Building a property investment portfolio

An increasing number of Australians are investing in property to grow their wealth. According to recent data from the Australian Taxation Office, 2.2 million Australians (around 20% of the tax-paying population) own at least one investment property – and 28.5% of Australian property investors own two or more investment properties.1 

So, how are they doing it? Building a successful investment portfolio doesn’t necessarily require a huge amount of money. But it does require commitment, quality tax and property advice, and a sound investment plan.  

Here are some things to consider before you get into property investing. 

What are your property investment goals? 

For investment properties, there are two main sources of return: rental yield and capital growth. Ideally, you’ll want to achieve both; however, experienced property investors usually prioritise one source of returns over the other as part of their investment strategy. 

Rental yield is the return you receive on the property through rental income. It’s calculated by dividing the annual rent by the market value of the property. If you choose a rental yield strategy, your goal is to find a property that compares favourably to other properties and other types of investments. For example, rental yields in regional areas tend to be higher than in metropolitan areas. Seeking a high rental yield may suit you if you don’t want to borrow a lot of money, or if you’re seeking a source of additional income to live on. 

Capital growth comes from an increase in the property’s value. If your aim is capital growth, you will need to be able to afford to hold onto the property until you see a substantial rise in the investment’s value. The right property, in the right location, at the right price, has the potential to deliver rewarding capital growth over time. You may then be able to use some of the equity you’ve built up in that property to add to your investment portfolio.  

What’s your budget? 

When considering investing in property, it is important to have a good understanding of your borrowing capacity and rental income requirements, as well as the ongoing costs you will need to budget for as a landlord.  

We can help you determine your borrowing capacity, so you understand your budget when it's time to start looking for a property. 

Once your broker has a solid understanding of your financial situation and investment goals, they can give you an indication of your borrowing capacity and help you apply for pre-approval for an investment loan. Lenders will assess your borrowing capacity in the same way they do for an owner-occupied loan; however, they’ll also take the potential rent into account as an additional source of income for you. 

How to determine strong growth areas? 

When building a strong, profitable property portfolio, it’s important to do your research and evaluate potential growth areas.  

Ask your Mortgage Choice broker for a free PropTrack property report to gain insight into the growth trends of your desired investment location. 

What type of tenants do you want to attract? 

Deciding on the type of tenant that you want in your investment property may help guide your investment decisions. 

For example, young professionals are likely to be interested in smaller dwellings – such as apartments and townhouses – that appeal to their lifestyle, and are located close to amenities, transport links and the city's central business district.  

On the other hand, families may be more attracted to larger properties in the suburbs. Therefore, you will want to consider things like the location of schools, local supermarkets and outdoor recreation areas. 

When considering location options for your investment property, you will need to do some research into the demographics of the local area so you can determine what type of tenants you may attract. 

What’s your exit strategy? 

Not all properties can generate successful investment returns. While there are things you can do to increase the attractiveness and value of your investment property – from simple renovations to comprehensive refurbishments – you may not receive the returns you were anticipating. 

Having a plan for how and when to sell a property should be part of your investment strategy. Even if your property generates a strong return, there may be a point at which you need to access your capital in the future. 

How do you get started? 

Even if you’re brand new to property investing, there are many resources available to equip you with the knowledge and confidence to take that first step on the property investment ladder.