When it comes to investment property in Perth, there are almost as many strategies as there are investors. From the largest firm to the small investor, it seems like everyone has a different idea of what works. No matter what the individual strategy, though, it is usually a version or a combination of one of the four basic property investment strategies.
Buy and Hold
This is the most simple strategy and can be easily executed by the small investor. You buy properties either new or established and hold on to them, renting them for at least two property market cycles if not longer. A single investor can amass a nice portfolio doing this correctly and then sell part of their portfolio to pay down debt when it’s time to retire. A lot of people are using their Self Managed Super Funds (SMSF’s) to do this.
Buying a property brand new off the plan, does carry more risk than buying an established property. When buying off the plan you are committed to purchasing the property once it is built, so values can change up or down in the meantime. If values go down the investor will have to come up with a lot more deposit to settle the property. However, sometimes it is the only way to buy a brand new property in tightly held or under-developed areas and with limited supply and strong demand, prices can rise before you even own it.
Most investors prefer to see first hand what they are buying and so they buy established.
Renovate
This is just what it sounds like: buy a property, renovate it and add more value than the cost of your time and expenses. Then you can either sell it or rent it out as a Buy and Hold. For someone who can subcontract the work out and act as a project manager, this is a great strategy. A person can make a lot of money in short periods of time doing this when the market is growing fast.
A lot of investors also make the home their residence while they renovate, which can help them to avoid additional capital gains tax (speak to your accountant).
The bad part: it is extremely competitive. Due to the popularity of this strategy, costs have risen and prices of houses in need of renovation have risen as well. While there can be a lot of money in the right “reno” the margins are typically smaller now. Proceed with caution and look to combine a renovation with another strategy.
Building
When you build a house, you are creating something tangible and of value. When building we own the land already and appoint a builder to deliver on a contract of agreed plans and specifications within a time frame. Properties that are sold as land with a building contract are known as a “House and Land Package”. You will typically make 5-8% from building any more is in the appreciation of the land and the time frame in Perth for a double brick and tile home is usually 9-12 months.
Property Development
This plan needs the most capital to begin with, carries the highest risk and offers the highest reward. You buy a property and then develop it by subdividing and/or creating a number of titles from one. You will typically make 15-35% returns from development and the time frame is usually anywhere from 12 months to 36 months.
How to Choose
Your level of available funds and your talent will determine which of these strategies works for you. Whichever you choose, call us at Investors Edge. Be sure to take a peek at our proprietary Property Success Plan.
Call 1300 472 427 for more information.
