Your property portfolio should provide high rates of return as the real estate market surges in value. However, easily made mistakes may substantially impact your ability to profit from real estate investment. Adding lucrative properties to your portfolio whilst keeping risk in check is a must, but how do you achieve this goal? Here are five things that you need to evaluate as you establish and maintain your property portfolio.
1. You're buying in the wrong locations
Are you buying property in potentially risky areas because of the great deals that can be found in these unpopular locations? There is a reason for the cheap price tag on those properties - consider unloading these high-risk investments in favour of more valuable properties that will sell more quickly when the time comes to cash in. Location is key, so select areas with strong, steady, predictable growth. City centres often boast the biggest returns, but there are suburbs across the country that are growing rapidly and reliably as well.
2. You don't tap into the potential of your investments
Investors often purchase a property and let tenants move in right away. In this instance, there's no time to execute value-adding renovations, however a few simple fixes could greatly increase the value of the property. Are you guilty of buying a property and leasing it out as quickly as possible? It's understandable that you want to make money right away, but real estate tends to be a long-term investment. Renovations increase the value of the property when you sell it in the future, but you'll also benefit in the present. Renovated properties can be leased out for a higher fee.
3. You invest in old properties
You may be attracted to older properties because of the discounts offered on these buildings, but buying old buildings more cheaply comes with a substantial risk as time goes on. Costly repairs and maintenance fees often drain any profits that are made on older investment properties. The safer investment decision is to select newer properties to invest in when possible. Choosing to do this even allows you to claim depreciation on the property, providing you the added benefit of reducing your tax liability.
4. You don't build relationships with your lenders
Have you obtained financing from several different lenders? This method does have its benefits, but building a relationship with one or two lenders can save you money when you're investing in real estate. An established relationship with a lender means that you have the power to negotiate rates down when you're adding a property to your portfolio.
5. You keep your LVR over 80 percent
A loan-to-property-value ratio (LVR) that is under 80 percent is a must when you're investing in real estate. Maintaining an LVR above this percentage means you'll have to buy costly mortgage insurance that will reduce the return on your investment.
For more tips and guides on property investment, browse the Mortgage Choice property investment guide page and download further reading to increase your investment knowledge.