What is the key to developing a successful property portfolio? It’s a question Chris Gray, a buyers agent and CEO of Your Empire, is asked all the time.
A property portfolio can take more time to manage than a single high value property. Yet, the plus is that your financial eggs are not in the 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 Gray recommends? Take the time to develop your strategy.
Everyone is different and will prefer a different investment strategy. This depends 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. 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. Also, what do you want to achieve through your portfolio – e.g. long term capital growth or rental yields?
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. They should go up in value if you hold onto them for 10, 20, or 30 years. 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.
Say you are a high income earner. Perhaps you want to create passive wealth quickly while reducing your risk. In this case you should 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 as 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 5k–15k from 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 you always get a tenant, and 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 because that’s what creates wealth. Ensure your property is in a proven area of capital growth and is 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 which 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.
About the author: Chris Gray is 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, where he interviews various heads of property research companies and major industry figures. Chris is a qualified accountant, buyers’ agent and mortgage broker. For more information visit www.yourempire.com.au, www.chrisgray.com.au and follow Chris on Twitter: @ChrisGrayEmpire