Real Estate has been in the headlines quite a bit during 2018, and those who are considering investing for their financial future could be forgiven for thinking property may not be a good investment strategy. However, regardless of the immediate direction of the market, real estate investment makes a good long-term investment strategy primarily because a property will see its value increase over time, and along the way, it can also generate an ongoing passive income.
Successful property investors realise that real estate markets go through cycles but it is possible to profit in the long-term with the right kind of strategy.
A good property investment strategy involves using a set of sensible approaches to clearly establish your property investment needs and develop an ongoing real estate investment program that works with your plans.
For example, if you want to retire at 60 with a fully-funded retirement nest-egg, this will influence what kind of investment strategies you employ versus the investor who wants to establish a property empire that will serve as a legacy for their children.
Every plan can have multiple ways of achieving the end-goal. Here are 7 top strategies for property investment success.
#1 – Own Your Own Home Before Anything Else
This strategy is the most common investment strategy employed today. As prices rose significantly in Australia’s capital cities we can all probably recall the dire warnings appearing in the media about the great Australian dream of home ownership becoming beyond the reach of the masses.
Home ownership has remained a huge motivating factor to invest in property because it serves several purposes. A home continues to be our base of operations as we carry out our lives. It is not only where we head to after work for rest and recuperation, however, it is where we raise our children and enjoy good times with friends and relatives.
Owning your own home can make good sense as a property investment as it represents capital-gains tax free profit when held and then sold. It also appreciates in value over time, so when you are older and the children have grown up and left home, you can sell your large home and buy a smaller home leaving you with a large excess you can save or further invest. You may also use the equity in your home to begin to acquire investment properties and earn an income from them.
#2 –Buy to Hold for the Long-term
This is also a very common approach to property investment.
They key feature of this strategy involves buying an investment property for the long-term. Usually, investors will borrow funds to purchase a property. Rental receipts help to pay the investment loan, while capital growth over time can help investors to access equity locked-up in their property to borrow again and purchase an additional property. The investor builds their portfolio until they one day sell some or all of their properties, pay-off their loans, and live off the proceeds in retirement.
This strategy acknowledges property investing is a long-term strategy. The down-turns in the market can be ridden out because this investor knows they are a long-term winner.
#3 – Cash Flow Property Investment
The prior example is a kind of ‘Growth’ strategy as it relies on increasing property values.
The Cash Flow property, however, is not reliant on capital growth. Although their properties experience growth in values, the main attraction with a cash flow property is its positive return. This property pays its way; covering the property’s upkeep and putting cash in your pocket.
It is increasingly popular today and allows investors from all walks of life to participate in the market as a property investor.
#4 – Property Flipping
Ardent followers of all things real estate would have heard of the term ‘flipping’, first coined in the US. If you are not an expert tradesperson or are very unfamiliar with the finer points of how this works, you should find someone who can properly advise you on how best to succeed with this strategy as it is viewed as risky.
The basic process of property flipping follows these steps:
- Find a property – ideally a run-down property in a good neighbourhood;
- Renovate the property to bring it up to an average standard for the area (you don’t want to over-spend on renovating, otherwise you can over-capitalise and struggle to recover money in selling it); and
- Sell it for a windfall profit not too soon after buying and renovating the property.
Do seek advice before venturing forth with this strategy.
#5 – Renovate for Rental Return
This strategy closely follows the property flipping process but the major difference is you rent your newly-renovated property out.
Prior to renovating the property, it may have only been able to fetch a low rental yield. After your renovations, you could attract a higher-paying tenant and maximise your rental yield. Some of your renovating expenses may also be tax deductible if they are considered maintenance expenses.
In addition, the long-term value of the property will hold-up better over time with your renovations. When it comes to sell, you will have positioned your property closer towards the middle and high-end, where strong capital growth can be experienced.
Be careful how much you spend to renovate. You don’t want to over-capitalise, and you want to avoid setting your property too far out of reach of the area’s ideal buyer.
#6 – Property Development
Typically, when we think of property development we might think of property developer moguls such as Harry Triguboff and his Meriton brand. These kinds of property developers acquire multiple blocks and then build high-rise apartment towers. It has made Harry very wealthy but you don’t need to develop land on this scale to do well.
You may buy a large block and build two or three dwellings on it. There are a lot of these smaller scale development opportunities available and they can still work because we have a growing population and still too few homes to house everyone.
#7 – Dual Occupancy
Similar to property development, a dual occupancy strategy might mean building a granny flat or second dwelling on a property. Or it could mean partitioning an existing house and creating two dwellings that can give you two rental incomes from the one property.
This can be a high-yield strategy with an opportunity to realise strong capital growth if sold later.
Vision Property & Finance’s Matt Ivers can show you how this strategy can work for you.
If you would like Matt Ivers or any of Vision’s property investment specialists to outline how you can succeed with property, give Vision Property & Finance a call on 02 8354 3000 to reach Sydney’s office or 02 4014 1999 to talk to someone in Newcastle’s office. You can also contact us here.