Boss Lady

Diversifying your property investment portfolio


For every investor, diversifying your assets is crucial to minimising your risk. So when it comes to property, what should investors be doing to diversify their portfolios? By diversifying your property portfolio, you’re basically spreading your assets to reduce your overall risk.

Essentially, if one investment performs poorly during a specific period, another investment might perform better and minimise the overall loses. So how can property investors diversify their portfolios?

Quite simply, there are two main ways property investors can diversify their assets – either by acquiring different asset types, or by investing in different geographic locations.

When thinking about different asset types, most people will only consider houses and apartments. While building a mixed portfolio of these types of assets can offer some diversification, there are also other options which should be considered as well. These include investing in villas and townhouses, in residential development syndicates or in commercial property – whether directly or via a managed fund.

Of course, all of these different asset types offer various pros and cons for investors, so it’s important to understand the benefits and drawbacks of each and appreciate how they work in conjunction with your overall investment strategy.

For example, if you hold 2 or 3 houses in your portfolio which may have high holding costs, it might be worthwhile buying a villa or apartment, which provide greater cash flow because the rental incomes are generally higher than the loan repayments.

Another way in which to diversify your property portfolio is to buy assets in different markets. This can be done by building a mixed portfolio of properties located in different regional and capital city markets, whether in your home state / territory or interstate.

The majority of first-time investors will buy their first couple of properties in their own capital city or state as these locations are more familiar to them – typically in their own suburb.

According to investment property experts, after buying 2-4 properties in the same market, it’s wise to start looking at other markets, whether regionally or in other capital cities, to continue building your portfolio.

This is particularly important as capital city property markets and their cycles usually aren’t aligned, meaning property prices in one market might be rising strongly while prices in another city could be languishing. This allows you to spread your risk by gaining exposure to multiple markets and offsetting cyclical downturns with cyclical upturns.

There are many factors to consider when buying an investment property and it can all seem rather daunting, especially for first-time or unseasoned investors. A professional property investment company will be able to advise you on the best strategy for building your property portfolio, helping you to minimise your risk and maximise your return on investment.

About Damian Collins'

Damian Collins is the founder and managing director of property investment consultancy Momentum Wealth. Offering market leading research and advice on the Australian property market, the company helps clients accelerate their wealth through property investment by assisting them in the strategic planning, financing, acquisition, management and development of their commercial and residential investment properties. Damian has completed a Bachelor of Business at RMIT University and a Graduate Diploma in Property at Curtin University. Damian is the Deputy President of the Real Estate Institute of Western Australia (REIWA).

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