Is it time to diversify your property portfolio?
Many investors are looking to minimise risk with predicted property fluctuations occurring nationwide in 2015. The easiest way to reduce the risks in stagnated or declining markets is to diversify your property portfolio.
So what does this mean?
We all know the saying “don’t put all your eggs in one basket” which is especially true when it comes to investments. Diversifying can help prevent losses during market downturns because different types of investments are less likely to be adversely affected by the same market developments.
By not diversifying i.e. buying in one location you are opening yourself to more risk exposure such as population changes, boom towns with dropping commodities as some examples.
Here are my top ways to diversify your property portfolio:
1) Buy in different locations
By diversifying across different areas either within a city or different states, you are minimising risk such as outlays and repairs (for example if a natural disaster hit a particular area), or slowed capital growth due to population fluctuations and so on. If one area gets hit that affects your rental return or property’s value, you can balance that out with the other properties in your portfolio.
Conditions also change in different areas over time, which is why it pays to spread your portfolio.
2) Get the right mix
Everyone has an opinion on houses vs apartments. According to the latest RP Data reports house price growth exceeds apartments in every capital city, but the opposite has been in the case in the past.
Having a mix of both ensures your portfolio as a whole continues to grow and even perhaps considering a mix of retail and commercial might also work for your investment and financial goals.
3) Different price ranges
By investing across different price ranges can increase the liquidity of your portfolio, for example if you were in a position of needing cash, you could sell 1 lower cost asset rather than if you were just holding 1 higher value property. This strategy can also help with capital gains tax.
Although you may be able to buy more properties remember the rule of quality over quantity.
4) Target different buyers
Different property markets attract different buyers. Some areas attract first home buyers whilst others attract renovators, upgraders or investors.
By applying the other strategies mentioned here you can position your portfolio for the demand of different types of buyers and renters.
By diversifying your portfolio across different markets you are increasing your chances of growth whilst minimising your risk.
You can’t control market changes but when conditions do change, and they always do in property, it makes sense to spread your portfolio to allow for these property types, areas and price fluctuations.
For more information please contact Brad Smith, Smith Wealth Partners on 08 9286 6111
Article by Ryan Crawford, Crawford Property Group