Growing a property portfolio

20 August 2022

Property is a lucrative investment and becoming a savvy property investor can be a road to financial freedom, especially if you have a good strategy in place.

One of the keys to success is to build a portfolio that generates passive income, or earnings that you don’t have to work too hard to create.

But investing in property, whether residential or commercial, requires significant research and forethought to ensure you buy in a good neighbourhood with strong rental demand, decent yields and a potential for future price growth.

Here are some things to consider if you are looking to grow your property portfolio:

Have a strategy

Everyone will want something different from their investments whether it’s capital growth, rental yield or greater financial independence. It’s a good idea to clearly map out a strategy to identify your goals and what you would like to achieve from the process. Take time to research different areas, for example suburbs where big infrastructure projects may be about to happen, residential areas where there may be a shortage of available rentals or commercial sectors that are in demand.

Financial freedom

Having just one or two investment properties that raise income is unlikely to help you achieve full financial freedom or make a significant profit. But having several properties as part of a portfolio may be of greater financial benefit. That means if one of your properties is vacant, you will still be earning rent on the other properties and maintaining cash flow. In addition, the more properties you own, the more equity you will have. With a commercial property, it’s likely you will fund most or all of the purchase with a loan, so you will need to get a good idea of the expected rental income you’re likely to attract so you can cover expenses and have some extra income to live on or set aside to grow.

Be realistic with your budget

If you’re looking at an investment property, be realistic about your budget. Often, commercial properties are more difficult to finance compared to residential properties, so be mindful not to overextend yourself financially. If you’re new to commercial property investments, think about starting small or purchasing an older property that might need a spruce up so you can get your foot in the door.

Different properties, different locations

Purchasing a diverse range of properties as part of your portfolio could help safeguard your investments and maximise growth prospects. Owning several similar properties in the same area can be risky, particularly if the location doesn’t experience price growth over time or isn’t a popular choice with tenants. Spreading your property investments across a range of residential housing styles and locations is wise. If there is a decline in one area, that loss may be offset if property in another area experiences growth. For commercial investments, it’s a good idea to buy properties across different classes, such as offices, medical, industrial or retail to protect your profits if one sector takes a dive.

Alluring locations

For residential properties, try to buy in an area where there is high rental demand and consider a neighbourhood that has good amenity and lifestyle options. Think about the proximity to schools, universities, public transport and shops. Walkability can also be an attraction. These factors may increase demand amongst renters and make your purchase more profitable in the long run. On a commercial front, scout out locations where there is likely to be future capital growth. This could be driven by big infrastructure projects that may bring businesses to the area. If your commercial property is in a sought-after location with high foot traffic, you may be able to snare a premium rent.

Property features

Most tenants will have a wish list when it comes to rental properties that meet their needs, so think ahead before making your investment purchase as to what might be attractive features for a tenant. You may not be planning to live in the property yourself but someone will, so it’s important to think about its appeal to renters.

Age old

The age of any property should be taken into consideration, particularly if you might need to fork out on maintenance. Make sure you have a budget set aside for upkeep if you are buying an older property. On the flipside, as a commercial investor, an older property may give you an opportunity to get into the market if you’re prepared to do some maintenance or renovation works. Most investors also choose to have an expert draw up a depreciation schedule which steps out the depreciation, or natural wear and tear, of a property over time. Investors can claim depreciation as a tax deduction.

If you’re thinking about embarking on property investment or expanding your property portfolio, the experienced sales team at Mont is available to help you find the perfect listing.

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