Many seasoned property investors with more income or capital are able to invest in more speculative growth areas. Often these properties are negatively geared providing relief on personal income taxes. It is important to remember that tax savings from incurring a loss is not a sustainable or growth promoting strategy. When a property portfolio is built on highly yielding or positively geared properties, the borrowing potential and capital balances will increase over time allowing the portfolio to grow. Even when property prices fluctuate, with the current banking systems in Australia, Canada, and US the values of properties are not re-valued daily like the stock/security market.

The property price fluctuations will not impact the property portfolio’s cashflow. When started the property portfolio, preserving capital by using a low down payment provides the investor with a larger safer net/buffer in case of required repairs or vacancies. Other investors may argue that the insurance on non-conventional mortgages or mortgages with greater than 80% loan to value ratios offsets the benefit of using a small down payment. It is a much safer approach to have a supply of cash to be prepared for unforeseen circumstances than to have it all invested in the market. If a down payment of 20% to avoid insurance is available with spare cash for contingency, the large capital investment still locks up a large amount of cash from other opportunities.

Once a foundation of positively geared/positive cashflow properties is created, more neutrally geared properties can be purchased. Often in areas close to growing populations have neutrally geared property and provide potential capital appreciation. Areas with high cashflow often are in areas where capital appreciation has not occurred and my not. The cashflow provided by the foundation will enable the investor to seek properties with more potential growth.

One of the keys to success in building a property portfolio is to understand that the property is an investment and not a personal home. The areas that are great investments may not have the aesthetics associated with an investor’s lifestyle, but an investment that gains value and provides income is an asset while an aesthetically pleasing property which drains the investor’s income is a liability. It is critical to decide on a strategy and then research the opportunities that satisfy the strategy requirements. If you are a cashflow investor, look for opportunities and analyse them for cashflow. Often investors are emotionally attached after reviewing a property and try to make the property into an investment.

Doing the research and surveying the local market for the potential area where you want to purchase an investment property is undoubtedly the most important part of the whole process, and could be the reason a property makes money for you or not. Take a look around and see what types of houses are available and the features that will be the most rentable to potential tenants in that community. It goes without saying that you will try to acquire it at the least amount of money out of your pocket, but you do not want to buy something that requires you to do a lot of updating or repairs.

In searching for this moneymaker you will need to pay particular attention to what you think the possible costs will be to maintain the property. Finding units that have all the utilities on a separate meter will be important to keep your cost down. Having renters pay the utility bills instead of you is a critical part of making a profit from month to month, and many people expect to have to pay this anyway.

Depending on what part of the country you live in, it could even be possible that you could require your tenants to have to purchase their own refrigerators and stoves for their units. This is not always feasible but if it is possible it could mean the difference between making or losing money. Each state is different and has regulations in place.

If the renters in your area are used to not having to have to supply their own appliances, then this means that you will have to become used to finding deals on washers, dryers, refrigerators and other larger appliances such as air conditioners and heaters. You also have to network with some local repair services so that you will know the cost of maintenance and keeping these costs down also will help with your bottom line.

Most real estate investors are looking to at least break even each month, and then use such deductibles as Insurance, Mortgage Interest, and any repairs or purchases to help offset any potential losses. If things workout, then you should be able to pay off the mortgage and own it free and clear after the mortgage is paid. Sometimes you can get a property below market value and then sell it when it reaches full value. It depends on you when you want to sell.