One of the many keys to bigger property investment portfolios is diversification.
Diversification meaning a mix of properties, both residential and commercial, in different cities and states.
What’s important to understand about diversification however is that no two states operate the same way.
So, before considering diversifying your portfolio, it is a wise move to thoroughly research and familiarise yourself with the different rules, laws and regulations applicable to different states as every state is governed differently to the next.
What may be applicable with New South Wales, may not be applicable for Queensland.
It’s always best to keep this in mind before getting overly excited about an investment opportunity in another state.
However, buying different types of properties in different cities and states strategically helps to mitigate losses, maximise gains and also spreads the risk so that investors aren’t overly dependent or controlled by the performance of just one market.
This is because there isn’t just one property market, there’s many.
Property markets are also like any market, they’re cyclical.
For example, if a property investor has properties in Sydney, Melbourne, Brisbane, Hobart and Adelaide, and assuming that there’s only slight differences in the gains and losses in the market within those markets, if two markets are down and three markets are up, the investor is still ahead.
In other words, instead of the investor having 100% of their properties in only one market, they can have 20% each in five different markets.
This means that three or more of the five different markets have to be declining for the investor to potentially be behind instead of just one market.
Again, diversification helps to spread the property investment risk so that they’re not as vulnerable to the movements of just a single market.
Looking to sell, buy or lease? Click here to contact John
This information is of a general nature only and does not take into account your objectives, financial situation or needs. We are not financial, legal or tax advisers. You should seek appropriate professional advice specific to you before acting on this information.
