Investing for Financial Freedom: Our Insights
When we meet with clients, we often find them sceptical to whether it is possible to accumulate wealth through a carefully planned and considered property portfolio approach in Australia today.
While it may appear to be a straightforward concept - it's not easy and the long-term income generating portfolio is a strategic long-term play. It’s essential to recognise that an income generating portfolio is a strategic long-term play.
Most property investors (92%) can't invest beyond the first or second property.
Let's explore how it's possible to build a successful property portfolio that returns an adequate passive income to create financial
Creating passive income within real estate
Property investment is an outstanding way to gain financial freedom and create a passive income because both property value and rental income have historically increased over time.
Generating passive income with positive gearing
A positively geared property generates a return that is higher than the property costs to own.
Let's say you charge $800 rent weekly and your home loan with other outgoing expenses amounts to $500.
Then you have $300 per week positive cash flow.
It's important to understand that positive or negative gearing is not an investment strategy.
It's the outcome of your financial circumstances.
One way to achieve positive gearing is not to borrow against your property. However, that is often not possible when starting.
Alternatively, you could get a positively geared property if you have a large deposit, which reduces the amount you borrow.
The pros and cons of positively geared property
It's essential to be aware of the benefits and drawbacks of any investment including owning a positively geared property.
A positively geared property generates passive income and potential capital gains as it appreciates.
It minimises cash flow risks by covering its expenses, and the extra income makes obtaining loans easier.
Positively geared properties often yield lower capital growth, while high-growth investments may have weaker cash flow. Cash flow-positive properties may seem enticing, but they often experience lower long-term rental growth due to tenants' limited income growth.
Moreover, achieving positive cash flow might require a large upfront deposit. Keep in mind that passive income from properties is taxable, similar to regular wages, but investors can leverage deductions to reduce taxes.
Additionally, secondary markets where cash flow-positive properties are common tend to be more volatile. And they suffer during property market downturns or economic hardships, making them riskier investments.
Using equity to create passive income
Besides generating rental income from positively geared properties, you can create passive income in real estate by leveraging property equity growth.
Equity is your property's value minus its outstanding home loan, so as your property's value rises, your equity does too.
For instance, if you buy a property for $700,000 and it appreciates to $800,000, your equity increases by $100,000. There are two ways to access this equity: sell the property at its new value; pay off the debt, and keep the equity; or borrow against the property's equity.
The latter option is particularly valuable, as owning multiple properties can lead to more equity growth.
Borrowing against this equity, if you meet the bank's criteria, allows you to purchase additional properties and accelerate your portfolio's growth.
As property values increase and rental income often follows suit. It can provide a dual benefit of increased equity and a positively geared property generating passive income.
Benefits of a property portfolio
A property portfolio consists of investments owned by an individual, a group, a trust, or a company. Typically, the investors live in one of the properties and rent the remaining.
Here are four benefits of investing in a property portfolio.
1. Financial Freedom
Australians increasingly understand that government support during retirement is inadequate to have a comfortable lifestyle and to secure our financial futures, many turn to property investment as they know and trust that this is a vehicle to deliver a lifestyle they are looking for.
Australians increasingly understand that government support during retirement is inadequate to have a comfortable lifestyle and to secure our financial futures. For many, they turn to property investment knowing and trusting that this is a vehicle to deliver the lifestyle they are seeking.
Financial freedom is elusive with just one property, even if it's positively geared, as it often can't cover all your life plans and commitments. Multiple investment properties, however, with rental incomes, offer a robust financial foundation.
The key to financial freedom isn't solely property quantity but rather the accumulated equity and the income generated from your properties.
Simply put, it's not the number of properties; it's about how effectively they work for you.
2. Increased equity
Naturally, as you acquire more properties, your access to equity grows as their values appreciate.
Owning a property portfolio offers the advantage of diversifying your investments and accelerating portfolio growth.
However, holding several similar properties in a single area carries risk; if that area doesn't appreciate, your equity remains stagnant.
By diversifying across various high-growth locations and investing in different property types, you can hedge your bets. If one area stalls while another flourishes, your equity continues to grow.
4. Multiple income streams
A property portfolio, unlike a single property, offers multiple income streams.
When one property faces a vacancy, others continue generating rental income, easing cash flow stress and making sure income from different sources.
What does a balanced property portfolio look like?
In property investments, the common goal is financial freedom—a self-sustaining portfolio that grows consistently.
Achieving this requires a mix of high rental yield and high capital return properties in your portfolio. Building such a portfolio takes years, beginning with high-growth assets and gradually adding higher-yield properties.
Cash flow sustains your property journey, but capital growth propels you toward financial independence.
A balanced portfolio combines these elements and diversification to mitigate location-specific downturns.
If you’re serious about generating long-term wealth, value strategic advice, structure and the execution on how to get you there - contact our expert property advice, acquisition and mortgage strategy team today on 1300 001 215.