The importance of diversification in the property market

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December 12 2019
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Despite the strong gains in sections of the property market, investors are being reminded not to “put all your eggs in one basket”.

Importance of diversification in the property market

In a conversation on nestegg sister publication Smart Property Investment’s podcast, director of Rethink Investing Scott O’Neill discusses the importance of diversification when building a property portfolio.

Having previously invested in residential property, Mr O’Neill explained he has “moved more into commercial, so I’ve purchased four more commercials since then”.

“[I’ve] invested in a syndicate as well which is basically purchasing large-scale commercial assets but owning portions of it. It’s almost like a form of diversification. You’ve got bigger, better-quality tenants and you don’t have to own 100 per cent of the assets sometimes,” the property investor explained.

Knowing the businesses

Just like investing in residential property, it is vital for investors in commercial real estate to understand the market they are buying into.

While some leases “just need a tidy-up”, others have potential red flags that property managers need to be aware of.

“One thing I would always try and get from the current owner is bank statements, or at least rental receipts to see the timing of their payment, because if they’re paying in the first three days of every month for the last 12 months, that’s a pretty good indication they’re going to do that when you own it,” Mr O’Neill explained.

Finally, the property manager advocates for visiting the site and having a conversation with the locals before purchasing any retail assets.

“A lot of just on-the-ground research, like going to see these properties, especially when it’s retail-related,” Mr O’Neill said.

“I don’t go look at all warehouses for instance, because you don’t care about foot traffic and stuff like that, but a good retail asset, like you know, a shopping centre, you need to go and just sit in it, have a chat to the café owners and that.”

Mr O’Neill concluded: “They’re always going to be the most negative, I’ve found, because, especially if some random [buyer] starts asking how business is, what benefit do they have to say they’re going great? But it’s still good to hear what they’ve got to say and just take it on board.”

Read more about properties in this article Australia property market.

About the author

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

About the author

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

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