Property investors should take a lesson from their share market counterparts, with diversification the key to building a successful portfolio.
Property investment expert Tim Graham of Reventon – guest presenter on the 9 June webinar hosted by Hotspotting – says the one thing all investors should do is diversify by buying properties in different locations.
“Think about it like your superannuation,” he says. “If you’re in a typical balanced industry fund, it’s not all invested in one stock.
“You should think about your property investments much the same way. You might have a property in Victoria performing at 5% one year and a property in New South Wales performing at 8% – and you’ll have an average return of 6% or 6.5%.
“It means that if you’ve got properties in multiple locations across a ten-year period, you’re going to have a much safer portfolio.”
Graham says investors commonly ask where is the perfect location to buy, but the answer depends on the individual. Six people may ask that question and there can be six different answers.
And it’s important to choose location well. Although many markets across Australia are currently booming, investors mistakenly believe they can buy anywhere and it will perform well for them.
The first thing investors need to work out is what they can afford and then start looking at areas that suit that budget and have the potential for sustainable growth.
“Essentially they’re looking for a location that hasn’t peaked yet on the property clock,” he says. “Which markets look like they’re about to take off?
“My job as a buyers’ advocate is to try to find value and, right now, I’ve got to say that’s very, very hard, especially in the established markets.
“I can look at a property and work out what I think it is worth and tell that to the client – and then, a week later, somebody else is paying $30,000 to $40,000 more for it.”
Graham says anyone can pay a premium to secure an investment property but it is more important to find value, which in the current market can be a slower process.
“I’d rather get investors the right property, than jump into something for the sake of getting the deal done tonight.”
He says locations which are worth considering for investment at the moment include Springfield, about 40km south-west of Brisbane in the City of Ipswich. The master-planned community has substantial amenity, a train station connecting to central Brisbane and affordable properties for less than $600,000.
Also worth considering are nearby suburbs such as Ripley or Greenbank, where it was possible to find good properties for less than $500,000.
Graham says Toowoomba in Queensland is also a region worth considering for investment, as he believes it has the same potential as Ballarat, as it has a similar population, great infrastructure projects under way and a modern airport.
There is still value in parts of Geelong and Ballarat although it is a little difficult for investors who are seeking new builds.
Investors looking to purchase new may have a long wait as most builders are extremely busy trying to meet HomeBuilder contracts and many are struggling to obtain materials.
“Even if you can get the land, trying to find a builder is next to impossible,” he says.
Previously the Sunshine Coast would have been on Graham’s radar as a good investment location, but he says significant increases in demand and prices have made it much harder to find value there, especially for investors.
Graham says he typically seeks properties with a rental yield of about 6%.
“As a general rule of thumb, you’re going to find that higher yield in the smaller capital cities and in good regional centres.”
Adelaide is providing good rental yields relative to the bigger cities and regional markets like Ballarat and Bendigo are still performing well.