Build a portfolio by rentvest­ing

Bryan is a buyer’s agent and head of Aus­tralia-wide prop­erty ac­qui­si­tions at Prop­er­ty­ol­ogy.

Money Magazine Australia - - ASK THE EXPERTS - BRYAN LOUGH­NAN

Heidi and Martin need to be con­grat­u­lated on their im­pend­ing wed­ding – and their ded­i­ca­tion to in­vest­ing at such a young age. They’re in a great po­si­tion to se­cure their fi­nan­cial fu­ture and en­sure that, un­like 82% of Aus­tralians cur­rently aged 65 or more, they avoid fall­ing vic­tim to the aged pen­sion trap.

With an up­com­ing wed­ding and un­cer­tainty about where (and when) they would like to set­tle down, it wouldn’t be un­usual if their needs and wishes change over the next few years.

Given the ex­po­sure their su­per al­ready pro­vides to the share­mar­ket, I sug­gest they re­tain flex­i­bil­ity for ca­reer and life­style by rentvest­ing: rent­ing where they are happy while in­vest­ing in prop­erty mar­kets that ap­pear to have solid fun­da­men­tals and growth po­ten­tial. De­pend­ing on how de­ter­mined they are and on their long-term ob­jec­tives, it’s pos­si­ble Heidi and Martin could be in a po­si­tion to pur­chase two in­vest­ment prop­er­ties in the short term us­ing this strat­egy.

Heidi and Martin can build a di­ver­si­fied portfolio, tak­ing ad­van­tage of lo­ca­tions with bet­ter po­ten­tial than the Sun­shine Coast. Pur­chas­ing an “in­vest­ment” prop­erty to po­ten­tially one day re­tire into may sound nice but try­ing to de­cide now where and what they may want to live in 40 years down the track is a waste of time.

I rec­om­mend they buy one prop­erty now and a sec­ond within six months. To max­imise op­por­tu­ni­ties and min­imise risk, they would be in dif­fer­ent ci­ties (pos­si­bly dif­fer­ent states). The com­bined as­set value would be around $600,000 and I’d es­ti­mate com­bined an­nual hold­ing costs could be as lit­tle as $5000.

In­vest­ing across mul­ti­ple lo­ca­tions and in var­i­ous states is some­thing very few peo­ple do; it’s also a com­mon rea­son for peo­ple not re­al­is­ing their full po­ten­tial. In­di­vid­ual sub­urbs (which are ef­fec­tively just dot­ted lines on a map) do not go up and down in value. Fur­ther­more, not ev­ery street in a spe­cific sub­urb or re­gion may be ac­cept­able for in­vest­ing pur­poses. His­tory shows that re­gions with strong fun­da­men­tals such as af­ford­abil­ity, eco­nomic de­vel­op­ment, con­trolled sup­ply and pos­i­tive sen­ti­ment per­form bet­ter from an in­vest­ment per­spec­tive over a longer pe­riod. It re­quires an in­vestor mind­set, treat­ing prop­erty as a fi­nan­cial in­stru­ment, not a home.

Fol­low­ing this process is how Prop­er­ty­ol­ogy un­cov­ered the now strongly per­form­ing Hobart mar­ket for our clients three years ago.

With all of this in mind, while very se­lect pock­ets of Bris­bane and the Sun­shine Coast might not be bad in­vest­ment de­ci­sions to­day, there are other mar­kets through­out Aus­tralia that are more af­ford­able and have stronger fun­da­men­tals that I would con­sider for Heidi and Martin.

Based on the price range of prop­er­ties I’ve pur­chased for clients, in the most af­ford­able of th­ese lo­ca­tions we would look to spend be­tween $230,000 and $280,000. Rental yields in th­ese lo­ca­tions for a three- or four-bed­room house are cur­rently around 6%.

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