Fundamentals for growth - spreading your risk
Maximising growth potential is the secret to your portfolio success, but getting comfortable with spreading risk and investing outside your backyard takes skill says buyers agent Daniel Walsh.
One key attraction property has is its capacity for growth, but getting the most you can from an investment often means investing outside of your backyard. Finding the right property - let alone finding the right place - is a challenge beyond the reach of many people, with this added layer of difficulty a further barrier to success.
Australia’s a big country where markets within markets exist, further adding to buyer confusion. How to choose one city over another or one major regional centre over another, isn’t easy for a new investor. In simple terms, you want to get the best from each market where you’ve purchased so you’ll stand to make more money as property values rise. Work with a team to help choose a suitable location backed by research and then take the following steps:
1. Spread your risk
High-performance property portfolios don’t come from investing within the same geographical area. Smart investors understand it’s important to spread their money around. Known as diversification, this strategy involves purchasing a mix of dwellings in different areas - states, suburbs and streets. It means you’re able to capitalise on growth potential throughout Australia at all times. When your portfolio is spread across different areas, the main benefit is your exposure to different property cycles. One area will generally do better than another, rather than all performing strongly at the same time. On the flip side, as one of your houses may potentially decline in value or rent, you’ll benefit from the upswing as others may perform well elsewhere.
2. Beware land tax
When you have multiple houses in just one state you will have to pay land tax based on the portion of land that you own in that state. Each Australian state and territory has its own land tax thresholds, with the amount differing wherever you are and it’s subject to change each tax year. Don’t rely on a Google search that may throw up outdated information - get updated advice from your accountant instead or directly contact the taxation department in that municipality. I would generally advise investors to spread out your portfolio to avoid going over the threshold, but in some circumstances it’s unavoidable - make sure you find out the best strategy to meet your own needs so you don’t get caught out.
3. Checks and balances
Buying interstate doesn’t have to mean out of sight, out of mind. It’s still essential to do all the necessary checks to ensure your property is in the right location for growth, that you’re not overpaying market value and that your new investment is structurally sound ie; pest and building, solicitor checks (flood, mining, easement checks, water, title searches), strata reports, rental appraisals and property valuations. If you purchase a property without doing your checks and balances, you could run into problems that could cost tens of thousands of dollars, essentially ending up over-capitalising. Given your unfamiliarity with the area, surround yourself with a local team to ensure you purchase the right property in the right area that will suit prospective tenants. If you get this wrong you could have a property that sits vacant for long periods of time.
As a new investor, I had to go through the process of getting comfortable with investing outside my backyard but once I did I never looked back. I’m based in New South Wales and I’ve now got properties in several states, including a property in Melbourne that grew by over $150k in 12 months. That’s not the sort of growth you’d want to miss out on, so it’s definitely worthwhile taking the next step with your investment portfolio. Do the work - the research, financials, checks and balances. Grow your confidence with the support of a professional team behind you and you’ll be on your way to a high-performance property portfolio in no time.
Discover how to create your own path to financial freedom with Your Property Your Wealth founder Daniel Walsh’s blueprint for success. Click here for details.