Early property portfolio diversification

Discussion in 'Where to Buy' started by Mill, 9th Feb, 2017.

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  1. Mill

    Mill Well-Known Member

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    7th Jan, 2017
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    Location:
    Brisbane
    Hi all,

    I am currently planning my 2nd IP and researching the million dollar question, which suburb to invest in.

    Is it okay to buy in the exact same suburb as the first IP if I still believe the outlook is strong?

    Or should I head to a different part of town, eg 1st IP in Moreton Bay (north of Brisbane), 2nd IP in Logan/Ipswich (south of Brisbane)?

    If you don't think diversification is needed this early, at what point do you start to consider it?

    I'm aware that sticking to what I know (north Brisbane) can be dangerously narrow minded.

    Appreciate your thoughts, cheers
     
  2. D.T.

    D.T. Specialist Property Manager Business Member

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    Location:
    Adelaide and Gold Coast
    In the early stages, I don't think diversification is necessarily a good thing. Certainly wouldn't diversify just for the sake of it.

    In the acquisition stage, you really need to find what works for you and go hard at it. This might be a certain suburb (or city) that you think is doing well, a certain renovation or development style, etc.

    I'm a big fan of raising the equity first, you can then invest afterwards in other places in order to weather future waves / storms.
     
    Corkey likes this.
  3. mikey7

    mikey7 Well-Known Member

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    Sydney, Brisbane
    I've got two IP's - both in the same council.
    The way I see it; I've researched the area enough for the first IP and was happy with it, so bought another.
    The next will be in a completely different area (which I'm now researching).
     
  4. Michael Barnes

    Michael Barnes Active Member

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    Location:
    Sydney
    If you have done enough research into where different cities (and different areas within those cities) are up to in the cycle, it may be worth looking outside the area you're familiar with. Interstate investing can be a little time consuming, so you need to factor that into your thinking too.
     
    Perthguy likes this.
  5. Bunlee

    Bunlee Well-Known Member

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    Sydney
    We bought the place just about next door as an IP. We know the area back to front and decided that the area was good long term value.

    So far had excellent tenants and agent makes it clear up front that owner is close by so they know situation up front.

    If we were to buy another IP (unlikely) would not hesitate to buy in same area.

    Best to all
     
  6. HUGH72

    HUGH72 Well-Known Member

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    QLD
    Nothing wrong with buying again in the same suburb as you probably have a good idea of values and the rental market. In my opinion long term it's better to diversify to different suburbs/areas of city/cities and states.

    Not everyone feels this way as there is an argument to be made that you become an expert in one area and make more money by purchasing well.

    Against concentration is the idea that markets move at different times so if you have exposure to many markets something is always growing Same idea applies to rental growth. Imagine if you had 10 ips, all in Perth currently, right now you might be concerned about rental vacancies. Even worse, you had 10 ips all in suburbs adjacent to the Brisbane river. Prior to 2011 most people thought that these areas would ever flood again.

    Property is already a lumpy, fairly illiquid assest and there is always a slight risk of adverse events over the really long term negatively affecting your investment. Think of black swan events like new motorways, industrial developments, rubbish dumps, previously unidentified flood risks or old undisclosed toxic wate dumps, subsidence or a prison being built nearby etc etc. The more you think about this the negative possibilities are enough to keep you awake at night.

    Land tax can also be limited without the use of trusts for some time.
    Just my opinion.
     
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