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If you prefer to have a strategy in place before starting your property investment journey, this is for you. In this article we outline 6 key property investment strategies successful investors use to maximise their returns.
Successful property investors have a sound strategy in place to guide their decision-making. Consider these 6 property investment strategies as they apply to your circumstances and may help you achieve specific goals. Some of these strategies can also be combined to maximise your benefits.
The term ‘gearing’ basically means borrowing money to invest. Many property investors use gearing as a way to leverage a larger investment opportunity and generate an income. Earnings from an investment property are either positively or negatively geared. Both positive and negative gearing provide significant (but different) tax advantages with deductible expenses, including; loan interest, council rates, repairs and maintenance costs, property management fees and depreciation on property fixtures and fittings.
A property is negatively geared if its expenses exceed the rental income that it generates. While that situation may seem illogical on the surface, it can provide an investor with two benefits:
A negative gearing strategy can be suited to investors in higher tax brackets.
Positive gearing is a smart way to create a new income stream. It's simply the opposite to negative gearing and has become increasingly popular with astute investors looking for cash flow benefits. An investment property is positively geared if its rental income exceeds its expenses. A positively geared property can provide you with:
Generating a new income stream is highly attractive and a positive gearing strategy can be suited to investors in lower tax brackets who want to build their portfolios to achieve long-term wealth.
When buying a property, you have two broad options – buying an existing or established property, or buying a brand new property.
The key to maximising your return when buying any investment property is to buy a quality property in a high-demand area. High-demand areas are where people want to live because they are near where they work and they have good facilities such as schools, hospitals, shops, parks, entertainment and public transport facilities.
However, it’s important to be careful when you’re buying an existing property that you aren’t buying a property that will soon need expensive repairs and maintenance work. That’s where buying new can often be a smart investment choice.
Buying a brand-new property has several advantages over buying an existing one.
A positively geared property can provide you with a new income stream. Even better, the extra income can increase your borrowing power for future investments.
Buying a property to renovate and hold can be a way of achieving capital growth. However, it’s important to understand that you will need to be able to afford any renovations that you want to do. Renovations can also be more costly than you may initially realise, plus may impact your ability to tenant the property for periods of time. Budget blow-outs are common. You also need to avoid the potential problem of overcapitalising (i.e. spending more on the renovation than the increase in value that it creates).
Flipping also involves renovating but it’s a short-term property investment strategy. Instead of buying and renovating to hold the property, you’re renovating to sell it as quickly as possible for a profit. Again, as with strategy #3, you need to be able to afford to do the renovations and be wary of budget blow-outs and overcapitalising.
Subdividing involves buying a larger block of land where local council permission is in place for the land to be subdivided. This creates the potential to increase your overall land value and create a multi-rental property opportunities. Like renovating, this strategy can come with significant investment for construction, plus time, effort and costs in managing council regulations and processes to achieve the subdivision.
Rentvesting is an investment strategy where you buy a property that you can afford and then rent it out while renting a more expensive home to live in yourself. It’s becoming increasingly popular with first home buyers or younger professionals who want to live in an area where they may not currently be able to afford to buy. It allows them to get a foothold in the property market to build their wealth via earning rental income and achieving capital growth over time.
At DPN we’ll work with you to understand your goals and can help you get a strategy. We offer a complete end-to-end service that includes property investment strategy, research, property finance, access to high quality, multi-rental homes and ongoing property management.
Contact us today to find out how we can help you. We would be happy to to answer any questions that you have.
The right property investment strategy (or strategies) for you depends on your financial situation and investment goals. The 6 key strategies are:
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