Which property portfolio strategy is the right one?

21 October 2022
Matthew Hughes

Setting out with a clear property investment strategy will maximise the chances of success in your property investment journey.

There are three main strategies (and a combination of the three) for achieving financial freedom through property investing:

  1. Capital growth strategy
  2. Cash-flow strategy (rental yields)
  3. Renovation

In this article, we are going to explore them individually.

What is a capital growth strategy?

A capital growth strategy is buying a property with the expectation that it will increase in value over a period of time. It is a strategy where you focus on getting maximum capital growth and making that your priority.

Detailed and thorough research is key – you need to find the markets that are ready to experience high growth right now and well into the future too. This is where the expertise and insight of a buyer’s agent like Capital Property Advisory can be a real boost to your property portfolio strategy as we are seasoned real estate professionals with access to a wide range of local market information and research to guide your purchase.

You need a clear timeframe for holding the property so it is important to be clear about your strategy before you secure a deal. A buyer’s agent can help to define this timeframe and plan your property portfolio strategy.

You might consider a short to medium timeframe where the property grows in value over one to five years before you trade it back to the market. To be successful in this short to medium timeframe you need to focus on an area where you can see a short-term major boost, or aim to buy in an area which is on the verge of a major upturn. For a longer-term buy and hold strategy to be successful, you need to buy into an area which has ongoing desirability, where there will likely be continual demand and multiple reasons why the market has the potential to keep growing.

A capital growth strategy is a passive investment – there is significant work involved up front in researching and securing the right property in the right suburb, but once the investment has been secured there is time to sit back and reflect while the property grows in value. It can offer long-term capital growth benefits that are key to financial freedom. A capital growth strategy can also offer the benefits of negative gearing. Buying a higher-priced property compared to the rental income it generates will produce a cashflow shortfall which can be claimed against your other income.

On the downside, a capital growth strategy can lead to cashflow constraints as you may end up needing to cover mortgage repayments and other maintenance issues out of your own pocket.

What is a cashflow strategy?

A cashflow property portfolio strategy is one where the priority is cashflow, with less focus on capital growth and renovation. When this type of strategy is employed, the aim is that the investment property delivers more rental income than the cost of the mortgage, property management, rates and other property maintenance fees. A cashflow strategy is often chosen by new investors keen to test their property investment skills.

Implementing a cashflow strategy leaves you with a higher borrowing capacity for additional investments since the rental income covers most of the holding cost. The additional cashflow can also help to offset any shortfall you have if you’re holding a negatively geared property. Owning an investment property that is self-supporting makes you more resilient to any economic downturn.

Generally, a cashflow strategy offers lower capital growth potential. This lower level of capital growth also means it is slower to build equity.

What is a renovation strategy?

For the keen DIY enthusiast or tradie, renovation may be the preferred strategy for purchasing properties that you can improve to boost their market value or rental yield. A good insight into the local property market is key to helping you select a property which can be renovated at a reasonable cost. This is where the services of a reputable buyer’s agent like Capital Property Advisory can also be essential to support your selection.

There is potential to make a rapid and significant profit within a short time frame if you time your purchase well and buy the right property to renovate. You’re not reliant on the organic growth of the market and there is potential to add value even in a flat market. However, with spiralling costs of materials and labour, it can be easy to spend more than you budgeted and there is no guarantee that you will make back the money that you spend.

Why choose Capital Property Advisory to support your property portfolio strategy?

At Capital Property Advisory, we understand that property investment isn’t a one-size-fits-all solution. Our team of experienced property professionals will work with you to understand your investment goals and help you achieve them, based on your individual circumstances.

Obtaining qualified property investment advice from an independent source is the key to an investor’s success. If you are looking to expand your Perth property portfolio then engage Capital Property Advisory as your preferred partner with confidence. We consistently outperform the market – from June 2019 to June 2022 the Perth market grew in value by 13.3%, while the properties acquired by the CPA team throughout the calendar year 2019 grew by nearly 36.7% from purchase through to June 2022.

Our buyer’s agents are pure fee-for-service advisers – you pay us, we work for you. End of story. For more information about how the Capital Property Advisory team of buyer’s agents can support your property portfolio strategy, contact us today.

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Written by Terry Rider and Matthew Hughes

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