Property portfolio: what it involves and how it works

A bank's guide to building a property portfolio starts with the idea that a home owner might use equity in their current property. It suggests speaking to a lender to learn what the property might be worth and how much equity it could hold. If the property was bought recently, the guide notes that the equity may need time to grow. Once there is enough, the guide says it could go towards a deposit for another purchase.

The guide also covers defining an investment strategy. It asks whether the aim is rental yield or capital growth, and notes that a strategy delivering both is not always possible. It explains that, broadly, a positively geared property has gross rental income greater than the ongoing costs of owning it. A negatively geared property has rental income less than the loan repayments and other costs. The guide says losses from a negatively geared property can be offset against salary, reducing taxable income.

A property blog describes four main stages that a portfolio generally goes through: acquisition, consolidation, debt stabilization, and exit strategy. The blog says building a portfolio is different for every individual, and that the stages are kept broad because situations vary. It suggests starting with the exit strategy, which aligns with a person's goals. Common goals mentioned include financial freedom and wealth creation, though the blog notes these can take different forms.

The blog describes the acquisition stage as acquiring property over time, with the pace depending on income. It says asset selection is essential, because a poor choice can take a long time to show growth, or even negative growth, slowing the ability to use equity for further purchases. The blog claims that most investors get stuck on only one or two investment properties, limited by their income and borrowing capacity.

The blog goes on to describe the consolidation stage as a shift away from aggressive purchasing. It says this is a time to review the performance of existing properties and decide whether any are holding the portfolio back. The blog notes that some assets might be worth selling if they are not performing, though the blogger says they are not a fan of selling property in general.

Debt stabilization is described as either paying down debts as fast as possible or, for others, this may mean stabilizing the portfolio's loan-to-value ratio to continue buying cash flow positive properties. The blog says some investors prefer to increase debt and live off equity, waiting for property cycle peaks to refinance. The exit strategy stage is when a person either reduces debt until properties are paid off or lives off excess rental income, sometimes by selling some properties and using the profit to pay off debt.

The bank's guide suggests setting aside money for costs such as council rates and management fees, as well as home insurance for landlords. It also mentions periods when the property may not be tenanted. It notes that investing in property always carries risk, and suggests doing as much research as possible to reduce the risk of something unexpected happening.

The property blog also notes that there is no right or wrong time to get into property, but it adds that a person needs to be able to afford to get in, have the ability to borrow money, choose what it calls A-grade investment properties, and be able to hold onto them for the foreseeable future. The blog says these blogs are its opinion and general in nature, and that readers should seek their own professional advice.