There are a number of ways you can make money in property. Unfortunately, there are equally as many ways to lose your cash. The key is to understand the different investment strategies before you dive in.
They are, Capital growth strategy, Cash-flow strategy, Renovation.
Capital growth strategy
A capital growth strategy, in a nutshell, is buying a property with the expectation that it will increase in value over a period of time.It’s a strategy where you focus on getting maximum capital growth and making that as your priority.
The time-consuming part is the research. You want to find those markets that are ready to experience high growth right now and hopefully well into the future too. Your timeframe for holding any particular property can also impact what you are going to buy, so it’s important to be clear about your strategy first before looking for a deal.
A short to medium timeframe, for example, is one where your property grows in value over a 1-5 year period and then trading it back to the market or selling it to realise a cash profit.For this strategy to work, you want to focus on an area where you can see a short-term major boost or buy in an area which is on the verge of an upturn to ride the impending growth.
A long-term buy and hold strategy means you are buying into an area where you can see the ongoing desirability of the area, where there will be continual demand and multiple reasons why the market has the potential to keep growing.
Who suits this strategy?
If you have high income and looking for ways to maximise your tax benefits.
If you have plenty of time to ride out at least one investment cycle (around 8 years).
If you have the ability to support your investment out of pocket if it’s not earning enough rent to cover the holding expenses.
Cash flow strategy
As the name suggests, a cash-flow property investment strategy is where the priority is cash-flow.
This means there’s less focus on capital growth and other strategies such as renovation or development, although they’re also considered. Typically, a cash-flow strategy is where the investment property earns more rental income than the cost of mortgage, property management, rates and other maintenance costs.
This strategy is generally favoured by many beginner investors, particularly those that are earning lower to average income.
Who suits a cash-flow strategy?
If you’re finding it difficult to get a mortgage due to tight cash flow.
If you’re on an average to lower income investor.
If you’re nearing retirement
Renovation is a strategy where you actively seek out properties that you can improve to boost value or rent.
The key is picking the worst eyesore with the least cost to spruce up. The more you spend, the more likely you’ll “over-capitalise”.
Who suits this strategy?
If you’re an experienced investor looking to boost your home value quickly.
If you’re looking to expand your portfolio quickly by accessing this newly-added equity.
The important thing is to understand your cash flow, get the calculations right and have a short/long term goal in place which will then help you understand how to invest effectively.
If any questions or would like to book in a free consulation to work out your cash flow feel free to contact us on 0487 344 353.
"Disclaimer: Your full financial situation would need to be reviewed prior to acceptance of any offer or product"