How to plan and build a residential property portfolio.

Building wealth through property investment property is a reality for thousands of Australians. The sooner you get into the market, the faster you too can start building an investment portfolio and creating potential for capital growth.

According to Paul Nugent, Director of independent Melbourne property advisory company, Wakelin Property Advisory, for some expert advice on how to plan and build a residential property portfolio. He offered the following suggestions:

Where do I start?
Purchasing your first investment property can be challenging. There are seldom short-term, quick profits to be made from property. Mr Nugent said investors should avoid the “get rich quick” enticements and be cautious about products based on “sweeteners” such as rental guarantees and tax breaks.

It’s important to realise that property is a long-term investment. In many cases, it can take years for growth to take effect. The longer you own an investment property the greater the opportunity for growth.

How much money do I need?
Entry levels vary from city to city, so it takes a bit of homework to establish the right price for the right investment. The good news is you don’t need a million dollars to get started. According to Mr Nugent, a properly selected one-bedroom apartment can set you on the road to wealth creation. Expect to pay around $280,000 to $350,000 for a basic entry point in the high capital growth areas of the capital cities.

Where should I invest?
Mr Nugent says that as a general rule, investors should focus on the inner urban zone of the major capital cities – between two and 12 kilometres from the CBD. These suburbs tend to offer properties with consistent long-term growth and strong rental demand. It’s important to remember that values can and do change street by street and suburb by suburb. Don’t be persuaded by the “renovator’s delight” that can easily turn into an endless money pit.

Mr Nugent said first time investors should be cautious about CBD properties. Multi-unit high-rise properties are typically sold off the plan and while they may offer stamp duty savings, new apartments often include a developer’s premium.

How often should I buy?
Remember that property is a long-term growth asset. Ideally, you should hold a property for at least 3 to 4 years. The aim of your first investment is to lay the basis for adding to your portfolio. Once your property has grown in value, speak to your lender about building your investment property portfolio.

Use your equity
The equity in your home can be a great launching platform for buying an investment property, provided you can comfortably afford the repayments. In these times of rising interest rates, first time investors should carefully calculate how much they can afford if interest rates rise by at least two per cent. Don’t forget to take into account entry costs like stamp duty, legal costs, and any building inspection costs.