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Q. The properties I currently own (three units, one house) are positively geared. I want to add a luxury property to my portfolio. How can I work out how this will affect my overall strategy?
A. Often investors decide they would like to add a property to their portfolio from which they obtain lifestyle benefits, such as a holiday apartment, or high-end city property. It can be easy to justify, and so many end up owning a property that fails to perform, sometimes affecting their entire portfolio.
Such properties generally exist in popular holiday areas and come with owner incentives, for example a tax-free holiday to inspect, but such benefits mask poor performance.
Luxury properties generally experience high vacancy rates, high expenses and, if in a popular area, oversupply. Ig the resort venture fails they can be difficult to sell. If the property is not part of a resort but for standard letting, they have lower yields, often below three per cent, which means the investor must pay to make up the shortfall.
You probably can’t take that tax-free holiday anyway – if a holiday figures in the trip, the deduction won’t be allowed by the ATO.
Keep buying properties that can quickly become positive. Once that portfolio is large enough you will not only be able to holiday wherever you want, you will build enough wealth to choose any property you’d like by the time you get to retirement.
Margaret Lomas, founder, Destiny Financial