With the new year in full swing, you may be planning what you’d like to achieve, including changes to and growth in your property portfolio. Whether you’re a seasoned investor or you’ve had your first investment property for a short time, growing your property portfolio can be a great way to build wealth. To grow your portfolio effectively, however, you need to keep some important things in mind. Keep reading to learn about what you should consider when you grow your property portfolio.
Make sure your portfolio is balanced
Just as you would with stock and fixed-income investments, you need to make sure your property portfolio is balanced. This means having a mix of properties that provide high rental yields and capital returns because many properties won’t provide both. High rental yields are typically found in regional cities with strong local economies and popular tourist destinations. Rental yields in these areas can be up to 7 per cent. In contrast, properties with capital growth prospects are typically found in aspirational towns and cities popular with families with school-age children.
Consider different avenues to buying property
If your current investment properties were acquired with your personal finances, looking at different avenues to access finance and put your other assets to work can be a great way to grow your portfolio. Not only can you gain more control and choice over how your funds are invested, but you can also team up with family members or friends to increase your purchasing power. Of course, if you buy with other people, you need to make sure you all work with a lawyer to ensure ownership and that the process to follow if one of you wants to sell is documented.
Don’t over-leverage yourself
With interest rates likely to continue rising over the next year, it’s important that you have a large enough deposit and ongoing income to service the loan. The amount of money you need for a deposit and repayments will depend on what kind of property you buy and its location. For example, a high-yielding property may be in a location that isn’t as expensive as a blue-chip small-town property, but you also have a higher risk of vacancies if the working population in the area leaves. Similarly, a blue-chip town may have a lower risk of vacancies, but a higher deposit will often be required as the properties in these areas tend to be more expensive.
Don’t forget the owner-occupier appeal
You’re probably not going to keep your investment properties forever, so don’t forget resale potential when growing your portfolio. Homes with strong owner-occupier appeal can be a good option as these are attractive to both investors and owner-occupiers. Further, family homes with character can be properties that people purchase with their hearts rather than their heads, so it increases the market of potential buyers when it comes time to sell.
When the time comes to grow your property portfolio, there are many things to consider. Keeping the factors above in mind while focusing on your long-term goals will help you to make smart investing decisions. And before you make any investment decisions, make sure you speak with your financial and legal advisers to get advice tailored to your unique situation and goals.
Remember, this article is general in nature and is not financial or legal advice. Please consult your professional financial and legal advisors before making any decisions for yourself.