Monday, 2nd of December 2024
7 Tips For Expanding Your Property Investment Portfolio
There’s a reason why Perth remains the nation’s ‘boomtown’ at present. With several factors like healthy mining exports, private sector growth, leading rental growth and low unemployment rates, it’s no wonder the WA capital is experiencing one of the tightest rental vacancy rates in decades. Whilst it’s not great news for tenants, investors are leveraging the current market conditions to expand their property investment portfolio throughout both Perth and Western Australia.
Despite the high demand and relative nation-wide affordability for Perth property, investors still need to be cautiously selective when expanded their property portfolios. Given our years of experience helping countless investors achieve this, we’ve provided 7 tips for investors looking to expand their investment property portfolio in 2024 and beyond.
How to Build a Property Investment Portfolio
Whilst you may be open to investing throughout Australia, Perth is currently leading the way in rental growth, making it a firm favourite for investors looking to expand their portfolios. In the last 12 months, Perth’s undersupply of rental properties has seen its rental growth tower above every other Australian capital, with Perth boasting an 18% rental growth rate as compared to the national average of 10.3%.
It's not just about rental growth though, factors like location, stock availability, property types can all play a vital factor in selecting the right property to add to your portfolio. We have outlined these (and more) below to give you a broader perspective of considerations ahead of embarking on a property search.
Here are our 7 tips to expand your Perth property investment portfolio whilst maximising returns and month-on-month cash-flow.
1. Be Smart About Location
Investing in high-growth areas throughout WA is a great way to grow your investment property portfolio. High-growth areas are regions that are experiencing rapid population growth, job growth, and infrastructure development. Investing in these areas can lead to higher property values and rental income, making it easier to grow your portfolio.
High-growth areas offer strong opportunities for excellent price-to-rent ratios with rents expected to increase in the coming years. To identify high-growth areas in Perth, you should research local economic indicators, such as population growth, employment rates, and construction activity, as well as some of the following considerations:
- Historical data of the area - including past rental prices, property values, demographic shifts, and changes in population growth.
- Forecasted data – look forward to the likely future of the property market for both residential and commercial investments.
- Upcoming development projects – pay close attention to construction in the area or proposed projects, information on this can sometimes be found on the local council website or the projects page of local construction companies.
- Job market trends – changes in the job market will significantly impact commercial and industrial areas, ensure you understand what industries are prevalent in your investment areas of choice and how these industries might shift over the coming years.
- Examine zoning changes and future land use proposals – councils and/or Landgate can be a useful resource here when shortlisting properties, as the current and projected zoning has a profound impact on factors like renovations or sub-divisions.
We welcome you to browse our article Top Performing Rental Suburbs Of 2023 to see which rental suburbs offered the most attractive returns during the 2023 calendar year.
2. Diversify Your Investments
Market fluctuations do not happen in isolation. Changing rental yields, vacancy rates and rent prices in one asset or location will affect how another type of asset or location is viewed and vice versa. A crunch on the demand for three-bedroom houses can see the demand for large apartments sore high, an industry shift can see retail property rents fall while industrial and warehouse rents reach new heights, or a demand away from South-of-the-river residences can see North-of-the-river boom.
Diversifying your investment property portfolio is about making the most of these to-and-fro changes in the rental markets to secure a high cash flow across your portfolio. Whether you are currently holding onto just one asset or multiple, consider what assets might complement your current holdings to make the most of the changing and adaptive market.
3. Treat New Investments with the Same Level of Care as the First
Buying your first investment property is undertaken with extremely high due diligence and care. Your second, third, fourth, or tenth investment should be no different. Ensure that you assess all your investment additions against a strenuous criterion to evaluate the best new fit.
Some of these key indicators include:
- Cash flow – look for positive cash flow from day one.
- Rental yield – Aim for a property with a rental yield of at least 5%, in some cases you’ll find suburb yields can be as high as 6.4% for houses and as high as 9% for units.
- Price-to-rent ratios - divide the purchase price of the property by the gross rental income it will generate per year, compare between properties, and seek low price-to-rent ratios.
- Vacancy rates – look for suburbs with steady, low vacancy rates. To find a breakdown of historical vacancy rates by Perth suburb explore this tool by SQM research.
4. Seek Out Opportunities
It might be tempting to invest in something easy, sleek and new but a more hands-on approach to investing can see your property investment portfolio boom.
Focusing on value-add opportunities by investing in properties that have large potential for improvements or upgrades can maximise your returns. Just be careful, if you are planning on searching for hidden gems, ensure that you complete thorough due diligence to ensure there won’t be any hidden costs when you begin the repair or upgrading process.
Properties that require minimal repairs and renovations to reach market standard are the ideal investment opportunity, offering low effort for higher returns.
5. Leveraging Your Investment Property Portfolio
In terms of property investing, Leverage enables investors to access or borrow capital to expand portfolios and increase investment returns. Capital can be accessed via an existing mortgage or other financing in order to facilitate the purchase of a new property, meaning the investor does not need the cash on hand to buy the property outright.
Leverage can be an effective tool for growing your property investment portfolio quickly, but it needs to be treated with caution. By borrowing money to fund your properties, you’ll be able to purchase more high-value properties at a faster rate, increasing your monthly cash flow and amplifying your returns beyond the point needed to repay your loan.
However, this does not come without risks, as you introduce the potential to default and may find yourself at the mercy of hiked interest rates. We recommend that investors do not undertake leverage without having a thorough idea of their personal financial position, and the wider financial and property markets.
6. Think Long-Term
The key to building a successful investment property portfolio is to think in the long term and avoid making investment decisions in isolation. By carefully developing an overarching long-term plan, you can make more informed decisions in the short term.
When developing a long-term strategy for your property portfolio consider the following:
- Your investment goals – how much revenue do you aim to collect from your investment properties going ahead, and how much of this are you happy to reinvest, and what size would you like your portfolio to grow to?
- Timeline – how long do you see yourself overlooking your portfolio? Are there any market pressures that may be tempting you to build your portfolio faster or slower?
- Risk tolerance – how much risk are you happy to take on to grow your property investment portfolio?
- Market changes – consider where the market will sit, not just a few years from now, but also after ten or fifteen years’ time so you can adjust your strategy in the face of forecasted marketing fluctuations.
- Personal changes – a long-term investment plan for your property portfolio is also about a long-term life plan. Consider how different stages and personal circumstances will affect your portfolio and how you will manage these, including unexpected expenses, potential injury, or job loss.
7. Select the Right Property Management Agency
When your Perth investment property portfolio expands, the need for an experienced property manager and agency, becomes of paramount importance as your management obligations begin to pile.
By partnering with the right property management agency, you will ensure that all management elements of your property are dealt with swiftly and promptly, with your best interests at heart, to maximise returns across your portfolio.
Introducing Perth Property Management
As an award-winning team recognised both nationally and state-wide with multiple accolades, the team at Perth Property Management understand what it takes to manage and expand an investment property to ensure it produces the highest possible investment returns.
Some of the benefits our clients get include low vacancy rates, 35 years of real estate expertise, boutique personalised services tailored to their investment strategy and 100% involvement from our principal Kristy Copping, winner of the 2023 REIA property manager of the year award.
Working across both commercial and residential, we have developed a cohesive in-depth picture of which investments return the highest rental yields and lowest vacancy rates, and how investors have maximised fluctuations in these areas across investments to produce high-quality investment property portfolios with strong returns and cash flows.
If you are looking to expand your property investment portfolio in Perth this year, and are in need of advice or guidance, we welcome you to book a meeting with our award-winning team.
