Building and maintaining investment properties takes time and skill, not to mention money and a certain amount of risk. So how do you know when you've got it 'right' and can trust that the decisions you've made will result in reaching the goals you initially set out to achieve? This will typically come down to having a 'balance' in your portfolio. 

Where to start?

Understanding the right balance to your property investments starts with knowing what it is you want to achieve. Not the person down the road, you.

It is important to reflect on why you got into property investment in the first place, and where you wanted to ‘get to’ by building a portfolio. Sure, this may have changed over the years, but there always needs to be a goal in sight, otherwise you might not be making choices compatible with what you are seeking.  

If you are saving for retirement, it is likely that your investments will be low risk residential properties that have solid capital growth for later down the track when you may want to ‘cash in’. For those looking to accomplish significant financial gain over the short term, your portfolio may focus on buying older properties which you renovate and flip for a quick profit.

But no matter what type of investor you are - finding balance is key to mitigate as much as risk as possible, while still maintaining a satisfactory ROI.

Why are cash flow properties important?

At a minimum, cash flow properties should bring in enough to cover the mortgage interest, but good ones can also turn a profit - these are called positive cash flow properties, where you earn more than what it costs to own. 

Negative cash flow properties also have their place in property investment - they commonly have more growth potential - and their benefits should also be weighed up when looking to balance your portfolio.

It may be that you have a mix of both, in order to offset the risks of each approach.

Read more: Buying an investment property to renovate? Here's how to choose the right location.  

Are capital growth properties a necessity?

Depending on your goals, capital growth properties could be an appropriate addition to your portfolio. Basically, they grow in value over time, and the long-term gain will enable you to build your equity faster, so you can make more investments, if that is part of your plan.

Because properties with solid capital growth are usually located in inner-city suburbs, with high populations, they will be in demand so it is likely you will have to pay more to secure them. This may also affect the rental income you generate, in that it is not enough to cover mortgage repayments, and over time it will cost you more to hold onto them. However there is a strategy in this, called negative gearing, where investors can claim losses as a tax deduction.

Is diversity key?

Diversity is usually the best way to minimise risk in property investment, because if your whole portfolio is in city apartments, and this section of the market slows, you have nothing to balance it out.

Here are five ways to diversify your portfolio:

• Invest in different areas
• Get the right mix between apartments and standalone houses
• Buy across different price ranges
• Target various types of buyers and renters
• Be on the lookout for new developments and changes in the city

How to decide what should be in your portfolio...

What matters is where you’re currently sitting your ‘investment journey’, and of course as mentioned above - the goals you want to achieve.

You don’t have to buy everything at once, but you could put a plan in place to ensure your property investment portfolio balances out in five years. If you’re just starting out, it is likely you will want a property with positive or neutral cash flow, however the next time you buy, it might be about securing long term capital growth by using the equity gained from your first investment.

The main thing to remember is to always keep one eye on the market, and to evolve your portfolio when required. The property market is never static, and it is likely you will need to make regular adjustments to your investments to ensure you maximise profit and minimise risk (depending on the level you are comfortable with).

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