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SYSTEM T® is
the investment framework that I used to build my real estate portfolio.
It forms the foundation of every buying and management decision I make
with my real estate portfolio. You can incorporate it into your
decision-making process by systematically assessing the impact of each
component.
SYSTEM T® stands for:
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Security—my
first aim is to avoid losing money (which is why security is
first on the list). Real estate has high security, which allows high
magnification.
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Yield—my
second aim is to make money. With real estate, this comes from the
capital growth and rental income.
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Spread—I
started with my first investment property many years ago and
gradually built up a diversified real estate portfolio from there by
spreading the properties over different states. In addition, real
estate provides spread for the rest of my investment portfolio,
which includes other asset classes such as shares and cash.
-
Time—over the
long term, the yield from real estate exceeds the interest cost by a
small margin, which I earn by spending time in the market. However,
I augment my returns by timing the market and only buying when
market values are less than intrinsic values.
-
Equity—I use
the increase in equity in my real estate portfolio to add to my real
estate and share portfolio.
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Magnification—the
key advantage of real estate is that it allows me to leverage
my equity more than any other investment. This magnifies my yield
but also reduces my security, so I use it conservatively. Mortgage
interest rates are currently around 5%, but make sure you can manage
when they rise back to 7% in a few years' time.
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Tax—while
important, this is my last investment consideration (which is
why tax is last on the list). I maximise my after-tax yield by
buying high-capital-growth properties and never selling them to
minimise transaction costs and capital gains tax.
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