CHAPTER 1

WHY START A REAL ESTATE PORTFOLIO?

INTRODUCTION

Creating a real estate portfolio can be challenging. There are some tasks you must get through, and you need the capacity and financial resources to deal with unexpected issues arising from your investments. Many ordinary investors are creating extraordinary wealth through real estate. With the right mindset, strategy and meticulous research come confidence to invest in real estate. However, where does a first-time real estate investor start?

Real estate investment has always been popular in Australia. It is an asset class that historically, over the long term, has produced healthy returns for some people. Real estate has made more people wealthy compared to shares, and it can significantly affect the wealth of the small investor as there is the potential for capital growth and – even more beneficial for the investor – the capital growth is created using bank loans.

One of the main reasons for building a real estate portfolio is to build up your wealth with the purpose of achieving financial independence and to have a passive income in your retirement. Buying investment properties and creating a portfolio is not a short-term investment. In the short- term, there may be little or no profit from rent after expenses like mortgage, insurance, rates and maintenance are taken into account. However, in the long-term, your investment in real estate will show a profit as prices rise and your original mortgage is reduced therefore increasing your equity position and net worth.

THE BENEFITS OF HAVING A PORTFOLIO

Having a real estate portfolio has many benefits to an astute investor seeking financial freedom. By creating a portfolio of properties, spreading capital across more than just one property in different locations with varying asset types can reap significant wealth. Placing money in a bank savings account may protect your money, but growth is likely to be modest compared to the potential profits in the real estate market. By having a real estate portfolio, not only can you invest to protect your capital but also position your portfolio to earn sizable profits. The points listed below describe the benefits of having a real estate portfolio made up of diversified property assets with various types of properties and varied locations.

Passive income

Being financially free means you have enough income to support your lifestyle. One way of achieving financial freedom is to have a passive income, which is an income that is received regularly but with minimal effort needed to sustain it. One of the easiest and indeed the most popular way of generating a passive income is through real estate investments. You do not have to be born into a wealthy family to achieve financial freedom through real estate ownership. Provided you plan early – and stick to your plan – you can acquire a portfolio of properties that produce a steady stream of income.

Furthermore, the value of your real estate assets will increase each year when rent and demand in your area increases. Many retired people live off the rental income from properties they own. Younger people can also earn extra income from passive investments in housing if they start early.

Leveraging through equity growth

Many smart people in Australia own two or more properties. These owners start building wealth through leveraging their initial investment property. They buy their own home,