With much talk of interest rates looking unlikely to shift much over the next twelve months, negative gearing still delivering tax advantages, and Melbourne in the midst of a robust but realistic property environment, now may be a prime time to consider starting or expanding your property portfolio. But which approach is best?
Different types of investor
A recent article by Larissa Ham in Domain.com.au identified the four most common types of property investor in Australia and the benefits and pitfalls of each.
The first is the ‘renvestor’ who buys an investment property but rents elsewhere. This can be a good option for getting into the market without heavily compromising lifestyle – as long as any relevant rules first homeowner are followed and rental outgoings don’t outweigh the benefits warns Miranda Mitchell of Positive Property Results.
The second investor identified by Domain is the traditional landlord, who typically follows the tried and tested method of buying early in an upcoming area. This of course takes some skill to determine, however much of the success comes back to the fundamentals.
“Research rents, ask local agents about vacancy rates and look for potential “upside” in the area – such as planned freeways or new school developments … [and] other factors that can lead to success, such as the type of property you buy and whether you focus on capital growth or cash flow.”
Another traditional approach is the renovator, with the potential for impressive gains thanks to good quality upgrades, however the non-earning period spent renovating, plus the costs of renovations themselves must also be factored-in, warns Ham.
The final, and possibly least effective method mentioned by Ham, is the holiday home owner. While the notion may seem attractive, experts tend to agree that the seasonality of holiday home rentals often weighs against potential profit.
“Probably the only time it could work if it’s something you might be looking at living in when you retire (and you buy 10 or 20 years prior),” Miranda Mitchell noted.
Top tips for investing
Once you’ve established the type of investor that fits your profile, there are a number of ways that you can maximise your returns… and enjoyment. Do your reading, search online, ask the experts, and no doubt you’ll discover a host of different strategies, however the majority of them will probably be based on the same set of broad principles:
1. Do the research: the key to investment of any type. If you’re just starting out, consider taking a course in property investing to learn the tricks and hazards to look out for. You’ll also want to research the rental yields, market trends and capital growth potential of different suburbs or regions.
2. Make a plan (and stick to it): writing down and keeping to a comprehensive investment strategy for investing can help prevent you making rash decisions, overcapitalise or make choices based on emotions rather than common sense. Your plan should look at your short, medium and long-term goals and include cash-flow targets and considerations for how you’ll maintain a desirable lifestyle while getting your portfolio established.
3. Take the plunge: armed with solid knowledge, good research and a detailed plans, it’ll be time to take the plunge and buy your first investment property. And remember, your first property may not necessarily bring huge returns, but it’s a start and you may be able to leverage the equity in that home to buy subsequent homes.
4. Increase your value: the more appealing the property, the more attractive it will be to potential purchasers and high quality tenants. The more attractive it is, the greater the returns. Keep in mind that not all renovations and ‘upgrades’ will provide an effective return on investment, however it’s a generally held principle in real estate that updating kitchens, bathrooms, paintwork and wiring/plumbing are generally a generally wise moves.
5. Get professional advice: whether you’re just starting out or you’re a seasoned property investor, getting professional advice is always recommended. This could be entry-level guidance on structuring an investment strategy and what to look for in a property, to higher level advice on tax an financial planning, real estate data, investment statistics, or insights from the team at RT Edgar who are always here to discuss any questions you may have.
With a sound strategy, professional advice, plenty of groundwork, and good self-discipline, the opportunity to own a healthy and rewarding multi-property portfolio in Victoria is possibly closer than you think.
This article is intended to provide general information only. It does not take into account your own financial or personal situation and must not be relied upon or regarded in any way as financial or investment advice. RT Edgar strongly recommends readers seek professional, expert advice before undertaking any investment decision.