5 key considerations for property investors

Building your own real estate portfolio

What is the key to developing a successful property portfolio?

It’s a question I’ve been asked from many budding investors looking to make their move into the property market.

There are several advantages to building a portfolio of properties.

A portfolio of smaller value properties can take more time to manage than a single high-value property, however, if something goes wrong or if you find it hard to tenant, all of your financial eggs are not in one basket.

Like any long term wealth creation strategy, building a property portfolio takes a lot of time and careful consideration. The number one piece of advice I give to anyone looking to grow a portfolio is to develop your strategy.

Everyone is different and will prefer a different investment strategy depending on their knowledge, attitude to risk and level of involvement.

An important thing to remember when developing an investment plan is to be realistic.

Don’t aim to buy 5-10 properties tomorrow and become a millionaire overnight. (And don’t buy into any marketing hype that purports you can do this!) Concentrate on taking simple steps in the beginning and buying one property at a time. Straighten out your finances and work out exactly how much money you have to work with and what you want to achieve through your portfolio – e.g. is it long term capital growth or rental income you’re after?

Remember to be selective about the properties you choose to invest in for your portfolio.

Your main focus should be on buying safe, solid assets that will go up in value if you hold onto them for 20 or 30 years. You may consider diversifying your property portfolio through investing in a number of smaller value properties in different geographical areas. This will ensure that where some properties may be falling in value, others are rising.

For high-income-earners wanting to create passive wealth quickly while reducing your risk, look for the following key aspects in potential investment properties:

  • Properties within the median price

Buy properties that are within 10%-20% of the median price for that area. That means 80% of the population can afford to rent them. You want properties that are going to be easy to rent because as a property investor, that’s what pays your mortgage.

  • Properties close to major cities

Try to buy properties within 5-15km of major cities as they are close to transport, leisure and work. CBD areas have no height restrictions so technically there is no limit to supply, whereas suburbs usually have height restrictions. Buying unique properties in good locations help ensure that I always get a tenant, and I get a high valuation, making it easier to buy further properties.

  • Both new and old properties

A great portfolio will have a mix of new, off-the-plan properties to get growth with a small deposit, and older properties that can be renovated to add immediate value. The most important thing to look for is properties that are set to grow in value. That’s what creates wealth. Ensure your property is in a proven area of capital growth and likely to grow steadily for years to come.

  • Properties in a smaller block

Properties that are in smaller blocks are unique since there’s usually less available for rent at any one time. Big blocks have big strata levies with extra maintenance expenses such as lifts, pools, and gyms. These often don’t give you any more rent or capital growth. As soon as someone else more desperate than you knocks down the rent or reduces their sale price for a quick sale, every other property on the block gets devalued.

  • Properties with two or more bedrooms

A property with at least two bedrooms is more attractive to well-paid professionals who may rent them. Not many professionals will share with three under the same roof. Also, it’s easier to get two people each paying $500 per week than it is to get one person paying $700-$800 per week for a one bedroom unit or studio.

Article by Chris Gray, CEO of Your Empire, a buyers agency which builds property portfolios for time-poor people – searching, negotiating, renovating and managing property on their behalf. Chris’s team buys 1-2 properties a week and often spends $5m+ a year renovating on others behalf, providing a unique insight into market conditions and buyer and seller sentiment. Chris hosts “Your Property Empire’ each Monday on Sky News Business channel. He interviews various heads of property research companies and major industry figures. Chris is a qualified accountant, buyers’ agent and mortgage broker.

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Disclaimer: all information contained within this article is of a general nature. It should not be relied upon when making financial decisions. Please consult a professional financial advisor or planner (like us!) before acting.