The key to a low-risk portfolio is the consistency of income despite all adverse circumstances. This would include extreme circumstances such as the current pandemic. This portfolio has 10 different income streams, roughly 40% - 50% coming from residential and 50% - 60% coming from commercial. Commercial investments are an essential part of the portfolio as the high net yields balance out the low net yields from the quality residential properties. Our focus when buying commercial assets is long-term, 'defensive lease covenants' - i.e. tenants that will still pay rent in economic contractions. These could include government tenants, supermarkets, medical centers, hospitals, or blue-chip, key supply chain businesses.
Economic contractions should be expected, recently in Australia they have occurred in 1972, 1982, 1989, 2001, 2007, and now 2020 - roughly every 10 years. These economic contractions have always been felt differently across the country and as such, geographic diversification ensures that if some rents fall, others across the country may rise. All our strategies have been designed to withstand these times, as well as other adverse circumstances, of which we can provide further detail upon request.
Finally, our view on land tax. Unfortunately, this tax you can't avoid if you want to have a $5m portfolio. You can, however, minimize it quite significantly through diversification, both in terms of asset location and ownership structures. Having a quality accountant with experience in property is crucial for advice on land tax and ownership structures.
This article is just a summary of one strategy to build a $5m property portfolio. We go into more detail and discuss the different paths our clients can take to reach a similar result in a portfolio review and strategy consultation.Contact us
to book a review of your portfolio and discuss a similar portfolio strategy for you.