Good day. My name is Ben Everingham, and I’m the director here at Pumped on Property. Today, we’re going to talk about when is the right time to grow your property portfolio. The first question I’ve got when I started to think about today’s video was, why would you actually grow your property portfolio? I think that’s a really important question to ask as well. For most of us, myself included, I love property and property is one of my passions. The more properties I’ve bought and the more experience I’ve had as a buyer’s agent acting for my clients, I’ve realised that property is something that I love, but property is mainly a vehicle or an asset class that can help me and the people that we invest for move forward in the direction of their dreams.
I don’t know many people who wake up in the morning and go, “Man, my whole goal in life is just to own a hundred properties. That’s what it’s all about for me.” There’s a reason somebody wants to own a hundred properties or two properties or five properties, and that’s generally because they want to spend more time with the people they care about. They want to spend more time on their health. They want to spend more time with their children. They don’t like their current career or their current job, and they’re looking for a change, or they’re just looking for more choices in their life.
In terms of really understanding when the right time to grow your property portfolio, I think it’s really important to understand why. For some people on today’s call, for example, my mortgage broker is a perfect example of this. His name is Aaron. He’s about 40 years of age and owns somewhere between 25 and however many properties. He’ll never tell me these days. He made a decision a few years ago and he said, “Enough is enough. I’ve built a property portfolio. I’ve replaced my income. I’m happy with what I’ve done.” He’s kind of set now. He just focuses on his businesses and his holidays and spending time with the people that he cares about.
Then, there’s other people like myself, I definitely don’t feel like I’ve finished my investment journey. I’m not saying I’m going to rush out into the marketplace and build this ridiculously large portfolio, but strategically, over the next 10 years, I hope to continue to grow that portfolio so that I can get closer to where it is that I’m looking to go. In terms of some of the things that we’re going to talk about today, another question I’ve got is, should you actually increase your property portfolio or grow your portfolio? A bunch of the things that we’re going to talk about today will hopefully give you some clarity around what’s the right timing, when should you be looking to grow your portfolio, and some other questions that are really important to ask yourself and obviously will help you ultimately identify where it is that you’re looking to go.
In terms of when the right time to grow your property portfolio is, I think timing is absolutely everything. As a buyer’s agent, my entire business is based around timing the right marketplace and then timing the right suburb and property type within that marketplace. Timing is absolutely huge. From a timing perspective, you can look at the property cycle like a clock. At 12 o’clock, you’re at the peak of the market. At nine o’clock, that would be a rising market place. At six o’clock or at the bottom of the clock, you’re at the bottom of the marketplace. Then, anywhere basically between 12 and 6, you’re on the way to the bottom.
The great thing about Australia and bigger marketplaces like Australia is that, not all markets are actually moving in the same direction at the same time. For example, as I record this video, Sydney is at the top of the market. Melbourne’s approaching the top. Brisbane is at the start of the recovery. Then, you’ve got marketplaces, for example, like Perth, they’re on the way down, or places like Mackay and Gladstone that seemed to have bottomed out for now. It’s really important to understand timing in the pursuit of growing your portfolio, because understanding when you buy and making the most of that short-term upswing, like looking back now, who wouldn’t have loved to have bought property in Sydney or Melbourne in 2013 and 2014, because those people made an absolute fortune on their properties from doing relatively nothing. Timing is important.
For me, a stable global environment is also super important. When I talk about timing in the Australian market, I’m referring to that clock in the markets within Australia. Australia, now that we’re in this global economy, is dependent on so many things in the global environment. A really cool resource that I’ve found recently is Phil Anderson. He’s got an amazing book called Cycles, Trends and Forecasts, which looks at this 18-year basically real estate/global economic cycle. It’s based on a theory of him looking back at the last 200 years of human history since there was centralised banking and going, “What are the patterns and trends over that period of time?”
What he uncovered was that, in this 18-year cycle, 14 years of that cycle is relatively strong, consistent upward growth. Obviously, there’s poor periods in that 14 years. There’s periods where it goes sideways and backwards, but the overall trend is basically upwards. Then, there’s this period of four years where we come into some sort of recession or depression where prices either stagnate or go backwards. That pattern has actually been observed, according to him, for the last 200 years at least, maybe even 250 years. It’s really important to understand that bigger picture so that you’re buying at the right times of the cycle and you’re not setting yourself up for disaster longer term.
Stable political environment is another thing I wanted to talk about. Again, as I’ve recorded this video, basically, we’ve just gone through a period where we’ve had a new Prime Minister brought into the Australian government. What I noticed as a buyer’s agent buying anywhere between 10 and 20 properties a month for our clients and buying hundreds of properties per annum for our clients is that, each time we go through this political cycle in Australia, the marketplace really slows down from about March to the end of June when they call the election before anybody knows what’s really going on.
What I’ve realised as an investor is it’s an amazing time to actually buy because regardless of how the marketplace is, everything slows down. We were buying properties for $20,000, $40,000 cheaper and then we’ve been able to buy earlier in the year further back in the cycle. It just is crazy, so identifying those things is super, super important. I know now that the election has been called, now that we’ve got a new Prime Minister, the market has just gone absolutely nuts again and it’s back to normal. Understanding those little things, super important little windows to maximise your investment outcomes.
Another thing that I wanted to talk about is, in terms of when is the right time to grow your property portfolio is along the lines of when you have a savings buffer. When I was first building my property portfolio, like a lot of young people, I used to just put it all on the line. Every single time, I went and bought another property. That was easy for me to do before I had a family, before I had businesses, before I had expenses in my life that required me to continue to produce income. Now, what I’ve realised is that savings buffers are so important. For me, personally, a really nice rule of thumb is try and have anywhere up to at least one year’s worth of annual income tucked away in a bank account somewhere.
I know for some of you listening to this video, you would like to see more money in there. For others, a year’s worth of income is massive because a year’s worth of income is a deposit on probably one, potentially two, properties for a lot of people. I get that having that money not really doing too much might not be the best use of those funds but, man, it makes me help sleep well at night these days. It just gives me that security that the worst-case scenario happens, that everything is still going to be okay. You can continue to move forward through those tougher environments that are going to come at some point in all investor’s lives and journey.
The next one is when you have equity. Again, equity is a super important asset for continuing to move forward. The way that equity works is, basically, you buy a property, let’s call that property a $100,000 property. If the capital growth rate in that suburb is 5% over the next 12 months, you’ve now got a properly worth $105,000. You can redraw up to 80% of that $5000 and use that for a deposit for another property. I know the numbers are small, but it’s Thursday afternoon here and I just wanted to keep it super simple for everybody.
The concept is basically leveraging forward using equity rather than your own savings. A lot of people have made really good money over the last cycle, whether that cycle is the Australian real estate cycle over the last 14 years cycle that we’re going through at the moment, which we’re about halfway through at the time of recording this video. There’s probably an opportunity for a lot of people to potentially refinance their property, use that equity to move forward in the pursuit of their investment, again, putting that money into marketplaces that are rising in stable environments.
The last thing I wanted to talk about on this video in regards to when is the right time to actually begin to grow your property portfolio, again, is in relation to after you have a very crystal clear goal and then a strategy which breaks that goal into a series of chunks or milestones so that you can go out and actually achieve that goal and it’s realistic. Back in the old days, I used to have these crazy expectations of myself and these huge goals of buying one, two, three properties in a 12-month period with no real action plan to achieve it. I used to feel disappointed if I said that I was going to buy two properties that year and then I didn’t buy any or I bought one property.
Looking back now with retrospect, that’s easy for me to do because I was pretty harsh on myself at that time in my life when I was really actively working to get out of my full-time job so that I could spend more time doing the things that I enjoy and start businesses. For most people, the reality is that it’s going to take us at least 10 years to get from where we are today to where we want to be financially. There’s plenty of people in this industry that talk about the old get-rich-quick schemes. I’m just not a believer of it. I’ve talked to hundreds of investors every single month, and those investors just time and time again demonstrate to me that having a clearly defined goal of where you would like to end up and a very clear strategy to achieve that goal is such a good way in terms of moving forward and growing that property portfolio.
For probably the first three properties that I bought personally, I didn’t really have a clear goal or a strategy for the types of properties that I bought. Now that I do, it makes it so much easily because 90% of the properties on the market don’t even come into my radar because they don’t make my goals and criteria in terms of what I will and won’t buy. That’s how I wanted to finish up today. There’s a couple of questions I think you can ask yourself as well. The first one being, do you have a plan if things actually change? Other questions are like, how do you feel about lenders mortgage insurance? Are you prepared to move forward a little bit faster and put your money into something that pay lenders mortgage insurance, or would you prefer to be a little bit slightly lower risk and take a little bit longer and put down that 20% deposit so you don’t have to pay lenders mortgage insurance?
In terms of other questions, can you actually get financed? Have you talked to a mortgage broker recently and looked at your position? For those of you that haven’t bought property in a couple years, things change all the time from the financing perspective, from a banking and regulation perspective. It’s important to really know where you stand at all times so that if there is an opportunity in the marketplace or there is an opportunity to purchase a property at the right time, you can confidently move forward in the pursuit of that.
The last one is, can you actually afford another investment property based on your budget, and your goals, and your life style right now? Is it a smart time to buy based on the overheads? Like if you’re a double income family at the moment, but you’re planning on having a child, like I’ve recently had two little girls in the short-term future, then you’ve got to have that buffer. You’ve got to be a little bit more strategic and just make sure that if interest rates do increase in value or banks are looking for, at some point in the future, recalling people on the lines that only have a 5% deposit down, are you going to be okay and protected if those things happen?
I know we’ve talked about a huge amount of things today, but the reality is there’s always an opportunity in the property market to buy and identify value. Sometimes there’s better times than others, and that would be demonstrated from, obviously, walking away from markets where it’s a picky market and you’re paying for someone else’s profit. I hope today’s video has given you a little bit of clarity for anybody that’s interested in really getting a very clear direction on their goals and their strategy. I’d be more than happy to offer you a one-on-one free strategy session over the phone.
Until next time, stay hungry. Thank you.