How Long Does It Take To Build A Property Portfolio?

While some people who choose to invest in property would rather purchase just one buy to let investment, many others choose the option of starting a property portfolio.

There can be many benefits to property portfolios compared to owning only one investment, such as access to multiple streams of income.

To succeed, however, you need to create a successful property portfolio strategy.

When people see the results of our clients, they often wonder how they have been able to build a property portfolio of so many investment properties within a relatively short period of time.

A webinar participant asks, "What is a realistic number of properties you can acquire in your first year of starting to invest in properties?"

Each year thousands of people become landlords or take on a property with the only intention of selling it on.

With so many of these entrepreneurs, sharing stories of profit and easy income from such investments, it can lead one to wonder how long it takes to build such a successful empire.

Here we breakdown the details of building a portfolio, and attempt to uncover just how long it can take to reach the reward.

The most effective way of creating a portfolio of eleven houses from $50,000 is to use what is known as a two plus one strategy.

The principle behind this strategy is not so much to have a solid plan for buying properties but to have a solid plan for selling them.

The truth is anyone can build a property portfolio without needing a large amount to invest.

With the right method, a lot can be done with little.

So, if you have three houses, you should always be ready to sell two and keep one, or ready to keep two and sell one.

Ultimately, the trick to this property strategy is always to have a plan for bringing money back into your pot so that you can re-invest it and grow your portfolio.

Because one of the downsides of building a property portfolio is that, if you find just one property to put (all) your money into (say, $50,000), then you will have to wait for the property to grow significantly in value before you are able to sell or refinance the property without making a loss.

It is this waiting for growth that more-often-than-not stops investors from being able to grow their portfolios quickly. If you are waiting for your investments to grow in value, or if you are trying to save for a deposit from your rental income, it is going to take a long time.

Getting Started

The housing market is a gold mine of business investment opportunities, but deciding to plough thousands of pounds into any form of purchase will take some time.

To begin with, it's important to research the location thoroughly to ensure that there won't be any nasty surprises lurking around the corner.

On more than one occasion, home investors have been stung by planning disputes, unappealing landmarks and community created footpaths that lead onto their newly purchased property.

Alongside this, there could be backdated rent left by previous tenants, or you could find out that the home is a listed property and cannot be extended on; meaning any plans for expansion will be nullified.

Unfortunately, much of these checks can come at a cost and also rely on local authorities, most of whom have an expansive backlog which may mean delaying the sale.

These factors often slow down the process of building up your property portfolio, and such bureaucracy has often been a sticking point for prospective landlords.

Due to the reliance on agencies and authorities it can be hard to pinpoint exactly how long this process will take, and it's worth noting that investing in a second property does require a large amount of patience and tolerance.

What is a Property Portfolio?

First things first, you need to understand what a property portfolio is.

Building a property portfolio in Australia means to purchase a number of buys to let investment opportunities with the aim of generating a significant return on investment – more so than you would with just one property.

Those who want to know how to start a property business and turn their buy to let efforts into a full-time career will typically need to own a sizable portfolio of properties.

The time it takes to build a property portfolio can differ. If you have a good knowledge of the property market and have created a solid strategy, it's possible to build a property portfolio in one or two years.

However, this depends on the amount of money you have available to invest and your mindset.

Some of the most common benefits of building a property portfolio include the ability to diversify your investments by purchasing a range of different properties, which also spreads your risk level.

Many of those researching how to build a property portfolio will be doing so in order to lessen the risk that can come with investing.

By purchasing different properties in different areas, investors can still gain rental income and returns from one property if another was to fail in some way.

Start Right by Learning About Real Estate Investing

If you want to become a truly successful real estate investor, you need to learn everything you can about every aspect of the industry.

So, the first step is to study the different aspects of investing in real estate.

This includes knowing how to do your due diligence, the steps of buying a rental property, the drivers of property price growth, and the housing market trends that affect your investment.

Furthermore, every real estate investor needs to know how to find and analyse investment opportunities.

After all, you should only buy the best investment properties that will yield profits and allow you to keep growing your real estate portfolio.

If you don't know what cap rate, cash on cash return, or rate of return mean, it's time to start learning! Head over to our real estate investment blog to immerse yourself in real estate and understand every aspect of the game.

Think ahead

Like chess, successful buy-to-let investing requires forethought and the ability to think ahead.

Knowing what your short-term, mid-term, and long-term plans are is essential if you want to stay on track whilst maintaining the ability to pivot should changes in the property market occur.

Layout a 12-month, five-year, and ten-year strategy with financial plans incorporating buying, selling, and borrowing to give yourself the best chance of success.

A Financial Plan

As a real estate investor, you need to know how you will finance your purchases. Do you have enough money saved for a down payment to get a mortgage loan?

Did you consider other investment property financing methods like hard money or private money lenders?

Your real estate portfolio also needs to include improvement costs as well as monthly operating expenses.

Finally, you should include your overall financial goals in your financial plan to make sure your property investments will deliver those.

Timing is everything

Investing is all about peaks and troughs; some times are good, other times are bad.

Good investors build property portfolios at the right time and stick with what they have through the tough moments, so knowing when to be bold and when to hold is key to success in the property market...but how can you tell?

For property owners seeking comprehensive asset management, a seasoned property advisor can provide strategic solutions for sustained growth and success.

Well, no one has a crystal ball, but there are indicators to look out for.

Examine previous trends, go micro and explore what has happened locally. Look out for big investments happening elsewhere in the area (is there a new retail park opening that'll need staffing, for example).

Timing is everything, but knowledge is key, too.

Selling Your Properties Strategically

Selling your properties with a plan in mind, is the secret to building a portfolio quickly. If you have three properties and no additional funds, you should be prepared to sell two of them.

If you have access to some additional finance, then you might only need to prepared to sell one.

If you want to grow your portfolio a little slower and are a little risk-averse in terms of the number of houses you want to take on in the early days, then it could be that selling two properties and keeping one would suit you better.

The trick is to keep selling, build a bigger deposit pot, keep buying and keep growing your portfolio.

People Problems

Although thousands of buyers have seen incredible success along their journey to amassing a property portfolio, very rarely do you find one without a horror story in regards to previous tenants.

Unfortunately, it is not uncommon for tenants to miss payments and refuse to vacate the property, and this can mean landlords have to pay thousands in legal fees to force the occupiers to leave in order for them to sell the property onwards and recoup their losses.

Alongside this, there have been numerous cases of tenants causing damage to properties and costing landlords thousands in repairs.

There have also been examples of tenants vacating the property amicably only for landlords to discover the extensive damage later on.

While these cases are rare and should not put you off investing in the housing market, it's worth keeping in mind that your dream of an extensive property portfolio may be delayed simply by other people and human error.

The housing market is an incredible way for prospective investors to gain independence or increase their pensions after years of work, and there's no denying that it has proven to be a lucrative market to those who have dared to dream.

Unfortunately, setting a date or timescale for when you can assemble a million-pound portfolio can be difficult due to the large number of variables involved in joining the property ladder.

Rental Real Estate Portfolio Purchase Deals

We all know about foreclosures and the great deals that can sometimes be found. However, the heyday of massive foreclosures with owners in place is over for the recent crash.

Many of the foreclosures you'll find today will be in poor condition, some vacant for a year or more. This doesn't mean you shouldn't constantly be following foreclosures through sites like ​RealtyTrac.com.

They're still happening, and you can grab a good one in rentable condition now and then.

• Owners in distress: Constantly monitor media and online sources for owners who are in distress. These are people who for financial reasons must sell their homes in a hurry and in a situation that can result in you buying below current market value. Perhaps they have medical expenses, have been laid off at work, or they need to move for employment in a hurry. Do keyword searches on Craigslist for listings by owners with phrases like "must sell", "taking all offers," etc.
• Pre-foreclosures: Pre-foreclosures present an opportunity for investors to locate properties before foreclosure that they can buy at a discount to full market value. Realtytrac.com and other sites have sections just for these listings.
• Work with good wholesalers and fix-flip investors: Real estate wholesalers that are good at what they do can be a great source for rental homes. If they understand their role in selling to rental property investors, they know that you want to buy below current market value and that the properties should be ready to rent. Fix and flip investors also sell mostly to rental property buyers, so they know what you want and definitely provide a ready-to-rent property.

How Long Does It Take To Build Up A Property Portfolio?

One of the main problems with those new to the property investment market can be a lack of patience and forward planning.

Many often ask, how long does it take to build up a property portfolio – the answer to which is, how long is a piece of string? There are obviously ways and means of building up a property portfolio with a varying degree of risk.

They buy a house, then maybe another house, then a few years later another one. They are growing their portfolio linearly.

Nothing wrong with that. It's just slow.

If you want to achieve faster growth, you've got to grow exponentially.

And that's where the stack comes in.

Let me show you a hypothetical example of what I mean.

In theory, the less risky and more long-term approach to property investment is to acquire buy to let real estate, install tenants and use their income to pay off mortgage finance.

While it is not quite as simple as that because there will be additional costs associated with managing properties, repairs, etc. in theory, the structure is relatively simple.

After your initial buy to let property investment has been running for a few years, you will, in view, have built up equity in this property as you pay down your finance.

If, as many landlords do on a regular basis, you are able to push through even relatively small rental increases on an annual basis, this will, in theory, reduce the repayment term for your mortgage.

Alternatively, you can maintain the same monthly mortgage payments and use any additional capital, together with perhaps a second charge mortgage on the equity in a property, to acquire your next buy to let investment.

Once you have multiple rental income streams and you are able to push through rental increases, this will give you further financial firepower.

There is also the potential to crystallise capital gains in the longer term which can be used to fund perhaps better value investments further down the line?

If you read about those who flip property investments, it all sounds very adventurous, very exciting and very easy.

Even though there are many properties out there which require tender loving care, it is not always easy to obtain them at competitive prices.

Those who are successful in the world of flipping properties are able to acquire assets below their perceived market value, redevelop them and sell on for significant gain.

Even though many of these investors will have funds available, there are some who will use short-term finance such as bridging loans to acquire property, redevelop it, flip it very quickly and pay off the short term finance, leaving the rest as profit.

Those looking of to create significant profits going forward can either use these additional funds to flip bigger and more expensive properties, where there may be more profit margin, or introduce more traditional long-term property investments to their portfolio.

This option is a lot riskier than a simple long-term buy to let investment strategy, but if your timing is correct and you obtain the best buying and selling prices you can create a significant gain "out of nothing".

Conclusion

Flipping investment properties and building up a long-term buy to let property portfolio are, in theory, the two ends of the property investment spectrum when considering the potential risk.

Investment in the property should always be seen as a long-term strategy, although some people certainly have a knack for acquiring short-term investments and creating significant profits.

In real life, the majority of property investors will probably settle for an investment strategy somewhere between these very opposite ends of the spectrum.

There you have it – a guide to building a real estate portfolio from scratch that you can follow today! Whether you're starting from scratch or looking to grow, we'll help you out using the best real estate investment tools an investor can ask for.