Where property investors should look to grow their wealth
A property adviser shares what investors should focus on to build wealth – and they don’t need to own 17 properties to do it.
Investors should hunt for “nuggets of growth” if they want to build wealth as a landlord while knowing when to cut their losses on an underperforming asset, a property adviser says.
Eda Property founder Anissa Cavallo said one of her firm’s targets was affordable growth corridors that were benefiting from population and infrastructure growth.
“My strong focus for most people who are trying to increase wealth is capital growth,” she told The Australian’s The Money Puzzle podcast.
“I think that’s where the magic is. You change your wealth position through capital growth with property.
“Yield, after all the costs associated with it, rarely changes anything. It’s a good way to pay for the asset while it grows in value.
“My strong focus is how do we find these nuggets of growth.”
Affordability was a key consideration, given affordable suburbs appealed to a bigger pool of buyers.
Ms Cavallo pointed to growth corridors, given they would be accompanied, now or in the future, by infrastructure such as hospitals and schools, and local employment clusters including areas around Melbourne’s Melton or Cranbourne.
Melbourne-based Ms Cavallo said her firm had invested in new housing estates in areas such as Melton, Deanside, and infill sites around the established suburb of Werribee.
“The good thing about that is you’re getting the benefit of a lot of migration, a lot of population growth and a lot of infrastructure growth. There are new jobs going in, which creates household income growth, which in the end is a lead indicator for price growth.”
Ms Cavallo said another way to find affordability was to look at gentrifying suburbs such as Coburg and Sunshine.
While looking for capital growth, Ms Cavallo said many investors often failed to consider whether they could afford to hold it for the long term.
“The holding cost is often the killer, just like cashflow in a business,” she said.
An investor making the average investment spend of $750,000-$800,000 in the urban ring would be buying an older property that may end up costing a lot in repairs and maintenance, she said, adding that “often the yields can be a little bit lower”.
“I’ve had a lot of clients that have purchased older properties – it’s what I used to do. They’ve said ‘we simply can’t afford it because every cent we get from the tenant just goes in repairs’,” Ms Cavallo said.
She said she looked for as much land as possible, “as much house as possible”, and often for a property that was less than five years old, adding that units and townhouses were unlikely to provide the same capital growth.
The former financial services executive owned 17 investment properties at her peak but said her portfolio was now under 15, although she planned to buy more. Investors could build a good portfolio with much less than that, she said.
“I don’t want everybody to go out and buy 17 properties. It’s ridiculous for most people. Two, three, four really good-placed properties is all you need,” she said.
Ms Cavallo cautioned against normal investors regularly turning over an investment portfolio given the high transaction costs involved with buying and selling, but said there was a time when investors should cut their losses.
“I’m a traditional investor that likes to buy and hold, unless my asset isn’t performing,” she said.
“You’ve got to look at what it is likely to do over the next five years. Is it worth hanging in there? Or could I do so much better in another asset and therefore risk a slight loss in sale.”
Ms Cavallo said clients who bought units often told her they would get a good rental yield and it would cover the mortgage.
“If it’s just covering the mortgage and as a result of that you’re missing out on potentially getting 6-7 per cent capital growth in another asset, get out of it, cut your losses and get into something that’s going to make you 6-7 per cent that will make up for the loss in that one year,” she said.
More Coverage
To join the conversation, please log in. Don't have an account? Register
Join the conversation, you are commenting as Logout