Build a port­fo­lio to weather the storms

Money Magazine Australia - - IN BRIEF - Michael Yard­ney, CEO, Metropole

It sounds as if we’re in for some in­ter­est­ing times in prop­erty over the next year or two. While this may be wor­ry­ing for some, it is pos­si­ble to de­sign a port­fo­lio that can weather the storms.

Here are four tips:

1. Se­lect the cor­rect as­sets

You must only own in­vest­ment­grade prop­er­ties – the type of prop­erty that will be in con­tin­u­ous strong de­mand by a wide de­mo­graphic of owner-oc­cu­piers and one that is sit­u­ated in the big cap­i­tal cities of Aus­tralia, be­cause these lo­ca­tions are un­der­pinned by mul­ti­ple pil­lars of eco­nomic sup­port. If you own the right type of prop­erty in the right lo­ca­tion, it is likely to be less volatile in dif­fi­cult times. 2. Di­ver­sify As your port­fo­lio grows it makes sense to own prop­er­ties in var­i­ous states, so that when one mar­ket is flat you’ll ben­e­fit from the growth of your prop­er­ties in an­other state.

3. Have a fi­nan­cial buf­fer

Rather than gear­ing to the max, build an emer­gency fi­nan­cial buf­fer to buy your­self time to ride through the storms.

One strat­egy I rec­om­mend is not pay­ing down your mort­gage. In­stead take an in­ter­est-only loan and place the funds you’d use to pay down your mort­gage into an off­set ac­count. This will have the same net ef­fect on your in­ter­est pay­ments but you’ll have ac­cess to your funds. Of course, in­ter­est-only loans are harder to get these days so this may not be an op­tion.

Maybe it’s time to think about es­tab­lish­ing a line of credit (LOC) us­ing your ex­ist­ing eq­uity. In fact, I would go so far as to sug­gest that you should draw as much eq­uity as your bank will al­low, and stash all of it away as a cash flow buf­fer. It will give you sta­bil­ity, re­gard­less of the ups and downs of world mar­kets and lo­cal banks’ fund­ing va­garies.

4. Snap up a bar­gain

The other beauty of be­ing fi­nan­cially pre­pared is that when ev­ery­one else puts ap­plies the brakes and com­pe­ti­tion in the hous­ing mar­kets dries up, you will be in a po­si­tion to nab the bar­gain-priced op­por­tu­ni­ties that abound – by us­ing some of your line of credit or the funds in your off­set ac­count as a de­posit on your next prop­erty.

Re­mem­ber that you need to be proac­tive with your fi­nan­cial strat­egy and be in con­trol of your sit­u­a­tion be­fore things turn sour.

Newspapers in English

Newspapers from Australia

© PressReader. All rights reserved.