As you can see by that number, 20,
there is quite a large number of ways to invest in the property market in Australia and make money.
One property investment strategy may not necessarily be any better than the next one because which one or combination of property investment strategies you actually use successfully will depend largely on your circumstances and your personality. Yes personality plays a large part because it determines just what level of risk you will be prepared to take to achieve your goals.
The obvious one first, home ownership, this is by far away the most common property investment strategy most Australians use to make money. Nearly 70% of households own their own home, this is one of the largest percentages in the world. This strategy is the ultimate simple one, you find a property, you find a lender willing to lend you enough to buy it, you buy it and live in it for many years hoping it goes up in value while your borrowed amount goes down, and the difference becomes your Home Equity. This is your profit on the whole deal. Over time you will get access to your Home Equity and be able to diversify your investments.
This one is Buy and Hold. This is where you buy an investment property that you don’t live in, instead you rent it out but you hang on to it for the long term the same as your home ownership works. Of course you’re going to try and make some money through rental income over the years but the main objective is again to increase the amount of equity you have in the property.
This one is A positive cash flow property. This property is going to be purchased solely for its income producing ability. The property should also go up in value but that is more an added bonus than what you bought it for. Positive cash flow is achieved by renting out the property for more money than the expenses going out are.
This is an Australian favorite, negative gearing. The whole idea of negative gearing is that the property will not pay its expenses from its rental income, now that sounds like you’re going to lose money every month or every year, that is accurate. What you are trying to do is have a property that increases in equity every year greater than the amount of money you have lost in the rent versus expenses equation. In Australia, the loss you make a property doing this is also a tax deduction.
Renovating to flip. Most people who purchase a property and say that they are just going to renovate it actually mean that they are going to renovate it fast and then sell it quickly, for a profit. That is the very definition of renovating to flip. If you’ve watched any of the TV shows, and there are a few around, you will know what the main risks are, so I won’t list them here. Generally renovating to flip fails when a property is found to have much more damage that has to be fixed after it has been bought, this results in much higher expenses in the renovation and the renovation taking more time.
Subdivision. This is where you buy a property which is on a parcel of land and you change the number of residences on the property. There are a number of ways of doing this, you can tear down the old house and build some townhouses. You can also divide the property and build a second house. Once this construction is completed you should hopefully be able to sell the new properties for more than your costs, thus making a profit.
Dual occupancy. This is where you keep a single block of land but change the number of dwellings for which you can charge rent on it. This can be done in various ways, build a granny flat to rent that out, divide the existing house into a couple of flats, do both, the granny flat plus the flats.
Renovate and rent. Instead of purchasing a property, doing a quick renovation and then flipping it, you do the renovation for sure and then hopefully rent the property out for much higher rent then you would have got before the renovation was done. This property is also classed as a keeper, as well as getting the rental from it you are keeping it long enough to increase your equity in it.
Duplexes. You buy a single property, knock down the existing dwelling and build two new dwellings on the property. You have some latitude in how you can divide it up, you can make Strata titles or you can just split it down the middle, if you want you don’t have to actually do anything, just leave the two dwellings on the one block of land. This differs from dual occupancy which has to end as two separate dwellings on separate titles.
Development. This is where you buy a property with the sole aim of tearing down the current buildings and rebuilding either townhouses or a unit block. If you can get multiple blocks of land adjacent to each other this can become a very lucrative income earner but you can do it with a single block.
Partnerships. Most people don’t think about this one which is a shame because it’s quite good for all involved. This is where you get together with some people who are similar in goals to yourself and you pool your resources to allow the group as a whole much greater latitudes in what you can purchase and accomplish. Basically it’s a business partnership that is going to be involved in property investment, its goals and objectives should be well set out in advance and followed to the letter, most of these types of partnerships turn out to be very lucrative for all involved.
Property syndicates. A property syndicate is very similar to a partnership except that it is properly already been set up by its principles and you are basically buying shares in the syndicate. Unlike being in a partnership you wore had very little say in what the syndicate is up to. Profits are divided up exactly the same as in a partnership, you get a share based on how much you initially put in. Again property syndicates run by experienced people with good track records can be very lucrative.
Commercial properties. Becoming involved in commercial properties is completely different from becoming involved in residential properties. Generally the way things work is completely different including how the lending works. In most cases to purchase a commercial property you will need around 30% as a deposit which a lot of people find difficult. The big plus for commercial property is that rental returns are usually much higher and tenants pay most of the ongoing expenses.
Land. This one of course is pretty obvious, you are buying land alone. What you do with it should be well planned out ahead of the purchase, including all of the financing and schedules.
Rezoned properties. This is where you buy an existing property which has a certain zoning application applying to it with the objective being that you can get the zoning changed to allow you to build more valuable properties that exist on it currently. Every real estate developer in the world is looking for that piece of rural land that he can purchase for a few thousand dollars an acre and build on mega complex shopping center on it, the real estate developers wet dream!
Buy a house and land package. This is where you basically buy land but part of the contract is it you have to let the seller build a house on it for you. Yes you do get to choose the housing design usually from a bunch supplied but you have no say in who actually builds the house, it is part of the house and land package contract. Usually there are a lot of government incentives with this kind of purchase for both the buyer and the seller. House and land packages are the reasons why the outer edges of a lot of cities have medium to large housing estates that seemed to just appear overnight.
Purchasing off the plan. This type of purchase generally applies to home units not houses. What you are doing is you purchase the unit off the plan, the seller will have extremely detailed plans drawn up, models made up to show what the apartments will look like, even models of the local area around where the apartments will be built, all supposedly showing what the finished product will look like. You may however be purchasing a unit or apartment that is up to 2 years away from completion, so you need to be prepared to have your money locked up for that period of time. There are also obviously some inherent risks if the development company is not a multinational.
Saving tax. Some people believe it or not to invest in property do it solely for the purpose of cutting down the amount of tax they pay. These people prefer new properties because there is much more depreciation with a new property them with an old property. In Australia if you earn over $180,000 per annum you are paying a tax rate of 50%, that’s $90,000 a year you are giving the government to waste. However, anything you lose on a property investment becomes a tax deduction so, for arguments sake, you lose $40,000 on your “bad” property investment, you only have to give the government $50,000 now, at the same time your property investment Equity is growing.
Property Flipping. I know this sounds almost impossible but it is being done. The idea is you purchase a property and then quickly on sell it for a profit. The way it’s done currently is you are looking for a property that is either what is commonly known as a distressed property or a property that has been on the market for a very long time. It requires a really in-depth knowledge of the local real estate market to be able to succeed in flipping property successful, let alone doing it over and over again.
Distressed properties. This is when you buy a property off a seller for less than its market value, there are numerous way people who own properties get into distress. If you successfully purchase a property for under its current market value you have instant equity in the property. There are professional investors who use this strategy regularly to turn easy profits. There is an argument that they are taking advantage of the distressed mortgagee but their argument is, they are giving the distressed mortgagee a way out of their problem.
Now you have looked over all of the property investment strategies and more knowledge of property investment techniques, what appeals to you most?
Good luck with your property investment strategy and I hope you personally succeed.
Don’t forget to visit our glossary of Real Estate here http://thepropertyinvestment.com.au/investment-glossary