How to build a 'well-balanced' property portfolio

Many financial planners often prefer shares, managed funds, and other asset classes over properties, but financial advisor and property investor Max Pagnin believes that a balanced portfolio is the secret to success in the wealth-creation business.

Houses choice

Max started his property investment journey more than a decade ago by purchasing a property in Karumba, which they eventually sold to buy a family home in Wattle Grove as well as another property in Tasmania. When he separated with his wife, he put the Wattle Grove property under his name while his wife held the Tasmania property. 

Soon enough, he sold the property in Wattle Grove to earn cash and continue his property investment journey.

According to the property investor: “[In a] 10-year timeframe, we made some money in the end … Otherwise, it would have been a struggle to make money if I had to sell it after three or four years.”



A diverse property portfolio

Combining his savings and the cash from the sold property, Max went on to buy an investment property in Minto at the end of 2012, during the early stages of the property boom in Sydney. He bought the three-bedroom Minto property for $327,000 and have it rented for $380, and even though the suburb didn’t have the best reputation back then due to riots, Max pushed through with the investment because of the good cash flow that it provided him.

He explained: “To me, even if there was no growth … the cash flow looked after it so I didn't have to pay out of my pocket—that to me was important at the time.”

In four years, the property has already doubled in value and has allowed Max to draw equity out and invest in another property—thanks to his good planning, good buying, good research, and a sprinkle of good luck.

“It's all about the right time when you buy these things. And for me, I always try to look at cash flow … [and I also] want growth,” he said.

The Minto property was followed by a property in Oberon, “a nice little country town”. Around six years after buying the 1,200 square-metre cladded home for only $185,000 and renting it out for $260, the property’s value has already grown to about $250,000, according to a local agent.

Right now, he holds onto the property and plans to put a second dwelling on it in the future. Max then bought a couple of properties in Queensland, one of which costs $294,000, and while the rent hasn’t gone up since the time of purchase, it wasn’t impacting his cash flow in any way and it is even currently valued at around $345,000.

This was followed by an investment property in Ellen Grove, which is one that the property investor is “most pleased about”.

He said: “The land value at the time was $620,000, we negotiated, [so] I picked it up … for $583,000.”

“It was a pretty good buy at the time, and it's in an area they zoned—what they call emerging communities—so it's actually earmarked for future development, and … there are some of the streets just adjoining the Forest Lake development.

“They are actually already have developed some house and land packages,” the property investor added.

However, the cash flow isn’t good and it costs him around $15,000 every year to hold. Max expects good returns as the property is surrounded by multiple development projects which will be completed in three to four years—making it his “retirement plan”, essentially.

The next property, a place in Weipa in north Queensland, he bought in the hopes of getting good cash flow. Normally, property investors avoid putting their money in mining towns, but Max chose to purchase in Weipa because of the $3 billion dollar-mine expansion project that has already started its construction phase.

According to him: “That underpins the community effect for at least 15 to 20 years, if not more, because they've got to recoup the ... investment on that mine."

“If I own [the property] for seven, eight, or 10 years … [I can] get my money back … In terms of cash flow, I would say [it’s bringing in] at least $10,500 a year—that's really helped bring back some cash that I needed … [and] offset the negative cash flow from the Ellen Grove property,” he added.

The Weipa property was followed by more investments in Tasmania and Hobart, which gave him good yield and a good potential for capital growth. Max opted to take advantage of the Hobart market and bought three properties in order to enjoy strong rental yields and low vacancy rates, as well as “the good fundamentals in place”.

He said: “Even if it grows for another couple of years, and then it stays stagnant for a while, at least I've still made some money … because I bought in at the right time, at the right price.”


Keeping the balance

Max’s background as a financial planner has helped in maintaining a well-balanced portfolio that’s providing him what he needs in order to make the most out of his investments—from cash flow to capital growth.

Smart Property Investment’s Phil Tarrant, who is an avid investor himself, believes that property investors must always have a purpose for buying a certain property.

He said: “Every property has a purpose ... A lot of people just buy property for the sake of buying property that hopefully goes up in value and gives them rent.”

“[Max is] actually pairing properties—strategically acquiring assets to serve a purpose,” Phil added.

According to Max, all of his investments must “blend well” and work together so he could ultimately achieve his financial goals. Moreover, these properties must also be able to serve him for the long-term since there could not be possibly any overnight success in property investment.

Right now, he’s got assets with good cash flow, good capital growth, good rental yield, and a good potential for adding value through renovations and other projects.

“Basically, if you take the depreciation into account in the current financial year, I'll be about $15,000 positive cash flow … I'm not going to complain,” Max said.

His final advice for budding property investors: Always plan with the end game in mind.

Max explained: “What do you want to achieve from that portfolio? What's the plan [going to be] from that portfolio? What's it going to do for you in the future?”

“Retirement is for me, [but] it's not where you must retire by a certain age, but it's having the choice to make that decision—I don't want to work anymore, or I might only want to work two days a week, whatever it might be.

“It's having those options available to you. But if you don't plan, you're not going to get there,” he concluded.


Tune in to Max Pagnin’s episode on The Smart Property Investment Show to know more about the benefits financial planning can have on your portfolio as well as several facts about Max’s own portfolio and how his background has shaped how he views the property market.

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