Strategic Timing: Building a Property Portfolio

When it comes to building a property portfolio, one crucial factor stands out above all else: timing your entry into the market. Unfortunately, we cannot turn back time to purchase properties or investments that we know would have appreciated in value over the course of 10 or 20 years.

Reflecting on some properties we sold in International City back in early 2006, it's surprising to see that their prices today are still lower than they were in that year. It's almost as if going back in time to acquire a property. However, this situation presents an excellent opportunity to construct a property portfolio with a small initial investment.

Consider the following example of purchasing a studio apartment in International City, Dubai, using bank finance:

Property Purchase Price: AED 250,000

Down Payment required by the Bank: AED 50,000

Bank and valuation charges: Approximately AED 5,000

Bank Loan: AED 200,000

In this scenario, a cash investment of AED 55,000 is required. Now, let's examine the annual cash flow: Currently, studios in International City are rented on a yearly basis for AED 22,000. The monthly loan repayment over 25 years amounts to approximately AED 1,300, which sums up to AED 15,600 annually. Additionally, the service charges payable to Nakheel for a studio amount to AED 3,000 (service charges may vary based on unit size).

Considering the overall inflow and outflow, the equation looks like this:

Rent received: AED 22,000

Less Yearly Loan Payments: AED 15,600

Yearly Service Charges: AED 3,000

Net Positive Cash Flow: AED 3,400

This presents a compelling opportunity to invest with low risk and start building a property portfolio. By acquiring two properties and selling one once you observe capital gains, you can use the proceeds to pay off the loan on the other property.

If you are willing to take on some risk, I would suggest using the capital gains from your property to purchase a third property. However, it is crucial to ensure that, after mortgage repayments and service charges on all your properties, you have positive cash flow each year. Avoiding unnecessary risks is essential.

I believe we are currently presented with an opportunity to benefit from growth over the next few years. I have witnessed my customers building portfolios of up to sixty properties by purchasing properties at the right time and utilizing bank finance effectively.