How to Build a Balanced Investment Property Portfolio
Investing in real estate is how many of Australia’s wealthiest people have made their fortunes, but every day Australian’s are also making money by investing wisely in property. While some people choose to buy older properties to renovate and flip, others make money by buying new houses and holding over the long term. There are many ways to build a property investment portfolio, but to ensure the ultimate success, there’s one strategy that should be implemented, and that’s balance. At PRD, we are passionate about helping Australians achieve their real estate goals. Here’s our guide to building a balanced investment property portfolio that will make you money.
What is a property portfolio?
A collection of investment properties owned by an individual, a trust or a company. Individual investors typically live in one of the properties they own and rent out the others. When the rental income is greater than an investment property’s outgoings, the property is said to be positively-geared and when it is less, it is said to be negatively-geared. Positive gearing is usually preferable to negative gearing however, current legislation allows investors to deduct losses made on an investment property against their taxable income, so negative gearing does have some advantages as well.
What does a balanced portfolio look like?
The aim of most property investors is quite simple: to build a portfolio that pays for itself each month, whilst consistently growing in value. In order to achieve this, you need a mix of properties, some that will deliver high rental yields and some that promise high capital growth. It is rare to find a property that provides both.
High rental yields – can be typically be found in regional working cities, tourist hotspots or other areas that attract large numbers of people to live on a short-term basis.
High capital returns - can be found in aspirational suburbs with long-term, family appeal.
Balance can also be achieved through diversification, such as buying properties in different cities or states and investing in both residential and commercial property. This will help to reduce your exposure to location-specific downturns and weather storms in different markets.
Why is balance important?
Balancing or diversifying your portfolio spreads the risk. Unfortunately, there is no crystal ball that can predict what is going to happen in different real estate markets around the country. Spreading the risk amongst several property types and locations, will ensure that if the value of one of your properties slumps, good continued performance in the others will still give you an acceptable overall result.
Tips for building a balanced property portfolio
· Have a purpose for buying a certain property – don’t just buy property for the sake of buying property and hope that it goes up in value offers a rental return. You should strategically acquire assets to serve a purpose.
· Try to invest in properties that offer positive cash flow – this is when the rental income coming into the property pays for all expenses such as the mortgage, insurance, your council rates and management fees. While positive cash flow properties are hard to find in Australia, there are still some around.
· Properties must be able serve for the long-term as there generally isn’t any overnight success in property investment.
Building an investment property portfolio requires commitment over the long term. It’s important to remember that nothing is guaranteed and there is always risk with any investment in property so make sure you do as much research as you can. If you are looking to purchase an investment property or if you are looking for experts to manage your rental properties, contact the team at PRD today. Our team of industry professionals are here to support you through the process of achieving your property goals. Contact us today.