What is a property portfolio, and why you should have one?

A lot of us aspire to own multiple investment properties; not necessarily an easy goal to achieve. There are many advantages to holding a property portfolio as opposed to either owning no properties or possessing just one investment property. Let's look at the advantages.

Benefit #1: It is beneficial to Get Rich and Retire Early

Though buying one investment property is a great start and might make you less reliant on your pension, but it is tough to achieve financial freedom on the back of just one investment property. Purchasing only one property is unpromising to allow you to accomplish that real financial freedom that you desire, whether that be early retirement or whether that be significant amounts of wealth.

However, owning many investment properties with multiple rental incomes and numerous opportunities for growth can be beneficial in helping you achieve financial freedom.

Benefit #2: You Can Diversify Your Property For Quicker Growth

A property portfolio allows you to add diversification which will enable you to grow the portfolio faster. For example, if you buy in just one property or even two or three in the same neighbourhood, then your portfolio growth is so dependent on the growth trajectory (defined by property cycle) of the area. If that area stays stagnant for a few years, then you are not getting the equity growth you need to proceed in property reinvesting.

However, had you scattered those three properties throughout different regions, then it is likely that at least one property grows in value and allow you to access equity, enabling you to acquire your fourth property quicker. Thus, diversification will allow you to build wealth faster.

Point to note is that Australian real estate is not a homogenous market and every area has its own property cycle. So one area may be going down in value, but another area might be going up in value.

Benefit #3: You Also Diversify Your Risk

Property investing is not risk-free, and we need to embrace the risks to Get Rich and Retire Early. There are numerous risks associated with property investing, two being the risks of vacancy and cash flow. 

Possessing a portfolio helps you manage these risks better. For example, if you own only one property, and that happens to be vacant. This implies 100% vacancy for you, meaning zero rent will be collected over the period. 

However, if you had ten properties in your portfolio, and one property becoming vacant will imply only a 10% vacancy rate. Paying off the expenses related to the vacant property would be relatively more comfortable when you have the luxury of rent-collection from the other nine properties rather than just owning one and not getting any income for it.

(For embracing other risks associated with property investing refer the quick guide available here.)

Benefit #4: Opportunity to Deleverage

A debt-free portfolio earning a steady rent stream is the end goal for someone aiming to Get Rich and Retire Early. Typically, in the accumulation stage, investors buy properties adding to their debt levels. At a later stage, investors would have to sell a few properties, access equity and pay down their overall debt. Deleveraging, an essential step, will lead them to hold a smaller but mortgage-free portfolio. 

If you own only one property, you can't liquidate a fraction of it to follow this approach. However, if you own multiple properties, you can very well sell a few, pay down debt and yet have several properties in your possession to generate passive income for you, getting you Rich and Retire Early.