Expanding your property portfolio is the ultimate sign of positive growth for your investment, but many investors struggle to hit that point. It’s difficult to give a solid answer on when you should expand your portfolio. However, we can definitely lead you in the right direction with some questions to ask yourself.
What are your goals?
Your goals and time frame are going to play a huge role in when you should expand your property portfolio. If you want to achieve financial freedom in the near future then you should start expanding your property portfolio right away. But if you have a longer time frame of 10 or 20 years then obviously you don’t need to expand your portfolio as quickly.
Your goals and how long you want to take to get there is going to largely determine when you want to expand your portfolio and how much risk you want to take.
What is your risk appetite?
Thinking about your risk appetite is an important step in your investment journey. You’d have to consider how risk-averse you are and factor that into your overall decision.
Your risk profile will affect when you expand your portfolio because you may be more risk averse or at a point in your life where you can’t afford to take risk. That then is going to effect when you choose to expand your portfolio because you may not want your loan to value ratio to blow out of control.
Can you afford to finance a new property?
It may seem self-explanatory, but it’s good to consider if you even have enough of a positive cash flow to finance the purchase of a new property. If not, where can you get the funds from? Can you partner up with someone in a joint venture or borrow the money from close family and friends that you trust?
Will banks be willing to lend to you?
If your cash flow is in a good place, it’s time to start considering your borrowing power. Start working on your credit if it’s not good enough and begin to build a strong case for borrowing to finance the remaining amounts of your next purchase.
What is your exit strategy if there is a market downturn?
If you are investing in a positive cash flow property that produces income then chances are you can probably bide your time if the property market goes down.
But if you are hoping for an increase in the market because you want to sell your property in one or two years then that could put you in a difficult situation where you may not be able to afford your property and it’s losing you money.
Setting the right price for your rental property can be a bit confusing. Read our previous blog post: Pricing Your Rental Correctly
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