Property can be a profitable and worthwhile investment.

But how do you cultivate an investment portfolio that generates passive income, and one that ensures strong rental demand, good yields and the best chance of future price growth?

Here’s some ideas to consider if you are looking to grow an investment property portfolio.

 

Be in it for the long game

Rome wasn’t built in a day, and everything that is worthwhile generally takes time.

Take time to research rental demand in different suburbs, including where there may be a shortage of available rentals.

MARQ Licensed Agent Natalie Kokic Schmidt said property investors should be ready to accept property investment as a long-term proposition, not a means to make a quick buck.

“Investing in property is a long-term approach,” Natalie said. “While some properties made substantial gains during COVID, the pandemic market was not a ‘normal’ market.

“It is important to understand that property is expensive to get into, and also expensive to get out of, so it’s ideal to take a long-term approach to achieve your desired outcome.”

 

Financial benefit

Gradually growing an investment property portfolio will mean greater opportunities to make a profit or achieve financial freedom.

While one or two properties that raise an income are certainly a worthy investment, the more properties a portfolio contains, the greater the likelihood for more financial benefit.

Having more investment properties also means that if one is sitting vacant untenanted, you will still be earning rent on the other properties and maintain a cash flow. In addition, the more properties you own, the more equity you will have.

“As a real estate agent, I can’t give financial advice, but I can say that once you have purchased your first investment property it does get easier to purchase subsequent properties,” Natalie said.

“The nature of the property market is that it is cyclical There are always ups and downs, but a long term approach will give you the best chance of creating financial freedom for yourself.

“Investing in property can set you up financially and there are huge rewards if it does go to plan, whether it means retiring early, having a property for your children to live in, or as a rental for tenants.”

 

Diversify your portfolio

Purchasing a range of different properties in different locations as part of an investment portfolio will help make the most of growth prospects.

Just like the saying ‘don’t put all your eggs in one basket’, it is wise to diversify where and what you buy to give your investment property portfolio a spread across housing styles and locations.

Owning several similar properties in the same area can be risky if a certain area or specific property doesn’t experience growth or isn’t a popular choice with tenants. If there is a decline in one area, that loss may be offset by growth of another property.

“It is really important to diversify your portfolio as different properties meet different needs for tenants,” Natalie said.

“Some properties will be ideal for your individual tax purposes whilst others will have a high rental return or high growth over times.

“It is important to really knuckle down on what it is that you personally want from a rental property long term before purchasing any specific type of residence.”

 

Budget with a buffer

When buying any property, it’s sensible to consider its age and if you might need to factor in additional funds for maintenance or a future renovation.

Natalie suggests setting some money aside for upkeep if you’re buying an older property, or on the off chance it takes some time to let and you need additional funds while it sits vacant.

“Always have a budget for worst case scenarios, for example to cover when the property is vacant, for maintenance, interest rate rises, property management fees, market conditions and personal health issues,” she said.

“It’s always good to have a buffer in the bank should something go wrong.”

 

Call in the experts

Managing any sort of property while trying to hold down your own job and fulfill family and lifestyle commitments can be a challenge for anyone, so it’s best to call in a professional to manage your investment.

“I have seen too many of these situations go wrong. While some privately managed properties attract great tenants, what happens if it doesn’t?” Natalie said.

“Property managers know the law and are here to help ease the stress of your investment. Ensure you meet with your property manager in person if you can to confirm that they are the right person for the job.”

Property management fees are tax deductible.

In addition, most investors opt to have a professional draw up a depreciation schedule which steps out the depreciation, or natural wear and tear, of a property over time. Investors can claim depreciation as a tax deduction.