Why this property investor decided to downsize his portfolio

According to him: “When you're looking for your long-term ‘the one’, you tend to be more cautious—make sure that you're making the right move, finding the right properties and stuff.”

Since last year, he has decided to downsize his portfolio and sell assets that have already “done their job”. One of them was his unit in Sydney—in a suburban location called Granville—which, he believes, has already reached its full potential in terms of wealth creation. The other one is a “regional rural” house located in Orange, which he sold for the same reason. 

Interestingly, Kevin’s strategy is the opposite of the Buy-and-Hold strategy, one of the most commonly used strategies in property investment.

According to Smart Property Investment’s Phil Tarrant: “For many people in property, it's a buy and hold strategy—acquire property, accumulate property, grow a portfolio, and, at a point in time, pay down the debt and ... benefit from living on the cash flow.”

“What [Kevin has] done is ... [go] backward in [his] portfolio in terms of numbers—from nine to seven,” he explained further.

Offset accounts

The cash that Kevin got from the sale of the two properties mentioned above was used to diversify his investment portfolio. Aside from investing in properties, he has also started to invest in other asset types such as start-ups.

He also wants to increase his savings so he can continue purchasing real estate assets in the future despite the unpredictable movements of the property market.

The property investor said: “It seems to me that the property market, especially in Sydney, is starting to plateau … I want to keep the cash so that in 2018 or even towards 2019, I [can] go again in the Sydney market.”

A part of the total cash he earned from the property sales is currently sitting on an offset account, which Phil describes simply as “a bank account that's connected to one of your home loans.”

Phil explained further: “Let's say, if the debt on the home loan is $200,000 and you have $200,000 sitting in your offset, you don't pay any interest on that property if it's an interest-only loan … [but] you still might be paying some of the principal, if that's the case.”

By letting the money sit on an offset account, Kevin is “offsetting the debt” or reducing the amount of cash required from him to service the property. He is also enjoying the benefit of having money “ready to go” for when he wants to purchase another investment property.

“When I see a good deal … at least I know I've got deposit ready and I can make a good offer with good terms,” Kevin concluded. 

Tune in to Kevin Sum’s episode on The Smart Property Investment Show to know more about the right time to haggle commission with your real estate agent, as well as the boxes your property should be ticking and the opportunities you should be jumping on.