Why we say property “portfolio”
It may seem like an ambiguous term to use but portfolio is the way we describe two or more properties that you are currently controlling, managing or owning for profit.
The fact it is two or more properties means we can mean a specific number or in fact any number. Certainly for my many portfolio clients when we speak of a portfolio we have a goal of 10 properties. This is a token figure that if you achieved you have most certainly provided a pension for you retirement.
Realistically as long as you can get 3 plus 1 without mortgages you can safely retire with a roof over your head and an income stream that is all indexed to inflation. (I explain this in detail in Brett’s 3 plus 1 strategy)
Any additional properties is all about lifestyle. The more properties the more enhanced your lifestyle will be.
In truth we always aim for 10 or more but our first goal for the portfolio is 1 or 2 properties if you are not a seasoned investor. The reasons behind this are emotional. We need to mentally and emotionally prepare you for a portfolio.
So the only real question is how many properties would you like to have in your portfolio?
How do you create income from property?
The question I pose to most of my clients when I first meet them is how do you create income from property? I get many different answers but in actual fact there are only 3 main ways of creating income from property.
Direct property cashflow
Most people associate income from property as being an excess of rent over expenses. Whilst this is one it has one big drawback – income tax. As you are earning income from your property in excess of expenses you will pay tax on your profits. This is one of the reason we aim for maximum leverage from our property to ensure we avoid income tax.
Selling your property
The other way you can earn large chucks of cash is to sell your property. Doing this you will be liable for capital gains tax on the increase in value over any allowances. The capital gains tax rulings change often so you will need to speak to a professional about this. The benefits of this are that you have cash unencumbered once you have taken into account the tax.
Re-mortgaging Your Property
The final way and definitely the best way of avoiding any form of taxation is to refinance or re-mortgage the property and use the extra capital for whatever purpose. As you are using debt to fund your income you will NOT be subject to income tax or capital gains tax.
In truth all three methods will be employed as you build your portfolio of properties.
The Property Sleep Test
To me, after many years investing and with dozens of properties in my portfolio, the actual act of investing still revolves around what I like to call the “sleep test”. Can I invest in this property and sleep a full uninterrupted night without worrying?
If the answer is yes then I’m ready to invest.
It allows me to make a decision based on a sound and calm mind and limits the “great salesperson” factor. By that, I mean that it gives me some space and some to time to halt a deal I might have rushed into.
In fact, this is such a useful technique, I use it for any purchase above £300.
I do my research, choose the item, do everything I need to buy it, but I don’t. Instead, I go home and sleep a full night. Then in the morning if I still want it I will buy it. I can’t tell you how many times I’ve woken up with a fresh perspective and not made a bad purchase. It’s amazing the difference a day (or a night in our case) makes.
So, if you couldn’t sleep a full night then either try to drink less coffee or ask yourself am I lacking education or detail in some area? If you are, then you need to rectify this prior to investing. If you’re not lacking in education or detail then perhaps it is not the right deal for you.
Read the rest of the property sleep test article on my site…
How mortgage cost averaging will help you build a thriving property portfolio
I had an early morning review with one of my clients who was a little stressed. They were stressed that mortgages seemed to be going up and up and they’d have problems paying the mortgage if it didn’t stop soon. Logically, everyone knows that interest rates go up as well as down but it’s cold comfort during periods when all they do is go up.
Interest rates work in a cycle. They go up and up and then come down and down. Then up and up. Then down and down. So it’s natural that our perception of what they’re doing is more rooted in emotion than cold logic.
So my question to you is this: what can we do to smooth things out regardless of the market or cycle?
There are actually two things we can do that might help, and I’ll explain both of them on the other side: How mortgage cost averaging will help you build a thriving property portfolio…
The Emotional Side of Property Investing
Property is one of the most emotional things I have ever done. It may not have the highs of an English football match but it will throw every other emotion head on at you at some stage.
As you begin investing you invariably end up exposed to so many sources of information. Some are good, others bad, some correct, others blatantly wrong. The trick to becoming a numbers investor is to educate yourself to look only at the ones that matter to your portfolio.
As you build your portfolio here are just some of the emotions, good and bad you may face.
Click for the rest of the article “Emotional side of property investing“…
How to build a property investment portfolio from 0 to 10 properties
Education is the most important part of building a successful, profitable property portfolio and here at Your Property Club, we provide it at no charge, as part of our service to you.
Many other companies charge you an arm and a leg for a very basic level of education, but in these pages, I’m making available many of my tips and articles that will help guide you on your way to building a profitable, successful portfolio of 10 properties or more.
Check out my website at http://www.yourpropertyclub.com for even more free advice and articles.
