Why Portfolio Reviews are Essential

The buy and hold strategy

For most Australians who are looking to build wealth through property, one of the most popular strategies is the ‘buy and hold’. While there are other strategies that include buying and selling over short periods of time, or property development which can generate greater returns, buy and hold offers less risk and time spent strategising when building wealth. Unless you plan to give up your day job and invest a lot of time in property investment, buy and hold can work very well over time.

The purpose behind the buy and hold strategy includes the following:

  • Buy as many properties as necessary to achieve financial goals
  • Only sell properties if it is required to achieve financial goals or the property is no longer performing

As this strategy relies on the equity and income that is accumulating and growing over time, it is essential to maximise your results by following a number of rules that work towards ensuring you can buy as many properties possible. The total value of your portfolio, types of property and the power of time will determine how quickly you can achieve your goals.

Rules to building a substantial portfolio:

  • Be clear on your financial goals and time-lines
  • Maximise your leveraging capability
  • Understand how borrowing capacities are calculated
  • Ensure you maintain your buffers
  • Invest when you can next afford to (nothing to do with timing of the market)

How do the majority of property investors invest?

I’ve had the pleasure of observing this process over the past 10 years as a buyers advocate, and it amazes me to see that most people will spend more time on planning a holiday than they do with planning one of the most successful strategies to achieve financial freedom.

  • They finally decide to bite the bullet and buy an investment property, as most people understand that unless they do something they will fall behind
  • They jump online to look at what’s available in their local area and what they think classes as a good investment
  • They speak to the bank to ask if they will provide the loan, without having any real discussion about loan structure and long terms goals
  • They attend a few open for inspections and overlook some quality investment properties- simply because they personally wouldn’t want to live there
  • They become a little frustrated with the whole process and especially towards the agents, having already missed out on a couple of auctions
  • They finally find they win an auction for a property that they hope will provide the solution to their investment goals
  • Having felt that they’ve done enough for now, they decide to maybe look at another property purchase in 2-3 years
  • In 2-3 years, they follow the same routine above and end up with a second investment property.
  • They ‘um and are’ about when to look at buying a third in the future because both properties are negatively geared, and costing them over $200 per week out of their pocket.
  • Three years down the track they consider a third investment but the banks knock them back, even though they have plenty of equity in their properties.
  • They give up and reserve themselves to owning just two investment properties, or end up selling both as they believe property investment is too slow at building wealth, and end up looking towards other wealth creation strategies

Video: Gary’s Portfolio Review