A guide to various property investment strategies and which ones are appropriate for you.
At Investors Edge, we are known for our “Property Investing Success Plan”, which helps investors avoid costly mistakes & formulate a step by step plan to increase their chances for success. A key step to that plan is choosing an investment strategy that is right for you.
Here are the ins and outs of the 5 strategies you typically have to choose from.
Buy and Hold
Buy and hold is the most passive of any investment strategy. Basically, you buy a property in an area with good prospects for growth, rent it out and wait for the market to increase over time. The drawback is that you are reliant on the market improving and if things don’t go your way you have to sit tight. The property market has historically doubled every 7-10 years so even if it takes longer, you will be in the market for when the increase comes.
This strategy is dependent upon doing your “due diligence” and picking the right location that has the best chances for growth.
Buying New Off the Plan
This involves buying new properties in developments before they have been built. They can be a variety of higher density types of construction such as apartments, villas or townhouses. You buy at the current value from the developer, typically putting down a 10% deposit and you then pay them the balance on completion.
This strategy provides access to new property in the inner suburbs, where it may not be possible to purchase new without paying a significant premium.
In addition, because the property is new you can claim a high level of depreciation on your taxes, which improves your cash flow. Plus because the property is new, maintenance is light and you can attract better tenants.
Building a House on Land
The best benefit here is that you don’t pay stamp duty on the building: only the land. You reap the same tax, maintenance and tenant quality benefits as buying new off the plan. You can also purchase a turnkey package and not have to worry about the particulars. So here you are the “Developer” and make all the choices on how the house is designed and to what specification it is built.
If you are smart about your choices you can really improved the rentability and re-sale potential by designing it to suit your market. To get this right you should really speak to good property manager and sales agent that understands what tenants and buyers want.
Subdivision & Development
In its most simplest, you buy a property that can be divided into further lots. So you have subdivision plans created, lodged and approved by council and you then need to meet certain conditions such as clearing the site, fencing, connection of services and providing parking. Many investor sell the land created without building on it.
Subdividing a property is pretty straight forward once you have purchased the right property that you can make profit with. It is however quite tedious to meet the conditions of subdivision.
Many investors also choose to build a house on the lot they create, to benefit as with the strategy mentioned above. With this approach you can get your builder to meet a lot of the conditions of subdivision reducing the work that you need to do, you would then receive the title for the new lot on completion, which is called “built strata”.
A larger project would involve building 2 or more dwellings, so in that case you may need to sell some of them off the plan in order to obtain your finance and reduce your risk. This size of project is a lot more risky and requires a lot of upfront capital, but can be very profitable.
Renovation
You buy a property that is run down and renovate it. This strategy is great for the right person who is handy or has lots of friends who are tradespeople. Works best when renovating a house that you are able to keep on a subdividable lot or properties that are at higher price points without a ceiling on the renovated selling price that you can achieve.
For help on choosing the right strategy for you, call Investors Edge on 1300 472 427 for more.
