Arthur Naoumidis
It has long been held that diversification is a key strategy to minimising risk. It’s a strategy that sees the inclusion of a variety of investments in a portfolio. Assets such as property can be further diversified by including different types of property in different geographic locations and whilst diversification will minimise capital risk overall it can reduce performance in the short term.
One of DomaCom’s rural property investments, the Doyles sub-fund, is a good example of diversification when taken as a percentage of a portfolio. The sub-fund currently has 94 unitholders and whilst some trading in units does occur from time to time most have been there for 3 years over which time the property has increased in value by 13% per annum.
The property is leased to a local grazier for the production of beef cattle.
DomaCom CEO Arthur Naoumidis says: “Doyles is our strongest performing sub-fund, and we’re keen to offer similar rural properties to investors who may be struggling to generate income from the usual types of property they hold, particularly residential”.
Whilst there is potential upside there are risks in rural farmland. The biggest risk many people see with rural property is Mother Nature, drought, fires and flood, but if selected carefully and with the right tenants with equity in the property it can perform well.
Rural properties also tend to have longer term tenancies.
From a social perspective, rural farmland needs investors to maintain and build regional populations and keep our farms producing. Anecdotally, we know there are hundreds of farmers in Australia either looking to retire or planning their retirement and selling their property is necessary to fund that. Many young Australians can’t afford to buy rural property and borrowing can be difficult to secure, so they are leaving the country for opportunities in urban areas.
DomaCom believe investors allocating a small amount of their portfolio to the rural sector and spreading it across multiple properties can help with succession planning (DomaCom calls it the Next Generation Farmer Strategy) for farmers as well as minimising the investment risk in their portfolios.
With expected gross rental for rural property at 5% and with moderate historic capital growth of 6.6%* a year rural property could form an important part of an investor’s portfolio.
DomaCom is working on securing more rural properties and is close to finalising the next transaction, a mixed dairy/cattle property, in northeast Tasmania.
To give investors more comfort, in some instances, retiring farmers are happy to retain equity as an investor in order to get the 5% yield from the new tenant and not take 100% in cash – a sensible strategy with the cash rate at 0.25%.
DomaCom are keen to hear from interested investors and SMSF trustees looking for yield and capital growth within an ethical dimension.
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