What’s going on guys Its Jordan de Jong here and today I want to talk about the different stages of a property portfolio, building a portfolio is different for every individual, people might start at 18 and slowly build the portfolio over time, others might be 30 on a huge salary and buy 4 in one year, no matter how you build your portfolio it generally goes through 4 main stages. These stages consist of acquisition, consolidation, debt stabilization and then exit strategy, I’ve tried to keep these stages as broad as possible because everyone’s situation is different. Contrary to what you may think, we should always start with our exit strategy. The exit strategy stage aligns heavily with our goals, which through interviewing other investors on my podcast Smashed Avo Property I’ve realized can vary drastically between different property investors, obviously, the one main commonality between them is financial freedom and wealth creation, but this can also come through various different formats. One may be through excess cash flow paying off the properties as well as paying all your living expenses, another may be through accumulating compound capital growth over time and then selling off the properties one at a time when you need to in retirement. Others don’t like the idea of selling property and paying capital gains tax so instead, they opt to pull out the equity from the capital growth and use that to pay for their living expenses, which is essentially paying interest on interest and can be very risky, another strategy people like to implement is to leave a legacy for the future generations handing over the properties to their kids. These are just the common strategy’s and as you can see there are multiple ways to go about it, and that’s why while building your portfolio its essential to understand what your goals and exit strategies will be, also if your loving this content make sure you smash that like button to help with the YouTube algorithm. Of course, these goals do change over time, especially when life circumstances change, such as having kids, it might steer a hungry cash flow investor into a capital growth investor that wants to leave a legacy behind for their children, so before you B-line down one path it's always better to consider everything that might change in the future. To kick us off is the Acquisition stage, this is all about acquiring property over time, as I said at the start of the blog depending on what your current position is it could mean 1 every 3 years or 4 in one year, but essentially it all comes down to your income, so we could say that a pre-requisite to this first stage is increasing your income as much as possible. Of course, income isn’t everything, it just significantly helps out with how much you can borrow, the more you can borrow, the more different types of assets you can potentially consider, and moving forward asset selection is going to be essential to building out a property portfolio, so the more you assets have access to the better your selections can be. Asset selection is essential because if we get the first one wrong, it could take a considerable amount of time to see any growth, or even see negative growth for that matter, and the longer it takes to see growth, the longer it takes before we can use that equity to leverage into a second or third investment property, which slows the whole acquisition process down. 95% of investors get stuck on only 1 or 2 investment properties, firstly because of their income, of which they are completely capped at their borrow capacity by holding their current properties, and secondly, because they may have purchased B or C grade properties or even worse investment stock property. If you want to learn more about how to find A-grade properties, you can watch this series here, and if you interested in what investment stock actually means, I’m planning to talk about it more in an upcoming blog, so make sure you sign up so you don’t miss it! Most investors who initially set out in the acquisition stage will likely say something like, I want to buy 10 properties and 10 years, and although this is a great aspiration, it doesn’t really mean much, are they going to buy 10 $100,000 properties, 10 properties in diverse locations, 10 properties on one title block? This is why it’s essential to align the exit strategy stage with your goals. Such as earning $120,000 a year from passive income so you can comfortably retire, and actually work backward from there, to implement a property portfolio plan and put in place some scenarios that indicate what, when and where you should buy your next property, this way you can account for big life events such as a wedding or kids without being concerned about how your portfolio is tracking. The switch over between acquisition to consolidation doesn’t happen on your final property purchase, it’s more of a stage where we become less aggressive with our property purchases and instead, look back at the performance of our existing properties and analyze if they have performed as expected. As discussed, for the investors who didn’t start with a plan, to begin with, they could have changed strategies mid acquisition phase and now they have a mixed bag in their portfolio, some assets could be holding the portfolio back and it's worth considering if they are viable to hold onto, although I’m not a massive fan of ever selling a property, if we own a lemon, it’s got to go. After we have decided what is worth holding onto, we can roll into the debt stabilization stage, some like to call this stage debt reduction, but I’ve gone with debt stabilization as its not everyone’s goal to reduce their debts, some like to just continue to buy cash flow positive properties and others even like to increase the debts and live off equity. Of course, I have my own opinion on these various strategies, but everyone has their own goals so I’ll let it be for this blog, essentially here we are either paying down our debts as fast as possible, lowering our interest repayments, meaning we keep more of the rental income, giving us a snowball effect while reducing our debts. For others, this may mean stabilizing their portfolios LVR so that they can continue to buy cashflow positive properties at the right time in the cycles without too much hassle with getting more finance, or for investors wishing to live off the equity, they might be waiting for the peaks of property cycles to re-finance and have the equity sitting there for when it's needed. All-in-all for this stage, majority of the heavy acquisition is over, we are happy with where our current portfolio sits and are essentially letting time do its thing, this is where we see compound growth really accelerate in our portfolios as we’ve had decades of growth already up until this point. For most this stage eases into the last stage of exist strategy, either reducing debt until the properties are fully paid off or living off the excess rental income, to fast track the process we can also achieve either of these by selling some of the properties off and using the profit to pay the debt off, which is a commonly used strategy. Going back to the typical 10 properties in 10 years goal, this could result in something like holding onto 10 properties until they have doubled in value, selling off 5-7 of them, paying out all debt completely, and living off the rental income from the remaining properties in retirement, and this is much better aspiration than just saying I want 10 properties by 30 or 40. Now you may have noticed I haven’t put a time frame around any of these stages, as these strategies vary drastically depending on when you start, what your exit strategy is and how big you want your portfolio to be before executing out that exit strategy. Again, it’s also very dependent on what stage of life you are kicking off your portfolio, someone starting in their 20s has more time on their hands, giving them greater resilience to making potential mistakes, where someone starting in their 50’s might go for a strong cash flow positive approach which will help supplement some of their income while transitioning into retirement. That being said, there’s no wrong or right time to get into property, it’s never too early or too late, you can’t predict the cycles, as long as you can afford to get in, have the accessibility to borrow the money, choose A-Grade investment properties and can afford to hold on to them for the foreseeable future. So building your portfolio all comes down to your why, why do you want to invest in property, and you probably saying financial independents or wealth creation right now, which is perfect but how does that actually look for you, how much passive income do you need to live off per year or how much equity do you need to last you through retirement? Once you answer these questions, you can understand your exit strategy and work backward from there, if you plan to execute your exit strategy at say 65, how many years of debt stabilization will you need? 5, 10, 20? If we allow for 20 years, which is plenty of time for compound growth to take place, then we need to have fully consolidated our portfolio by 45. If we allow 5 years for consolidation, giving you plenty of time to analyze what is worth keeping in your portfolio and allowing you enough time in the market to pick a good time to sell them and potentially buy some new ones, then acquisition should be finished around 40. Continuing on with our example of 10 properties, selling off 7 of them and living off the passive income of the 3 remainings, this means we need to acquire 10 properties before 40, so if your say 20 now, the plan should be to buy at least 1 property ever 2 years until your 40. This doesn’t have to be exact, you could buy 4 in the first 10 years and then use the equity from them to buy 6 in the next 10 years, but by starting at 20 you have so much time on your side and it allows you some flexibility to travel or have kids. If your watching this in your 30’s and freaking out because you think it’s too late, it’s never too late, you can easily push out the exit strategy age to 75 adding another 10 years so you can start fresh from today, if you’re a PAYG employee your super should cover you over these 10 years anyway or you could save a significant cash buffer on the side to ride you through. As always, seek your own professional financial, legal, taxation & property investment advice for your current situation, these blogs are just my opinion and general in nature and should never be considered personal advice. Until next time, happy house hunting.

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