Whether you are just starting out in the property market or have been around for a while, it is important that you are making your property work for you, after all, it is probably the largest investment you will ever make. Here are some of the most popular property investment strategies amongst Australian investors:
Buy and hold
The buy and hold property investment strategy is perhaps the most popular amongst property owners as it is a fairly passive way to accrue wealth. Essentially, this method of property investment involves buying an investment property (i.e. one that you will not live in), generally with borrowed funds, and then putting tenants in the property to assist you in paying off the mortgage.
As the value of the property increases overtime, and thus, so does the rent paid to you, you as the investor can use equity in that property to purchase another. This property investment strategy will most commonly lead to long term capital growth. For this strategy to work effectively, it is important that you do your research and purchase a property in an area that is appreciating in value.
Renovating to sell
Renovating to sell, also known as ‘flipping’ a property is the process of buying a fairly run-down property in a sought-after neighbourhood or location, renovating it either using your own skills or hiring tradesmen to do it for you. After the renovations are complete it’s then time to sell the property for, hopefully, a profit. Whilst renovating to sell seems like a fairly glamorous way to make money quickly, be wary, as this is not always the case.
To make a decent profit on a renovation project, it is vital that you accurately predict the property’s renovation and its sale potential. It’s important to only spend time and money on renovations that will lead to a greater profit. Furthermore, in order to make a renovation project worthwhile, it has to be completed in a fairly short space of time, as time is money.
Negative gearing is a type of property investment where the annual expenses on the property, including the mortgage, property management, and other related costs exceed the annual rental income, therefore leading to a monetary loss on behalf of the investor. This loss in profit can generally be claimed against the investor’s taxable income to reduce the amount of tax they have to pay that financial year.
Block-splitting is a fairly straightforward property investment strategy. As the name suggests, block splitting involves subdividing a block of land, either one you already own or have purpose bought, into two or more smaller parcels of land. You can either sell these parcels of land as they are to developers, or you can choose to build on the land yourself and then sell the finished properties. Obviously, in order to split your block, you must have a fair amount of land to start off with, which is one drawback of this type of property investment. However, if you are able, it is a fairly easy way to make money.
A cash flow property investment strategy involves owning a property which puts money into your pocket by bringing in more money than is spent on your mortgage and other related costs of owning that property. As the name suggests, the cash flow strategy is more focused on the immediate cash flow the property brings in as opposed to its potential capital growth. The cash flow strategy can make it difficult to gain equity in your property and it is generally not the best strategy for investors or people who wish to buy and sell properties for a profit on a regular basis.