Building a property portfolio

B2B Editor1 May 2015

Two of the most common questions we get asked as accountants are:

1. What is involved in building a property portfolio?

2. What are some tax advantages of property and how do you maximise them?

The media regularly features amazing tales of rags to riches landlords with fat property portfolios, particularly during expansion or boom phases of the property cycle. You can find countless books like “0 to 130 Properties in 3.5 years” in any bookshop.

While it is possible to build a large portfolio quickly, the reality for most investors is usually very different. So what does it take to build a property portfolio and which strategy best suits the current market conditions?

Stick to the Fundamentals

Unfortunately there is no rocket science behind property investing, despite what some high price seminar sellers will tell you.

Property strategies do not change throughout the property market cycle – the profit is always in the buying. Buy value and you will always do well. This strategy does not change just because the market has altered. The only change you should make, as an investor, is when the market is buoyant – it is at these times that you can more easily identify undervalued areas and buy selectively. This is because a more active market is easier to analyse and provides better comparative data

Our research and discussions with clients indicate that the key to building value in a portfolio is to choose only suburban locations with very high land values. High land values are those where house prices are underpinned by perpetual strong demand and importantly, where demand always exceeds supply.

Why high land values? This is because buildings depreciate and land does not. Proximity to the CBD is what drives demand. Concentrate on suburbs that are within 2 – 12 kms of the CBD, regardless of the city in which you are looking to buy.

These are guiding principles to selecting an investment property and they are fundamental irrespective of the number of properties you own or the state of the market. A good real estate agent can help you identify properties that meet your investment criteria and this is a key part of the property selection process.

Rhys Kyburz is director of the Business Solutions Division with RSM Bird Cameron. Specialising in the areas of business advisory and taxation, this includes advising on income tax, GST, land tax and stamp duty. Rhys has a wealth of experience with a mixed portfolio of commercial, and not for profit sector clients, including professional associations and clubs.