How We Do It
Here we unpack the full box and dice around building a portfolio, how we tailor the approach to your bespoke needs.
Everyone’s circumstances, requirements and goals are different, so it’s important that each strategy is tailor-made to those needs. More importantly, is the sleep at night factor. By that we mean, we can cut up an approach and strategy in many different ways, but ultimately, we need to ensure your best interests are kept at heart and you can sleep at night after signing off on the strategy.
We are big advocates of purchasing houses as opposed to units and we look for houses where value can be added by way of cosmetic, structural and/or sub-dividing. Of course, not all of those value-add scenarios meet everyone’s criteria, however, it’s an important POD on properties you own if they have potential to add value in the future; either for you or prospective buyers. This adds a significant weighting to the value, but also, most importantly allows you to manufacture equity when your funds permit throughout the ownership phase.
We like to add value to the property immediately by way of cosmetic renovations. This is a quick and cost-effective renovation that will ultimately increase your rent and equity in the property from the outset. We then allow time in the growth stage of the portfolio to further significantly add value to the property by way of structural renovations, second dwellings and/or sub-divisions. Again, creating and manufacturing equity to continue the growth and accumulation in your property portfolio.
In terms of asset selection criteria when building a portfolio, it’s important to wash this with your income and ability to hold a portfolio. By this, specifically, we mean, for higher-income earners we are looking at a lower yield, higher capital growth asset. For lower-income earners, we are looking for a higher-yielding asset where the rent received covers the majority of the outgoings. In both cases, we are still ensuring that the total out of pocket expenses is kept to a minimum, as this is crucial for your cash flow and ability to grow a portfolio.
Implementing the right financial structures is incredibly vital for any property portfolio and one key item is the emphasis on Interest-only lending that enables you to maximise your cash flow position. Likewise is the emphasis of offset facilities to help reduce your monthly liability and manipulate to some extent, your out of pocket expenses and reduce the interest you pay on your loan. An offset account is a transaction account linked to your home loan account. The account’s balance is ‘offset’ daily against your home loan balance, and as a result, you’re only charged interest on the difference between the two.
Ultimately, the end goal is for your portfolio to be unencumbered to deliver you a great passive income for retirement.
Finally, it is imperative that we protect you and your assets from the outset, so this involves personal income protection that covers you in case of injury or permanent disability and of course, building and landlord insurance for each property that is purchased.
There are three stages of building a property portfolio, they are:
The main priority is creating leverage in the market and expanding your portfolio through a combination of growth and high yielding properties
This is when you begin consolidating your portfolio and your debt by adding value to your existing portfolio through smart and effective renovations, adjusting rents and capitalising on land sub-division opportunities
This is when you create strategic results in your portfolio based on your goals of a net income of AUD$20,000/month
To do this, at Milk Chocolate, we focus on the following steps to building the portfolio:
1. Clarify your position and goals
2. Evaluate the most appropriate tactics
3. Establish a plan for cash flow
4. Suburb and property-specific due-diligence
5. Ongoing management
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