Real estate: Pam Walkley

You can start building a diversified portfolio with as little as $100

Not many share investors hold just one stock. Yet the majority of residential property investors hold just one property – about 73%, according to tax office statistics. By putting all their eggs in one basket they are breaking a golden rule of investing: diversify as broadly as possible so if one investment turns sour it doesn’t mean your entire portfolio is a lemon.

One of the main reasons people invest in just one property is the massive outlay now needed to buy houses and units in highgrowth cities, where median prices for some suburbs are over $1 million. To buy a $1 million property you need a $200,000 deposit to avoid expensive mortgage insurance; state stamp duty can cost up to $57,500. You’ll need to borrow $800,000, so you’ll have to be a big earner!

But even if you can manage all this, warnings that home prices, especially in Sydney and Melbourne, are extremely overheated, plus the fact that mortgage interest rates are already on the rise, means it’s not an ideal time to get into the market.

If you want your portfolio to include real estate and to be well diversified, it’s easy to find alternatives to buying a house or a unit. You can get local and global diversification across sectors – including office towers, shopping centres, factories and tourism property – without having a huge amount of money or getting deep in debt.

If you want to stick to residential you can buy a stake in a prime property for less than $100 through BrickX (brickx.com). At the time of writing stakes in seven properties were available – five in Sydney and two in Melbourne – at prices ranging from $69 to $158. Each property is divided into 10,000 bricks and an individual investor is able to buy up to 500 bricks. Investors receive a proportional share of the rental income each month and capital growth (or loss) is reflected in the changing price of the bricks.

Investors can get exposure to local and international property by buying a real estate investment trust (A-REIT) on the ASX with a minimum of $500. The sector returned 8.2% in the year to February 2017, as measured by the S&P/ASX 300 property trust index. And although this is well down on the 16.75%pa for the past five years, the average distribution yield is currently forecast at 6.1%, meaning A-REITs especially suit investors needing income.

Exchange traded funds (ETFs) also provide exposure to local and offshore real estate. They are listed on the ASX and require a minimum investment of $500. For example, Vanguard’s Australian Property Securities Index (ASX: VAP) has won Money’s Best of the Best award for specialty ETFs five years in a row. It returned 8.36% in the year to February 2017 and 16.46%pa over five years.

And you can buy into a property mFund with a minimum of $1000, which will secure you a stake in the APN A-REIT, a winner or placegetter in the property securities fund category in Money’s Best of the Best for the past seven years. It produced an 8.68% return for the year to February 2017 and 16.75% a year over five years.

With $2500 you can invest in crowdfunder DomaCom’s managed fund, which enables you to buy units in segregated subfunds holding individual properties or parcels of properties. It scored an A-plus rating from Property Investment Research (PIR).

“You can invest in a $500,000 house, putting up a $100,000 deposit and borrowing $400,000. Or your $100,000 could buy a stake in several properties, giving you diversification,” says Arthur Naoumidis, DomaCom’s CEO.

And then there are unlisted property securities funds and syndicates, some of which invest in single properties and some in portfolios. See pir.com.au.

Pam Walkley, founding editor of Money and former property editor with The Australian

Financial Review, has hands-on experience of buying, building, renovating, subdividing and selling property.