Sydney, Melbourne investors urged to minimise risk, maximise performance

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As markets such as Sydney and Melbourne begin to come off the boil, investors in those areas have been told to use this period of time to take the necessary steps to ensure their portfolios continue be profitable.

Rather than use the cooler periods those markets are entering as an excuse to take a break, investors should be focusing their efforts on minimising risk and doing what they can to help their investments perform.

One action recommended by Phillip Almeida, director with Performance Property Advisory, is for investors to consider some minor improvements to their properties that may increase both their value and rental power during what would be an otherwise flat period.

“Now is the time to consider refurbishing one or more of your properties. Many investors are reluctant to refurbish, afraid of over-capitalising and not getting their money back,” Almeida said.

“Refurbishment generally involves cosmetic updates to the kitchen and bathroom, painting throughout and either new carpeting or conversion to polished floorboards. A good refurbishment will not only increase the value of your property but will enable you to push up rentals, allowing you to more quickly reduce your debt position,” he said.

Whether investors refurbish or not, Almeida recommends investors consider whether the rent they are currently charging is sufficient.

“You may have quality stock but is it paying its way? Are your rents covering the costs of your mortgage repayments and is there enough left over for repairs or to act as a buffer should you be faced with long-term vacancies?” he said.

“You may consider pushing up rent. As a rule of thumb, rents should increase by 5% each year.” 

While some investors may have no room to move when it comes to increasing rents or making improvements, Almeida reminded them, especially inexperienced ones, not to panic.

“For many Gen Ys who have never experienced a downturn, there could be the temptation to sell. If your investments meet the ‘quality stock’ test, there is no need.

“You would be best served to hold on to these assets. The market will pick up. It always does. However if you have inferior stock, now is the time to get rid of it.”

While it may not be the best time to look at residential property in Sydney or Melbourne as prices are at or near their peaks, Almeida said investors shouldn’t ignore other opportunities that may be present.

“Given that yields in Sydney and Melbourne are currently the lowest in the country, commercial and industrial stock now represent much greater value and the opportunity for a more solid passive income-stream. Commercial stock generally has higher yields than residential and brings the added benefit of asset class diversification.  Commercial stock can include anything from offices or shops in suburban strips to entire office blocks.

“Like residential investment, commercial stock should always be blue chip - that is high quality, highly desirable stock with the capability of attracting stable tenants such as government organisations and major corporations.”
 

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