How to build the best property portfolio
A property portfolio is a fantastic way to expand your wealth and grow towards building yourself a perfect life. Nobody wants to work behind a desk for the rest of their days, so finding a way to invest and create your own Australian dream should sound fantastic.
In terms of breaking into the property market and being successful in doing so, this formula is a great place to start, no matter what your financial situation is. Anyone can invest, all you need is the know-how.
The state of Australian investing
The Housing Industry of Australia (HIA) reported on February 17 that the Australian population counter has ticked over 24 million. In a report by Cohen Handler’s Walter Nanni, there were 1.8 million Australians that owned an investment property in 2014, or 7.65 per cent of the population. However only 0.9 per cent of those people own more than six investment properties and even less are self-funded retirees, at 0.5 per cent.
Taking your future into your own hands could be daunting, but the wealth-creation possibilities when building a property portfolio are essentially unlimited. It’s much easier to become a self-funded retiree than it may seem, and you could well end up with significantly more returns than any regular superannuation fund can provide.
If you have a portfolio that includes three properties that are producing income from rent, all generating $30,000 per annum, then your income will be $90,000 annually excluding tax. If those properties are all paid off, then your pocket will be getting significantly fatter just by maintaining the tenancy. Triple the number of properties that you own and you virtually triple your income as well. That is a very attractive salary. Getting to such a point does require some work though, and smart strategies. You’ll have to start somewhere, and buying your first investment property is an important step.
Don’t let (a lack of) money hold you back
Equity can come in all shapes and sizes, and you could well be sitting on a lump of it already. Your home, or even your family home, can be your first port of call for this.
Renovating a property can take time and effort, but the value some basic renovations can add to a house or unit can be enormous on a small budget. Westpac Australia states that between 2010 and 2014, home renovations increased 147 per cent, while 89 per cent of Australians believe that updating a property can increase value.
Kitchens and bathrooms should be replaced or rejuvenated every 15 years.
Making an agreement with your family about renovating before selling their prime patch of real estate can be a great way to give yourself an equity boost. It will take some hard work and patience, but a small budget of $5,000 helped Walter Nanni to add between $40,000 and $50,000 of value to his parents’ house. When the property was sold, they were able to pay off a large chunk of their mortgage with the added value, and then there was leftover money to start the process of buying a first investment.
Renovating can be tough and time-consuming, but buying a house or unit with the intention of renovating can be a cheap way to break into the market and project for great returns. HIA research suggests that kitchens and bathrooms are replaced or rejuvenated every 15 years, so a buyer coming in and seeing that both of these rooms are already finished will look favourably on the property. That could be what pushes the value of your investment up, and when it does sell you will have more capital to play with to fund your second purchase. The ladder is yours to climb from there.
Becoming an investor
Choosing the life of an investor can be a big decision, but that may end up being extremely beneficial to you in the long run – you can retire whenever you want and have a seriously happy fund to play with. You don’t even have to give up your career either, although putting your role as an investor first is advised, especially initially when you may be renovating your first few properties in order to create equity.
Taking control of your own assets and building a property portfolio means understanding that you make money not when you sell a property for a profit, but when you buy it. If you choose well and have done the required research, then the money spent on a property will already be projected to turn a profit in the future because you’ll know exactly where the market around that area is heading.
There is also the matter of being investment-fit, meaning that the first few times you invest will likely be a challenge because you are not used to the processes. After that however, you will know just what to expect and it won’t be so draining. Not only will it stop being such an uphill battle to sort out all of the paperwork and meetings, but you will get better at it and find yourself being able to move up the property ladder and invest in more valuable real estate.
Educating yourself about what the best times to buy and sell properties are is also important. The value of properties go through cycles every seven to 10 years, approximately doubling each time. There are even more beneficial times to buy and sell though, such as making the purchase when the rest of the market is selling and shifting your property on when buying is on the cards.
You will still be able to sell for a great profit in a market that is dropping rapidly, although typically in that situation you will need to have invested wisely in the first place, having done the required research. A family-friendly property in a quiet neighbourhood close to schools and other amenities, for example, will always hold its value. Walter Nanni believes that you can also buy when the market is rising dramatically, as it is in Sydney at the moment. No matter what moves you are trying to make on the market, in-depth planning and organisation of your portfolio and a sound investment strategy will set you on a successful path.
But where do you buy?
There is never a bad time to enter a market when you are buying an investment property because there is not a need to turn the asset over quickly. However, you can choose areas in which higher rental yields are possible, or fantastic growth is predicted.
Domain Group’s December 2015 House Price Report suggests that the median house price in Sydney has increased by 14.8 per cent over the previous 12 months to $1,013,258. A large increase was also noted in the median unit price, up 8.7 per cent to $655,845.
“While the median house price still remains above $1 million, if current trends continue it will likely fall below this benchmark by mid-year,” said Dr Andrew Wilson, senior economist at Domain.
While that could be scary for some, it’s worth noting that in 2014, Centennial Park wasn’t even mentioned in a Smart Property Investment (SPI) State of the NSW Markets 2014 report. As of December 2015, it topped the CoreLogic RP Data list for the most expensive median property price in the entire country at $6,295,973. The property market can change dramatically in a short period of time, so cashing in early could be a great move.
It is also important to remember that the median price is an exact halfway point, so while it still lies over the $1 million mark, 50 per cent of Sydney properties are valued below that figure.
Getting noticed at open homes can get you an invite to pre-market property displays, which could be an advantage.
Sydney is a great city for investment, and being one of the first people in attendance of a new property on the market is a great way for you to show your seriousness in buying. Open homes also give you a chance to meet the agents and build a name for yourself as a real buyer, which could get you onto the invite list for pre-market property displays and provide you with an edge.
Open homes will also give you the chance to inspect the entire property and get a feel for the street. You should be well-researched on the suburb prior to inspection, but the street itself will be more difficult to gauge until you see it yourself. Once there, you can decide whether you are buying potentially the worst house on the best street, which is a significantly better prospect than taking on the best house on the worst street.
A great example of this is in the famous Sydney suburb of Bondi. A Residex report finds that the median house price in the suburb is around $2 million, but the median unit price is closer to the $1 million mark. Those numbers might be high, but then take a look at the specific streets. The most expensive street to buy a house by median dollar value is Flood Street, at $3,172,971. Keeping in mind the fact that 50 per cent of the houses here will be less than that value, finding the ‘worst’ house on a street with a median value over $3 million might not be so bad.
For units the story is similar, although cheaper. The most expensive street in Bondi to buy a unit is Ocean Street South, with a median dollar value of $1,549,797. Less than half the cost of the most expensive street for a house. There are ways around the huge prices in Sydney, all you have to do is prepare yourself.
In a rising market such as Sydney, there are wrong moves that can be made however. Getting hot under the collar at auction and bidding far too much for a property is an easy way to undercut your portfolio in one foul swoop. Data from St George Bank found that 62.1 per cent of respondents to a survey did not have a clear strategy in place while in the auction room. Even more worrying is the fact that 48.2 per cent of people did not feel as prepared as they could have been prior to attending an auction. That leads to 56.8 per cent of people reporting that they have missed out on properties at auction, and just over half of those people fell over in the bidding process itself.
A specialist buyer’s agent will always have a specific bidding strategy in mind, and the experience that they bring to the room will be a major key to your successes. Being able to read other bidders and the projected closing price of a property as the auction progresses means that you will have the upper hand over your competitors. Having somebody by your side through the entire buying process could help your mental state as well.
St George Bank found that 51.1 per cent of people experienced anxiety before an auction, while 17.5 per cent of people had serious trouble sleeping. Worse, 38 per cent of people also missed out on regularly exercising and 23.4 per cent of people had difficulties with their partner in the house hunting process.
Staying healthy in body, mind and relationship are just some of the ways that a buyer’s agent from Cohen Handler can assist you, and what’s more they can add value to your portfolio by helping you to be successful when acquiring property.
When you have decided that taking the future into your own hands is the best move, having a professional support team employed can make the entire process a breeze. That group includes a solicitor for handling the contracts, an accountant to give advice and make sure you’re doing the right things with your income, a mortgage broker to provide access to working capital in the first place and a buyer’s agent to handle potential auctions and provide an invaluable knowledge base to any budding investor.
Before doing a deal, you should inform your whole team so that they can be well prepared, which will allow you to move swiftly and efficiently. Your accountant will be ready to handle any paperwork and your solicitor will have a contract for the transaction prepared. Your broker will be able to approve the required loan and your buyer’s agent can assist with the buying process and any negotiations. Lining these people up can help to cut a huge amount of time out of the transaction, and could be the difference between succeeding and missing out on the real estate.
Once you have a team assembled, you could be looking at Melbourne for your next investment. The city is predicted to eclipse Sydney’s population by the year 2056, reaching over 9 million residents according to a McCrindle report. With so many people in the city there will be a strong need for housing, and getting into the investment market early will see your returns increase alongside the population.
Domain Group found that the median house price in Melbourne increased similarly to Sydney, at 14.5 per cent to $719,486. It’s a slightly different story with the unit price though, as the increase was only 2.4 per cent to $446,046. With more affordable prices than Sydney, the accessibility of the Victorian capital could be much greater for investors.
Smart Property Investor lists the suburb of Rockbank as one of the highest rental yield suburbs in the whole state, and lying just west of the city it is still an attractive option for people who work in the CBD. The median house price is listed as under $200,000, and the gross rental yield percentage is 7.49 per cent. With a relatively low median and great returns possible, Rockbank could be a fantastic avenue into the market.
A buyer’s agent from Cohen Handler will be able to inform you exactly where to buy, matching your requirements perfectly.
However there are more central locations that Cohen Handler believes are the best options for investors with a little more money. Residex lists the median house price in St Kilda at approximately $1.3 million, and a unit price of less than $500,000. Cremorne on the other hand has a lower house value of a little over $1 million but a higher unit price at more than $600,000. These values are significantly more accessible than Sydney prices, although the city is not as much of a business hub as the New South Wales capital. Coburg is even more affordable with a median house value of $800,000 and a median unit price at under $500,000.
Balaclava shows similar trends to St Kilda, with a high median house value of $1.1 million and a low median unit value reaching well below $500,000. The last suggested investment suburb is Reservoir, the median house price reported at around $600,000 and the unit value sitting at $390,000.
The market in Melbourne is very accessible, and a buyer’s agent from Cohen Handler will be able to inform you exactly where to buy, matching your requirements perfectly.
Smart, seasoned investors will be looking towards Brisbane already as the next Sydney-like opportunity, but for a fraction of the cost. However accessing those lower prices can only be achieved if you put yourself in an advantageous position. Knowing the true value of a property is a great start and can stop you from paying too much for a house or unit. A major key is to never ask the selling agent the price. They will be trying to make money for the seller and the vendor, but if you take advice from a buyer’s agent or research the suburb and property type well, you will know exactly what you should be paying. Try to conclude a deal at either the beginning or end of a campaign too, as properties that go to auction could see a ramped price in a heated room if they are not snapped up prior.
While the prices are low it would be wise to jump on board in Brisbane and take advantage of the conditions.
Brisbane is a growing city, and Queensland has always been an attractive destination because of the climate and access to beautiful wildlife. Domain Group finds that the Brisbane median house price is still very low at only $511,361, showing an increase of 4 per cent over 2015 while units decreased 5.3 per cent to $359,965. The fall in unit prices should not scare investors, however.
“The record levels of new apartments continue to impact the Brisbane unit market, with supply clearly pushing ahead of demand,” said Dr Wilson.
Market popularity in the Sunshine State capital has driven construction rates up, but that doesn’t mean that the boom will last forever. In fact, while the prices are low it would be wise to jump on board and take advantage of the conditions, because the turnaround could be seen in the near future.
Major developments in the city are going to boost the number of jobs. The Queensland government Mid-Year Fiscal and Economic Review 2015-16 reports that the $3 billion development on Queens Wharf is going to generate 2,000 construction jobs and will then create 8,000 ongoing jobs upon completion. As more development plans progress, Brisbane could become a hub for people searching for employment and those people will be looking for quality accommodation. Capitalising on the low unit prices now, as well as the relatively low house prices, could be a very shrewd move for your portfolio before the predicted Brisbane boom occurs.
The main goal for creating a property portfolio is always going to be taking control of your future finances with advantageous moves right now. Property as an investment is stable, as it is not subject to the same market fluctuations as shares and stocks. In fact when you are aiming to build a secure financial future, working the property market is an accessible way to achieve your dreams.
In terms of finding the right property to add value to an existing portfolio or picking a first investment, the above examples are just a minute selection of areas that the specialists at Cohen Handler suggest researching. The entire western half of Australia is still a major market after all! Perth property prices have recently experienced a drop, house medians have reduced by 4.5 per cent and sit at $585,369, while unit prices saw a 5 per cent drop to $388,834.
Property investment is not limited to the east coast, although that’s where the expert buyer’s agents at Cohen Handler are based. Even if you do not live in Sydney, Melbourne or Brisbane, accessing the services of Cohen Handler is not limited. If you live in Darwin, or anywhere else in the world for that matter, you can employ one of our team to assist you in purchasing a property to add to your portfolio without even being in the city.
Stepping onto the property ladder and building the best portfolio you can is a long process, but doing so will give you complete control over your future finances and set you on the right path to a relaxing and well-deserved retirement.