Build then protect. That’s the turnkey of a successful property portfolio.

However, whether you’re a novice or experienced property investor, you need to be ever vigilant to make sure you protect your wealth and your property investments for the long term.

Your property investment portfolio can be a great wealth generator. Nourish it and it will grow. But starve it and it will wither. Careful management of cash and liquidity is crucial to nourishing your property portfolio. This feeds growth and wealth creation.

Below are 8 tips based on my 26 years of experience in property investing you can use to stabilise and help protect your investment property portfolio.

For in-depth insight on how to achieve this and more, download a free copy of our Basic Principles of Property Investing For Wealth Creation e-book.

In the meantime, let’s take a look at some top tips you can use to help you achieve wealth creation and protect your property investments.

1.ProtectYourIncomeStability

Income protection insurance is a key risk management tool. It ensures an income stream if your earning capacity is diminished. And the premium is tax deductible.

If you become ill or suffer a disability, your capacity to earn is diminished. It’s more challenging to service loan repayments on your property portfolio. So you face a real threat to ownership. Income protection insurance will guarantee you a certain amount of income should this happen. And your ability to service your portfolio payments is strengthened.

2.InsureYourAssetsasaLandlord

There’s no doubt that targeted selective tenant selection can boost and will help protect your property wealth creation. However, it is also pro-active and prudent to have landlord insurance so you are covered in the event of any potential damage a tenant may do.

Damaged property. Rent arrears. AWOL tenants who owe significant rent. All these are very real threats faced by your property portfolio. By protecting yourself against these with landlord insurance, you’ll get a tax deductible premium and greater peace of mind should your tenants let you down!

3.FixYourInterestRate

Certainty vs. the possibility of something better. Talk to your mortgage adviser about whether to fix the entire loan or split the loan and fix a portion for flexibility. Such is the game of interest rates. When interest rates are at market bottom – lock them in.

Of course, there’s always the possibility that interest rates will drop below your fixed rate. But risk lies in your ability to meet your loan repayments. A fixed rate gives you certainty of your loan repayments for a set period of time.

4.KeepReadyCashonHand

Should you need cash quickly, below are a few effective ways to help you have cash available, if you need it.

First, use hard assets rather than cash as equity. This is the most effective way to acquire property. Because, you retain your most liquid asset – cash! So if you need money in a hurry, it’s there. Not secured as equity for your property investments. So ensure you keep a ready cash pool on hand.

Second, borrow extra on your property loan. That’s over and above what you need to purchase the property. This can be your cash buffer. Hold the cash in credit so it’s there when you need it. This won’t affect your repayment costs. It simply means you have ready cash if you need it.

5.AvoidCross-Collaterisation!

This is a mortgage reduction strategy where the loan for your home and an investment property are financed with the same bank. Some people use cross-collaterisation to finance investment property, however, the problem is, if repayments fall short on one of the loans it endangers your entire portfolio because it is all financed with the same bank. This could also result in you losing everything you’ve worked for by being tied to one bank!

The Solution… separate your property loans. Smart investment property owners know that to accumulate a strong and secure investment property portfolio it’s best to ensure each loan is individual and financed by separate banks before you go to finance it.

By using this strategy you’ll be protecting yourself and your other properties in the event one of your properties (or lending institutions) sustains a loss or collapses!

Essentially, it means that you have many stand-alone loans with separate banks for your properties instead of one overarching loan that connects all your properties as equity for each other.

Here’s how it works. A segregated loan structure protects your property portfolio from overall collapse. It means your liabilities are spread across several places, not just one. This makes your portfolio easier to manage. Because a cash shortfall in one loan will not affect your entire portfolio.

Talk To Your Finance Broker First, Before Purchasing & Financing! Before you purchase and set up an investment loan structure, it’s crucial you talk to your finance broker first, so you can set up your finance and avoid using cross-collaterisation. As previously discussed, individual loan segregation is the best way to ensure your liabilities are spread out so each loan is independent and can be managed more effectively to protect your portfolio.

6.EstablishaTrust

Like separating your property loans, a trust is also a key protector of your assets. When you place your portfolio within the protective arms of a trust, the trust owns your portfolio, not you. So if you sustain bankruptcy or debt enforcement action, your properties are protected.

Here’s how a trust works. It’s a recognised legal entity. It can own one or more properties. A trustee oversees the trust. This includes distributing investment returns to the trust beneficiaries. Trust beneficiaries receive returns from the investments held in trust. So you would establish yourself as a beneficiary of your trust.

Now here’s the important part. Only the creditors of your trust have a claim upon the trust’s assets. The creditors of trust beneficiaries have no claim. So your creditors cannot lay claim to your property portfolio assets that are held in trust. And if your trust falls into debt, its creditors cannot claim against you as a beneficiary for that debt. They can only claim against the trust. So individually, you are protected. A trust is an excellent risk management tool. It offsets the threat of creditors claiming upon the debt/liability that you incurred in purchasing a property or properties.

So there you have some excellent tips for building your property portfolio – and protecting it.

Remember, your property portfolio is a vital wealth creation asset. You’ve invested much in building it. Your time, money and borrowing. Now you have a portfolio to be proud of. It’s essential that you keep this in mind in your key life decisions. Let’s take a look.

7.ConsideraPreNuptialAgreement

When you marry or enter a long term relationship, you hope its forever. For many, it is. For many more, it is not. Remember, you bring all your hard earned assets into your relationship. These are shared with your partner. Not just as part of your relationship, but legally too.

If the worst should happen and your relationship ends, your partner has a legal claim to your property portfolio. You can ensure that your property portfolio remains entirely intact and in your possession. A pre nuptial agreement makes this possible.

It is essentially a contract outlining who will take what assets if your relationship dissolves. Your pre nuptial agreement can specify that you leave the relationship with your full property portfolio. Of course, pre nuptial agreements get mixed press. Many consider they set a relationship up to fail. Many more have learnt the hard way that a failed relationship can cost them much more than a broken heart. The choice is yours – but it is there.

8.KeepaCurrentWill

Your will is your final statement of who gets what when you pass away. Often viewed as a morbid subject, your will is nonetheless essential. Your property portfolio is your lifetime’s work. Hopefully it will bring you much wealth and freedom.

You’ll want to hand these benefits down to your chosen inheritors. Here’s where your will becomes crucial. A non-existent or outdated will means your property may pass to those you would not have chosen. Or cause dissention among your beneficiaries. So keep your will current. Ensure your property portfolio is a loving legacy.

Don’t forget! To get more information about this, download a free e-book full of valuable investment property information on the Basic Principles of Property Investing for Wealth Creation.

Property investment is an excellent way to generate wealth, but today’s market is fraught with several threats. Now more than ever it is crucial to safeguard your investment to grow and protect your property portfolio by implementing these key risk management measures.

Build then protect.

Thank you,

Peter Morris
“Making Property Investing Easy!”
S.E.QLD. Investment Property