A good investing strategy is built for the short- and long-term. A key consideration that influences long-term goals is portfolio structure: specifically the number of properties, type of properties and their location.
Generally, we recommend asking 3 questions:
How many properties can I afford?
Should these properties be houses, townhouses or apartments?
Ideally, where should these properties be located?
The answers to these questions will naturally depend on each investor's circumstances and we don't recommend a one-size-fits-all approach. However, a number of general observations can be made that apply to all investors.
How many properties?
Some so-called property investment 'specialists' will recommend that all investors purchase at least 4 properties to start their portfolio. This advice is simplistic and misguided.
Three things should be considered when choosing the number of properties that form your portfolio:
Capacity to borrow: investors should only purchase as many properties as they can afford - leverage can be your friend or your worst enemy depending on how you manage it.
State of the market: if the market fundamentals are looking strong and house price growth is likely over the next 5-10 years then purchasing more properties rather than less could be a wise choice (and vice versa).
Diversification: a good portfolio will also require diversifying into other asset classes, such as equities.
What type of property?
There are three types of property to choose from: apartments, townhouses or houses. The type of property will influence its rental yield and capital gain (house price growth) prospects.
On average, apartments have higher rental yields but prices can be more volatile than house or townhouse prices. For this reason, apartments are a better purchase for investors who want to have a positively-geared (positive cash flow) portfolio rather than a portfolio focused on capital growth.
However, another important consideration is whether you buy a property that is new or existing. Buying a newly constructed property unlocks a number of potential tax benefits. Another benefit of building your investment property is the added flexibility - you can customise the layout to maximise your return.
Where should the properties be located?
An effective portfolio is spread across different locations, for example by buying properties in different suburbs.
This diversifies the risk of the portfolio by spreading across locations that could grow at different rates in the future.
If house prices in one suburb under-perform, this can be counterbalanced by stronger price growth in the other suburbs where the remaining properties are located.
Investing in high growth suburbs should be balanced with properties that are in more established areas with more predictable growth.
Learn more about investing by following our blog. If you have any questions about property investment and getting started, contact us:
Email email@example.com; or
Call 1300 944 039