To maximise the potential for long-term capital growth, your investment strategy should be based around building a healthy property portfolio featuring a diverse range of properties.
Here at Optimal Property Group, we strive to present our clients with the best handpicked opportunities throughout Australia and work hard to build strong portfolios of extraordinary properties from around the country.
Let’s take a look at the ins and outs of building a multi-city portfolio.
The Importance of a Diverse Portfolio
When hunting around for different investment opportunities, it’s natural to gravitate towards what you know. You tend to understand your own city best, and when it comes to investing your hard earned money, it might be difficult to pour it into somewhere you have no practical or emotional connection with.
Some investors choose to stick to one city or even a particular area within a city, however, this can be quite a risky strategy.
We always suggest a geographically diverse portfolio of property. A strategic spread of properties will mean that you will be in a better position to weather any financial fluctuations from changes in the markets across different capital cities.
It also means that you can enjoy growth in one city, while investments are stable in another. In a nutshell, a diverse portfolio distributes and minimises financial risk.
The Property Cycle
The price of property in Australia is often said to move within a “property cycle”, which is hugely influential towards when and where investors choose to invest.
However, the property cycle is not universal across Australia. Rather, the national property market is made up of numerous dynamic micro-cycles that are largely independent from one another. This is very important when it comes to diversifying your portfolio.
For example, if the property market is at its peak in Sydney, the market in Melbourne may just be beginning to experience growth, presenting a far more lucrative investment market.
If you have a diverse portfolio with a spread of properties in various cities, you are positioned to be able to weather fluctuations as your investments essentially prop each other up. The more diverse your portfolio, the better position you are in to ride out each micro-cycle.
When To Buy Into Cities At The Right Time
Cities are major population centres with diverse economic bases, growing population trends, and strong structural demand for housing. This is why we focus most of our time on these areas.
But how do you know when the right time to diversify your portfolio with a property in a new city?
Typically the best time to invest in city is when the market is seeing rising buyer demand, strong rental demand, constrained supply, auction clearance rates starting to rise, and yields starting to fall.
There are a few factors to consider when deciding when to take the plunge in a new city. You can research population trends and growth through state government websites to determine how supply and demand might influence the property cycle. You can also research data on employment dates, investigate infrastructure development and local economic data, as well interest rates.
Many factors will determine whether a city is gearing towards growth or decline, so be sure to do your research!
If you have any questions about building a prosperous property portfolio in Australia, feel free to get in touch today, we’d be more than happy to help.