A core part of being an investor is formulating a strategy that fits with your goals. In the world of investing in property, there is a diverse array of such strategies that property buyers can utilise to grow their wealth.
Here is a rundown of just a few of the most common ones.
Holding property over the long term
This strategy involves purchasing a home and sitting on it over a long period of time, letting gradual capital growth drive up the resale price of the property. Because you're relying on the natural accruement of value over time - a characteristic property is well-known for - this option tends to be less risky than others.
In order to be successful with this strategy, it's important to decide on the right property from the very start. This means choosing on a neighbourhood that is either growing or set for development, for instance, or picking a property that is in good shape and won't require costly maintenance down the line. New properties have the benefit of depreciation and lower maintenance costs. This strategy requires the least amount of effort and will allow plenty of tax benefits if chosen wisely.
Flipping is all about the short-term profit. While the above strategy relies on you having the patience and foresight to let your property grow in value over time, flipping refers to a quick turnover of a property once it's been purchased - in some cases after renovations are made, in others after seeing rapid market growth.
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While flipping appears to be quick and easy, this belies the risks associated. For instance, the sale price may actually leave you with a shortfall after you take into account the added capital you've sunk, while certain homes may have issues that cannot be fixed quickly and cheaply. To do this effectively, it helps if you have a skill set or trade that allows you to carry out a lot of the work yourself. You’ll need to follow a strict budget and not over capitalise on the suburbs worth.
Renovate and hold
This strategy is something of a combination of the above two. The idea is that you acquire the property in a less than ideal state, give it a facelift, then rent it out over the long term while you wait for its value to further grow.
This is beneficial in a number of ways: Your revamped property is more likely to attract tenants, while also possibly adding value to your property - on top of any capital gains it experiences. However, if the updates are major, it may mean you can’t have tenants during the renovation process adding an extra holding cost for you. Repairs can be costly so be sure to stick to a budget.
This information is provided by DPN Pty Ltd ABN: 94 630 700 186, Australian Credit Licence 514759. DPN Finance Pty Ltd is an authorised credit representative 504129 and a related entity of DPN Pty Ltd. Casa Capace Operations Pty Ltd ABN: 79 624 981 184, NDIS provider Number 4050038018 trading as Casa Capace.