Investing in property is a whole different ballgame to buying a home, and there are a whole lot of strategies that you need to consider before you decide on which is best for you. And this is before you even start to look for the property!
Do some research, talk to a professional about your circumstances and goals for investing BEFORE you do anything. A strategy that is “best” for your friend might not be best for you.
Your research can start here…
Some of the strategies investors can follow are:
- Buy and hold
Perfect for the long term investor who wants to build equity and possibly draw on it over the years to invest in more property or pay off their home loan. The aim is to ongoing rental income and capital growth. This is the most popular investing strategy amongst Australian property investors and it’s simple. You purchase the property and keep it for the rental income.
PROS – This strategy is easy, the income is passive, you can write off expenses against your tax, you can leverage the equity to borrow against it and, hopefully, you’ll benefit from significant capital growth over the years.
CONS – This is the lowest risk strategy, but as with all investing, it’s never risk-free. Property selection is of prime importance here – making sure you buy in a location that has the key markers of capital growth. You also need to make sure that you’re in a position, financially and mentally, to hold the property long term.
If you’re anything like me, you will love all those renovation shows on TV. From The Block to Flipping Out, Flip or Flop Nashville, Alaska Flip ‘N Move – the list seems endless – and they all seem to be making a ton of money. Some with little talent and experience, some with lots of both.
Whilst in the reality TV world, the stress of renovating for profit seems to be all about ridiculous timeframes to complete rooms, but in the reality of life, the stress is more about finding the right property that you can add maximum value to at minimum cost in minimum time – and then sell it for maximum profit.
This is a good strategy for experienced investors or builders.
PROS – If buy well and renovate smart, you could make a good, quick profit. Aim for renovation budget of 10% of property value.
CONS – You just never know what you’re going to uncover during renovation and the property could turn into a money pit that takes way longer than planned or budgeted for. You will need to look into insurance and tax implications too.
- Divide and conquer
This is a really popular strategy in some older, more established suburbs where the blocks of land are big and there is a good-sized back yard. The land can be subdivided into two lots, a granny flat can be built in the backyard or the existing home can be demolished and replaced with a duplex or – if it’s a really big block – a small townhouse complex.
Again, this is a great strategy for experienced investors, developers or builders or if you already own the house with on the huge lot.
PROS – Great potential to increase value of the property or gain passive income through rental or boost your super balance through the sale of the second home.
CONS – Red tape is the biggest risk here – make sure you know what the council will and won’t allow, and make sure you know the costs and timing of subdivision and construction. Don’t go into this unless your eyes are wide open.
This is a great option if you’re a builder or developer. If you’re not, and you’re in the lucky position to be the owner of the property that the developers are looking for, you’ll probably be in a better position to sell your land to an expert and not take on the risk. If you don’t fit into any of those categories and still want to explore this option, my recommendation is to find some seasoned experts to team up with.
PROS – Potential to make great profit through sale, or increase your portfolio by keeping some or all and renting them.
CONS – The major concern here is getting in over your head on a very expensive project if you don’t know what you’re doing. Other risks are changes to the market and property values during construction, budget blowouts and red tape hold ups.
Property investing, done well, needs expert advice. If you’re not an expert, find one – and it’s not likely to be that bloke you meet at a barbecue who knows “a thing or two” about property. Talk to a financial planner, a property investment consultant or a firm like Blue Wealth. They’re the real experts in investing, and I’m happy to introduce you to them!
If you want to talk finance and investment lending, I’m your woman.
Investing in property is a kickass way to secure your future. Make it happen.