Land, diversity key to building a successful property portfolio

Around 2.2 million Australians own an investment property. Of these, the majority (70 per cent) own just one.

The reality is that financial independence can’t be achieved by owning one investment property. While everyone has different needs and definitions of financial independence, for most people they are going to need at least three or more properties to attain financial independence.

Only a small minority (10 per cent) of property investors own three or more investment properties.

What separates the majority from the more successful minority?

The majority of investors will tell you their criteria is all about location, location, location.

Yes, location is one of the aspects you should consider, but there are two others that are just as, if not more important; land content and timing.

The minority therefore will tell you it’s about land content, timing and location.

When it comes to investing in property, location is not about “picking the worst house in the best street” as you’ll hear many pundits suggest.

That’s perhaps more relevant when choosing a home to live in.

What’s most important when it comes to property investment is choosing a block of land with a house on it, rather than a unit or townhouses.

The median house price has increased in Sydney by a multiple of seven over the past 30 years. Land has increased by double that rate. Despite this, the majority of investors buy units.

Land component is a crucial aspect to consider when investing.

It is the part of your investment that will actually grow in value. The building on the land, which you need to rent out to secure those all-important weekly rental payments, will start depreciating in value from the moment it is built.

But land, which is a finite resource, continues to grow in value. And the higher the land component the more options you have of doing something with it in the future to value-add to your investment. That could be in the form of a granny flat, subdividing the land or, if it’s big enough, developing something higher density.

The next most important criterion for investment is to buy at the right time of the cycle. Property markets move in cycles. The median house price roughly doubles every 10 years, but the majority of the growth will happen in a two-to-four-year window.

You could have bought in Sydney in 2004 and seen just 4 per cent growth through to 2011. If you bought in 2012, you would have seen a whopping 63 per cent growth through to 2015. Getting the timing right can be crucial.

Once you have all that lined up the timing is perfect. You can move ahead and buy the right investment property for your portfolio as soon as it comes up.

You don’t have to invest in an area you want to live in, it doesn’t even need to be in the same city you live in. The best way to successfully invest in property is to obtain a property that will grow in value and one that tenants want to rent.

Locating the right property

Once we have settled on the market that most suits us from a timing perspective, it is then down to location. Specifically, a location that is close to good amenities, jobs and infrastructure. This will mean it has a growing population and therefore demand for housing over time.

That’s why we suggest looking at locations close to good job nodes, things such as hospitals, major shopping centres, schools and universities that hire hundreds of people.

Also, it’s important to pick somewhere that has good public transport so renters have options for travelling in and out of the area and don’t have to wait hours for a bus or train or always rely on their car.

One in two property investors don’t own their land, nearly half of all property investors buy within a short distance of their own home, and most investors don’t own property in different capital cities, meaning they are only benefiting from the cycles of one market.