such a way as to put in as little money as possible so you have more to purchase more property. Doing it yourself means that you will be putting in the full amount so you will require more time to momentum. Now, this last statement will raise a lot of controversy in some circles and I agree if you know what you are doing and are happy to “walk the line” you can structure with minimal outlay but for the average investor this would be a line not worth walking.
Stage of Cycle
This is fundamental, assuming you are in the galloping stage of the cycle you will normally create significant equity and move to a position of momentum. If you play your cards right, by the end of this cycle you will be able to operate your portfolio under its own steam. Of course, this always depends on your circumstances and the amount of risk you have managed. Let's face it over the course of the galloping cycle your property should double in value.
This is the major determinant as to how fast you can grow your portfolio. If you have $100,000 you will be off and racing a lot quicker than $25,000 and $500,000 will give you a massive head start.
Income or Cash Flow
If you have a $100,000 income versus $18,000 you will also be able to move a lot quicker.
There are a few more that we could speak about but in truth the answer to your question is simply it depends, there are so many aspects and variables that you can only work this out with an experienced portfolio manager and a great understanding about the market.
I believe that you can set yourself up in the position that your pension is secured with 1 cycle or 7-10 years. I truly believe this and this is why I focus on taking all of my clients from 0 – 10 properties, providing all the education, experience, and support they need along the way.
How long it takes? Well, that's really up to how much you want it? But that's a different topic of discussion.
Live with passion,