Many Australians are drawn to the potential benefits of running a successful property portfolio. However, as no one can ever know exactly what the future holds, considering how to build a resilient property portfolio is high on many property investors’ minds.
We discuss some of the ways that property investors can help build resilience in their property investment portfolio.
What do investors want out of their property investment?
Individual investors may have different priorities and concerns based on their investment goals, risk tolerance, and market knowledge, however some of the common challenges and concerns that Aussie property investors hold are:
Market fluctuations
Investors are often concerned about changes in property prices, interest rates, and overall market conditions. They worry about potential downturns or volatility affecting their property values and rental income.
Rental vacancies
It is common for investors to rely on rental income to cover mortgage repayments and other expenses. High vacancy rates or difficulty finding suitable tenants can be a significant concern, as it has the potential to impact cash flow and return on investment.
Rental yields
Investors are generally mindful of rental yield, which represents the income generated from their investment relative to the property’s value. Lower rental yields may reduce profitability, especially if expenses like mortgage repayments and property maintenance are high.
Capital growth potential
It is common for investors to consider the location and growth potential of their investment to try and achieve good capital growth. Common factors that are considered are local infrastructure development, economic conditions, and demographic trends that can affect the property’s long-term value.
How to build resilience into your property investment portfolio
Building a resilient portfolio will look different between investors. Some want to achieve resilience against financial risks, whereas others may look at building resilience against any volatility in the rental market. There is no one right strategy that guarantees portfolio resilience, however, some common ideas are:
Know what tenants are looking for
Guessing or assuming what the rental market is looking for may mean that as a property investor, you aren’t delivering a rental property that is desirable to your target market. For example, you may feel that a fresh coat of paint on a residential property is going to draw tenants in, whereas what they really may be looking for are better access to an outdoor area, more light or updated fixtures and fittings throughout the property.
Taking the time to research what tenants are really looking for in the rental property market, and then evaluating whether you’re delivering a property that ‘hits the mark’ may be one of the ways that you can build resilience in your portfolio.
Consider sustainability
“Investment in sustainable upgrades is one of the best ways to improve rental returns and ensure stronger pricing if you choose to sell”, says Caitlin Uren, Head of ESG & Repositioning – Capital Markets JLL Australia.
Opting for retrofitting results is a considerably lower carbon footprint compared to completely demolishing and rebuilding a structure. Supporting decarbonisation within the built environment has the potential to appeal to not only residential tenants but lease holders in commercial properties, too.
Seek professional advice
Wanting to achieve financial freedom is a common objective amongst Australian property investors, however, as no one investment journey is the same as another, a qualified financial adviser is generally best placed to provide appropriate advice that considers your personal financial situation. Investment properties form part of an overall investment strategy, which a financial adviser is typically able to help determine. Accessing high rental yields may seem appealing, however, without the appropriate advice or risk management guidance from an adviser, may come with high risks!
Can I buy an investment property in my SMSF?
Owning investment properties under a self-managed super fund is one of the drawcards for many investors to take out an SMSF over an APRA-regulated fund. Whether your fund is able to invest in direct property will depend on a range of factors and is subject to regulations and legal requirements. One such requirement is the need to establish a Limited Recourse Borrowing Arrangement (LRBA).
At SMSF Loan Experts, we aim to find the most appropriate SMSF borrowing strategy for you, with the goal of helping increase the growth of your SMSF property investment. If you’d like to understand how we may be able to work together to build a resilient SMSF property portfolio, reach out to our experienced team today!
