Building a property investment portfolio

But how do you make the most from your money? It’s a question we all face, from choosing a savings account to building a nest egg for retirement. The way we manage our money will be determined by our attitude to risk and our financial goals.

Property is classed as a medium-risk investment, along with shares and certain bonds. Investing in property brings the opportunity to benefit from capital growth and earn a rental income, and you have the security of owning a tangible ‘bricks and mortar’ asset.

More conservative investments – including savings accounts, cash trusts and government bonds – are less risky but also experience less growth, so you need to watch the impact of inflation on these lower-return investments. With higher-risk investments like futures and options, your potential returns are much greater but so is your exposure to volatility.

As Dr Wilson explains, although inflation has been quite low in this country for 20 years we have still seen breakouts in house prices. “Over the longer term, returns on property – underlying returns – are about one or two points higher than the inflation rate, but because of the secure nature of property, banks are prepared to lend on it.” This means that 80 per cent of your real estate investment may be the bank’s money but you earn an above-inflation return on your overall investment.

“It’s been a very successful model for many Australians to build a nest egg, to take advantage of that strong aspiration for home ownership and the undersupply of dwellings that we typically experience in most capital cities.”

Amanda Lynch, CEO of the Real Estate Institute of Australia (REIA), agrees. “In the long-term, property investment can deliver solid returns,” she says. “We only need to go back six years to the GFC, when we saw superannuation balances tumble while house prices increased. Historically this growth in house prices has been driven by a continued population growth combined with a chronic undersupply of housing.

“It is also a tangible asset that may provide you with the option of using it yourself or passing it onto your children. Many people also report that they find it easier to learn about the property market than the equity market.”

The aim of the game is to structure your property investment portfolio to buffer risk and meet your financial goals. We take a look at each stage of building a property investment portfolio to help you maximise the return on your investment.

• Set property investment portfolio goals
• Get help: property professional services
• Minimising your property investment risk
• 3 financial tips to property portfolio success