Importance of Diversification in Residential Property Investment

You will have heard a lot about diversification of share portfolios with many sharemarket experts recommending balancing share investments across different industry sectors. The same is true with residential real estate investment.

By splitting your share portfolio across sectors, or your property portfolio across regions, you can help balance the normal ups and downs these sectors may experience, and their impact on your portfolio.

For example if we look at the graph below it shows the annual growth or decline in the average value of a three bedroom home in each of the mains centres of New Zealand.

In the graph you can see that the different markets move at different times.  For example in 2017 you would have made better equity gains if you had an investment in the Wellington or Hamilton markets.  In 2014 you would have made the greatest gains in the Auckland and Christchurch markets.

When building a portfolio it is important to enter markets when they are most likely to grow to allow equity growth in your portfolio.  This then gives you the ability to build a diversified portfolio of residential property investments.

The benefit of having investments in multiple markets is that over a 10-year period you will usually have growth in at least one market – therefore your portfolio is growing every year.

The other advantage is that if there are economic issues – like large businesses closing down – that affect tenant demand and property prices you are minimising the impact of these on your portfolio.

For more information about buying your first investment home, or adding to an existing portfolio, don’t hesitate to contact John Stroobant at Captivate Homes – 09 215 1775, 027 281 1748 or john@captivate.co.nz