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Building your property portfolio

According to BRW's 2015 Rich List¹, more than a quarter of the country's 200 richest people make most of their money in the property sector. And despite the current boom, there are still opportunities to build your investment property portfolio. Start with this quick guide to investing in Australia's property market.

Stick to your budget

How much can you afford to spend on your investment property? As well as the purchase price, there's the cost of maintenance, property management fees, strata levies and landlord insurance. You may also have to renovate to attract a tenant.

Before you buy, make sure you're comfortable with your current debt levels, and have a buffer to allow for any periods where your property may be untenanted. Unexpected costs can also arise, such as a sinking fund plan for a strata building.

If you already have a mortgage on your own home, you can use your equity to fund the deposit for your investment property – typically up to 80 per cent of your home valuation minus your debt.

Negative gearing comes with a cost

Property can be a good long-term investment option as part of building your retirement nest egg – and it also comes with an attractive tax advantage if your rent doesn't cover all the costs of your investment (including your interest repayments). This is called negative gearing.

However, negative gearing basically means your investment is impacting your cash flow every month – and this could lead to financial stress if you don't have a comfortable buffer.

According to BRW's 2015 Rich List, more than a quarter of the country's 200 richest people make most of their money in the property sector.

Finding opportunities for growth

You're not buying somewhere to live, you're buying an investment – so take any emotion out of the decision. First, work out the expected returns – income plus capital gain – as this must exceed your borrowing costs over the long term.

Then look for the features that will appeal to renters, such as close proximity to transport, schools and shops. Areas with universities or hospitals will always have strong demand. Find out what other developments are in the pipeline, as they could impact future demand and amenities – and if you're not familiar with the area, it's worth getting advice from a buyer's agent.

Finally, make sure you ask your bank to pre-approve your investment loan before you start hunting.

Learn more

Important Information:

1. http://www.brw.com.au/lists/rich-200/2015/

Important Information:

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This material is for general information only. All opinions are subject to change without notice. This material is taken from sources which are believed to be accurate, however Citibank accepts no liability of any kind to any person who relies on the information in it. Investments are not deposits or other obligations of, guaranteed, or insured by Citibank N.A., Citigroup Inc., or any of their affiliates or subsidiaries, or by any local government or insurance agency, and are subject to investment risks, including the possible loss of the principal amount invested. Investments are subject to risk, including loss of income and principal. Past performance is not an indicator of future performance. Due to exchange rate fluctuations, you risk losing capital if you invest in foreign currency. Some products are not available to US persons and may not be available in all jurisdictions.

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