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Be aggressive or stay patient: The value of a tailored investment strategy
Property Investing Insights podcast hosts Victor and Reshmi Kumar of Right Property Group, along with SPI’s Phil Tarrant, shared how any investor with a clear, deliberate plan can build a portfolio.
From Gen Z buyers making their first purchase to boomers looking to solidify their wealth in retirement, each investor needs to tailor a strategy to their circumstances.
According to Victor, the competitive nature of the Australian property market has made it an uphill battle for prospective investors.
“A lot of people when they’re starting to invest, they take too tentative a step towards investing, and they say ‘oh, I’ll try one and see whether it works out’,” he said.
“It works against us, and it does make it a lot harder to achieve results.”
Life stages drive investment decisions
While market performance can affect purchasing decisions, Reshmi said the most important factor in determining a portfolio strategy was buyers’ personal position.
“Where you are in life, how much money you have that you can play with or what your financial position is, will then determine the strategy you could choose,” she said.
“A young person could have a long-term strategy or buy and hold and leave it because you have time behind you.”
“Whereas someone in their 40s or 50s would have a bit of a dynamic strategy.”
Similarly, Reshmi said that, because of the perceived lack of time among older investors, they were often more anxious to build their portfolios quickly.
While investors chased rapid portfolio growth, Reshmi said they needed to ensure that they were not solely focused on their investment journey.
“The thing is, it needs to be in the background.”
“It should not impact your lifestyle.”
“It’s okay to take your time and do it within a certain timeframe so that while you’re still young, you can enjoy the fruits of the hard work.”
For the older investor
Victor said that older investors could still see significant returns through a buy-and-hold approach, but they would need to be in the market for a property with “some X factor.”
“It could be a tired-looking property that is structurally sound, and has the ability to add another dwelling to it or knock it down and put up a duplex,” he said.
“You bide your time and make it foolproof so that the development stands on its own two legs.”
“If you took the more sedate base of buy something, wait for a year, come back and build a granny flat, that's just as good as buying another property.”
He said it was important to understand the area's demand profile before adding a secondary dwelling.
“Obviously, you don’t want to build a granny flat or secondary dwelling in an area that does not have a demand for it.”
“Don’t squeeze it onto the block and don’t compromise on the quality.”
Victor said that while the market was performing well, it was feasible to sit and let the value develop, but when growth began to taper, the best way to secure it was to improve the property through renovations.
“When you have good momentum in the market, you want it to do the heavy lifting.”
“In a down market where it's slowing down, you want to push it up by doing a reno.”
Keep the portfolio manageable
Reshmi said that investors shouldn’t overextend themselves and should stay wary of the ongoing costs of property upkeep.
“You have to be careful because when the maintenance comes, you’ve got to be comfortable with that too.”
“You’ve got to stop buying at some stage and then maintain the portfolio.”
For more experienced investors, Victor said they could consider grouping their properties into “pods” and developing an individual strategy for each.
“You need to have a few runs on the board, and you need a strategic approach, mentoring, finance structure and accounting advice to get to the pod system.”
“But once you get to that, it’s not limited to a number of properties, it's limited to your appetite because each pod becomes self-servicing.”
He said that having a variety of property types in each “pod” made it easier to further diversify the portfolio and expand into commercial investing.
“I’m not talking about selling down and buying the commercial, I’m talking about using the equity in the pod to buy the commercial within the pod.”
“Initially, it’ll be negative, but as soon as the rent review starts coming in, it starts leaning back into positive pretty quickly,” Victor concluded.