Many individuals who already own more than one property mistakenly overlook key principles of wealth creation that could potentially unlock their ability to grow their property portfolios.
“Wealth creation is a process and cannot be achieved overnight, therefore the first step is having a clearly defined, long-term strategy and objectives that will underpin your venture,” says Subbramoney.Praven Subbramoney, CEO of Private Bank Lending at FNB, says the ability to build wealth through multiple properties should not be determined by how deep your pockets are, but rather by identifying niches in the market and maximising assets and expertise that you already have at your disposal.
“Wealth creation is a process and cannot be achieved overnight, therefore the first step is having a clearly defined, long-term strategy and objectives that will underpin your venture,” says Subbramoney.
He shares 7 important factors to consider when building wealth through multiple properties:
1. Area of specialisation
Identifying the types of properties and market you want to target is vital. If you are in the business of leasing to students, it makes sense to acquire multi-tenant properties situated next to universities, whereas if you focus on renovating and reselling for a profit, finding distressed stand-alone properties which are sold below their market value may be ideal for you.
However, as you progress in growing your portfolio, you can then consider property diversification, says Subbramoney.
2. Market trends
Research underpins your success in this sector, and understanding where to buy, when to buy, how much to offer for a property and knowing the right time to sell an underperforming asset will determine your success.
3. Start small and work your way up
Subbramoney says the ability to build wealth through multiple properties should not be determined by how deep your pockets are, but rather identifying niches in the market and maximising assets and expertise that you already have at your disposal.The biggest mistake individuals make when starting out is overstretching themselves financially by going for properties that are beyond their reach. Start investing in more affordable property and build your way up.
For example, if you are in the student accommodation market you can get flats in Braamfontein, Johannesburg, next to major universities from as little as R350 000 for a one bedroom flat to R1.3 million for a three bedroom flat.
Depending on your strategy, Subbramoney says it may be risky to go for the R1.3 million flat when you have limited cash flow.
4. Maximising assets
Leveraging the existing equity in the properties that you currently own can help you take advantage of viable opportunities. Lenders are also able to provide you with a range of solutions tailored for your needs, with a competitive mix of rates, flexibility around repayment options, as well as capital access.
For example, you can always refinance your current property and use the equity to take advantage of new opportunities, or use a combination of securities that you currently own to raise a loan, says Subbramoney.
5. Cash flow management
Innovative digital tools can give you access to valuable information about a property, instantly at a click of a button.Like in any other businesses, cash flow is the lifeblood of your property portfolio. Not only is keeping track of money coming in and out of your portfolio essential for making strategic decisions, lenders may also require your cash flow statements to approve loans in the future.
Monitoring your cash flow can also help you identify properties that are over- and under-performing in your portfolio.
6. Take advantage of technology
Innovative digital tools can give you access to valuable information about a property, instantly at a click of a button.
For instance, with nav›› Home which can be accessed online and on the FNB Banking App, you have the opportunity to search for new homes, get free instant value estimates, pre-approvals, calculators and access to a database of home service providers, says Subbramoney.
He says nav>> Home also offers free area and property reports pulled from a number of sources including the bank’s own valuation base built up over years and the Deeds Office to give a comprehensive overview of a suburb or particular house.
7. Using the right professionals
While this may not be essential when starting out, you should consider investing in a team of professionals as your portfolio grows. Depending on the type of portfolio you are pursuing, you need a list of qualified experts, such as tax practitioners, estate and rental agents, attorneys, builders, renovation contractors, electricians, plumbers and valuators, amongst others.
Although, some of these experts may come at a premium, Subbramoney says the investment will be worth it in the long term.
“Lastly, developing a long-term relationship with a private banker who truly understands your financial needs and goals, and can deliver exclusive, carefully-considered solutions to help you grow your bottom line, cannot be over emphasised,” says Subbramoney.
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