Are you ready for this?
I will take you through the steps on how to build a $2 million portfolio from the ground up.
STEP 1. Buy That First Property
As discussed earlier the hardest bit is getting that first property. Let’s say we start by buying a $400,000 property with a 90% loan of $360,000 from Bank “A” as our first property.
STEP 2. One Becomes Two
Now with the hardest part done, we have waited for the property market to work its magic and the value of the first property has grown to $500,000 and the rent will have increased too. Now we know that the banks will lend us up to 90% of the value of a property so our new “90% line” is at $450,000. So if our mortgage is only $360,000, we have up to $90,000 in available equity we can access to get us to our next property.
Now we simply go to Bank “A” and ask for a second loan of say $60,000 against the first property. We can afford extra debt on that property because we are now receiving more rent. We use the cash from that loan to pay the deposit and costs on our next investment property.
Then we ask another lender “Bank B” to give us a loan for 90% of the new property. So one property has now become two without using any of our own cash.
STEP 3. Two Becomes Four and So On
Let’s say we did our homework well and it took two years for our first property to increase in value to such a point that we could leverage another property off the back of it, and one property became two. So then another two or so years later we can expect our two properties to continue to grow, and then two become four! Another cycle later four become eight, eight become sixteen and so on.
So now you know how to build a $2 million portfolio rather quickly and can appreciate how some property investors manage to accumulate massive property portfolios. You see property portfolios don’t grow at the same rate. They grow exponentially (one becomes two; two become four; and so on). You add properties faster and make money quicker the longer you have been doing it. The hardest bit is just getting that first one! So if you’re not in one yet, start doing everything possible to do so!
I have been asked what I would do if I had to start over again from scratch. The answer is always this: I would get a job. I would rent the cheapest accommodation I could handle. I would drive the cheapest car I could. And then I would save every last cent I could until I could scrape into my first property. Then I would buy that property in the best boom location I could find, and let the property market do the rest. Because I know after that I will be fine!
Join me tomorrow when I share another trade secret “Try not to use the same bank!”
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