The world is slowly recovering from the recession, and the property market seems to be steadily picking up everywhere including Australia. Real Estate in this beautiful country has finally hit the rebound with property values starting to record a slight increase than previous years.
It is yet again time for real estate investors to reap the benefits after many years of losses. Many buy-to-let investors are now considering expansion to maximise profits. A good number of investors that had maintained and properly managed their investments have been able to live through the downturn. In fact, many of them flourished in the hostile conditions. At the moment, as activity in both the rental and sales market is starting to stabilise, expanding your real estate business looks realistic.
Some experts suggest that the buy-to-let boom might be over. Certainly, beginners who may not have carried out market research would be likely to find the current market environment difficult. However, for those that already have a decent portfolio as well as some cash to spend, now may be the best time to expand.
Why Do You Need To Build On Your Portfolio?
There are several reasons why you need to have a larger portfolio when trading in property. Some of them are listed and explained as follows;
1) To Increase Profits
It is undeniable the biggest profits can only be made as a result of expansion. As you build on your existing portfolio, your profit-making potential doubles. For instance, an investor with five properties has double the profit-making potential of an investor with three properties.
2) To Spread Risks
Just like any other business, real estate has a number of risks, which can bring an entire business empire down if not spread well. A larger portfolio lets you spread risks more effectively. Non tenanted properties can set you back financially especially if you rely on a single property. The risk drops significantly with every addition to your portfolio. A larger portfolio can also give you an upper hand when securing credit since there would be more collateral against which to borrow loans.
What Are the Risks Associated with a Larger Portfolio?
Everything has its advantages and disadvantages, and the same applies when you have a larger portfolio. There are certain dangers of expanding a property portfolio without a proper strategy, some of which have been explained below;
1) It Could Put Your Financial Security In Jeopardy
As with any investment, if you grow too fast you could endanger your financial security in a number of ways. You might decide to finance your second or third purchase by re-mortgaging your existing property. While this is not a bad idea, doing so could cause cash flow problems and threaten your ability to secure a good mortgage rate in the future.
2) Your Monthly Income Might Go Down
If you remortgage your property, then your monthly payments are likely to go up. The consequence of this is that the rent may no longer be adequate to cover all your expenditures. In addition to this, you will be highly unlikely to secure tenants for the second property immediately upon acquiring it. Therefore, you need to make sure that you have sufficient amount of money that will cater to the drop in regular income as a result of increased expenditure.
When you are trading property, you need to work hand in hand with a property lawyer that is knowledgeable in the local market, as this kind of business can come with a lot of legal issues. Property disputes, unless you’re legally trained, are best handled by a team with prior experience such as EM Lawyers. Therefore, it is best to find a law firm with professionals who are highly trained and experienced in every aspect of real estate.