Deciding to invest in property is one of the most significant decisions a person can make.
Once on the property ladder, it can be argued that it’s just as important to consider when, where and how to expand your property portfolio to avoid risk and broaden the opportunity for success.
If you’re considering this, below are some simple steps to be aware of.
Do your research on the property market
Whether you’re looking to buy your first investment property or expand your portfolio, it’s important to do your research.
Consider economic factors and capital growth potential in up-and-coming areas with lower entry costs and forecasting high growth.
Look at Development Applications (DAs) to determine any roads and infrastructure projects including new schools, commercial developments, parks and any Council re-zoning submissions as these are likely to attract renters to the area. BMT Tax Depreciation’s online portal MyBMT has a handy ‘Research and insights’ tool allowing you to view planning applications in suburbs where you may want to invest.
It’s important to also consider locations with a range of public transport options, nearby employment opportunities for tenants and assess rental yields and vacancy rates. Awareness of these factors can help determine future property income potential to cover expenses involved in purchasing and holding the property.
Explore additional factors that may influence your buying decision including your budget, return on investment expectations, type of loan you qualify for and depreciation deductions you may be entitled to. Within MyBMT, take advantage of PropCalc which can help you calculate the cash flow of owning any property. In its projection of future potential cash flow, PropCalc will consider potential depreciation deductions once a property is income producing to help you make an informed decision.
Determine your acceptable risk
What level of risk are you willing to accept? All property investment comes with financial risk and knowing your limits can go a long way towards alleviating potential stress and ensuring you don’t
over-extend your financial obligations.
Consider potential changes in economic factors, including interest rates, or any repairs and maintenance that may be required on the property. This will ensure you aren’t leaving yourself without a buffer if unforeseen circumstances emerge.
Choose diverse locations and property options
If you’re an investor wanting to minimise risk, consider diversifying your property portfolio to expand your reach and spread the financial risks across a broader range of assets.
During FY 2018/19, BMT found 74 per cent of investors purchased an investment property within metropolitan areas/capital cities compared to 26 per cent who own regional investment properties.
BMT found most investors prefer to stay within their comfort zone, with 92 per cent of those living in metropolitan areas also purchasing an investment property locally, compared to 8 per cent who invested in regional areas.
In contrast, regional investors are more likely to invest further afield, with 64 per cent of those living in regional areas purchasing an investment property elsewhere, as 36 per cent then invested in metropolitan areas.
One way investors can diversify is by selecting properties in several locations. For example, you might already own a property in Perth where property values fell by -2.1 per cent in the three months to June 2019 according to CoreLogic.
If your only property was in Perth and you sold it during this time, you’re likely to have made a loss. However, by investing in other locations that are performing better and achieving capital growth, you can create a financial buffer and reduce your risk.
Alternatively, another way to diversify is to consider broadening the types of properties you invest in. Most property investors tend to focus on residential rental properties, however commercial properties are also worth considering as they offer a number of benefits, as explained in our article ‘Why you should invest in commercial property’.
Investors owning both residential and commercial properties minimise their risk of a single economic factor or downturn in one area of the property market affecting their entire portfolio.
However, some consider commercial properties to carry greater risk due to fluctuating economic factors and possible lengthy vacancy rates between tenancies.
Consult a specialist Quantity Surveyor when expanding your property portfolio
Once a purchase has been made and you’ve exchanged contracts on a second property, consult a specialist Quantity Surveyor to obtain a comprehensive tax depreciation schedule for the property.
BMT staff can assist you over the phone or alternatively you can request a new schedule at www.bmtqs.com.au or via online portal MyBMT. This online portal makes managing all your property investment and depreciation needs for multiple properties easy as all information is contained within the one handy location.