How to Build a One Million Property Portfolio with $120,000 in 10 Years?
A penny saved is a penny earned.
We have an illusion that saving money is the only way to earn money (besides working for money). And when we speak about property investment, we complain about not having enough capital for the down payment.
Indeed, property investment requires more capital than stocks or other financial products. Yet, this is for good reason — the brick and right of space of a property is valuable in a world of limited land and resources. Housing is in high demand. It is a different game than stocks and funds.
I was discussing with a property investor friend the other day about building a property portfolio that is worth one million. He argues that can be done by ordinary working-class if you know-how. Long story short, I shared the gist of our conversation in this article to serve as an inspiration if you would are considering building a property portfolio to earn passive income from property rental.
Ten years before
If you start ten or eight years earlier, one million assets are not hard to achieve!
Ten years ago, the financial tsunami had just passed, and property prices were still very flat. I remember that at that time, Adrian just started teaching property investment and every student could buy two or three properties easily. Today, that would be worth over one million.
Unfortunately, you can’t do that now in today’s market. The property prices are high, and there are a lot of hot tricks.
I would like to share a few directions if you are considering building a property portfolio for passive income or early retirement…
Option 1: A 1 million property
Most people buy a house for their own living residential needs. Therefore, option 1 is a purely self-occupied unit.
It is calculated at $1 million and can be leveraged up to 50% (with a bank mortgage). The monthly payment is about $2,500.
After taking the stress test into account, the monthly income of the family is about $6,000 or more. If you have a mid-level managerial grade, it is not hard to meet this standard.
But the biggest problem is that the capital requirement is $500,000.
The property market adjustment began in Q4 2019 lowering the average price by 20% in the market. Therefore, you could be looking at buying a unit with an appreciation potential of about $0.8 million, which you can borrow 60% from the bank.
And that brings the capital down to $320,000 (a difference of $180,000 from $500,000)!
Ten years later (or less) when the property market rebounded and appreciated, you would have one million assets.
You may say that it is still hard to come up with the initial capital of $320,000.
In fact, it is very simple. Of course, saving $320,000 takes a long time, but there are many ways you can come up with the initial capital!
The concept of exchanging smaller property with a larger one is an essential property investment skill that you need to know about.
If you can grasp a market downturn or adjustment and buy a property below 0.6 million, you may borrow up to 80% (at least in my investment region which is Hong Kong, but banks generally have a more lenient leverage ratio for the first-time buyer).
Now, the initial capital you need is only $120,000.
After a few years, as long as the property rebounds by 20% to 30%, which means you have earned $120,000, plus the initial capital of $120,000, plus the principal of the mortgage in the last few years. If you sell the property now, you would almost have $300,000!
Option 2: Two or more 0.5 million properties
Buying two two-beds properties in the same building or the same neighborhood.
When the property market adjusts itself, you can buy a property that is worth $500,000 for $450,000. Assume that you can obtain 80% mortgage, initial capital is $90,000 times 2 which is $180,000.
After a few months, when the market rebounds, each property rises to more than $500,000, you now have one million portfolios on hand.
Option 3: One $600,000 property plus property in other places
Although the property is pretty much a local game, you can jump out of the comfort zone and learn more!
If you are in expensive cities like me (e.g. Hong Kong, London, New York etc.), you may want to consider other emerging property market which requires less initial capital and has greater capital appreciation potential.
You can buy a $600,000 property, with 80% mortgage that means $120,000 capital.
If you only have $30,000 to $50,000 left, you can consider properties in many Southeast Asian countries. In eight to ten years, the assets have been turned several times and they have reached the target very soon!
The Reality
There is not just one way to invest in anything. While listening to different ‘experts’ and news may not be a bad thing, it is important to see who you are gaining perspective from.
There are many people who like to give an opinion, but they may not be the ones who walks the walk. Talking is cheap. Communicating with someone who is actually in the game can give you a fresh perspective on the reality of what’s really going on.
While many people say that it is hard (or even impossible) for ordinary working people to engage in property investment, you have a choice to determine for yourself whether this is true or whether there are options that you don’t know of yet.
We never know what we don’t know about. Keeping an open mind can make you rich.
Note: this is not investment advice. I’m not financial planning professional. Just sharing what is working for me as part of my investing strategy or what I have learned on my investment journey. Please be reminded to do your own research and consider your own circumstances before making any financial decisions. You could also check with your financial professional to understand what would be best for your situation.
