A GOOD PROPERTY PORTFOLIO SHOULD INCLUDE A MIX OF PROPERTY TYPES AND AREAS. NO MATTER WHERE YOUÍRE STARTING OR WHAT YOUR SITUATION, AGE OR EXPERIENCE, BALANCE IS IMPORTANT IN HELPING YOU MAXIMISE YOUR PROFIT AND MINIMISE YOUR RISK.
1 – What does a balanced portfolio look like?
For some investors, it could include owning properties in different geographic areas, which in South East Queensland alone could mean Brisbane, Toowoomba and the Sunshine Coast.
A balanced portfolio can also be a mix of new house and land, units or townhouses, existing houses, or off the plan units or townhouses. Units and townhouses may meet inner city requirements where house and land could be uneconomical, whereas in some markets house and land may deliver the best return. The type of property is often less relevant than its appeal to tenants, its cash flow or its capital growth potential.
2 – Capital growth vs. rental return
Capital growth properties grow in value over time. Properties that have achieved strong long-term growth are often located in inner-city areas and high population growth areas with strong infrastructure growth. Cash flow properties or positive-geared properties earn enough rental income to cover the mortgage. You’re making a loss in the short term, but rental income from the property will increase in future when the property turns positively geared. As an investor your ultimate goal should be a portfolio that pays for itself each month, whilst also growing in value.
3 – Buying new vs. old
After years of experience and making enough mistakes myself, the most important thing I have learned is to buy new, not old. There are quite a few reasons for making this decision – one of the most important is the huge difference the tax benefits can make.
The maintenance costs are close to non-existent as the builder is responsible for correcting any faults for six years. Newer properties are also generally well presented with an appealing design and high quality tenant-ready features.
4 – Comparing expenses and returns
It’s always interesting to compare houses against units and townhouses. Houses seemingly have less cost compared to units or townhouses due to the latter properties having body corporate fees; however there is a maintenance component not factored into houses that is allowed for and covered in body corporate expenses. Council rates are also calculated differently for the different property types. All have their benefits and we generally find that over time, costs and returns are often equal.
5 – Doing the right research
Research is key in identifying the best property for your portfolio. Property types should match demographics and the area. For example, units or townhouses may not be required in smaller regional markets, whereas house and land on the other hand may have strong demand. The majority of investors don’t do enough research, or worse still, get incorrect information from the huge amount of data available online. It is vital to know what is happening with infrastructure spending, demographics, employment, economic growth, and supply and demand, to name just a few.
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