Choose your property investment strategy
Having goals in place is a great start, now what is your strategy for achieving them?
There are many different property investing strategies you can follow, which include:
1. Purchasing at a discount
This strategy involves purchasing investment properties below valuation. The valuation is the amount the bank and lenders see as the property’s value. If purchased below valuation you immediately create equity – the difference between the current market value of the property and the amount owing on the mortgage.
2. Positive cash flow
Positive cash flow investing is contrasted with negative gearing, this is when the income returns do not offset holding costs, and the investor uses the tax treatment of loses to their advantage. Proponents of the positive cash flow strategy point to the advantages of owning income-generating assets. Some benefits of the cash flow strategy include:
3. Having access to a monthly income stream
Cash flow properties can balance your portfolio as the extra cash can be used to pay the shortfall that may be associated with holding properties with high capital growth potential. Positive cash flow properties can increase your serviceability and can make you more attractive to lenders.
Sub-division is dividing an existing area of land into more segments with individual titles, allowing separate properties to be built on the new segments. This works on the principle the split pieces of land are worth more than the single lot.
Purchasing property off-the-plan means entering a contract to buy the property before or during its construction. However, you won’t be able to inspect the finished property until construction is complete. Property investors can put down a deposit and speculate that the market will rise before they actually need to settle on the property – meaning there is potential to obtain capital growth over the settlement period.
The renovation strategy is adding value by improving a property’s condition or adding new features. The key is targeting properties with potential that you make improvements and add value to, for the type of buyer or tenant looking to reside in that area. Look for poorly presented investment property below the suburb median price that you can add value to.