Capital-growth commandos:
- You guessed it; these investor types typically favour the security of buying properties in areas where the value of the property will likely grow in the medium to long-term.
- With these property types however, it usually means that the rent coming in does not quite pay for all of the monthly expenses, which means you need to dip into your own pockets each month to make up the difference.
- This strategy works well for investors earning higher salaries than the national average because oftentimes, their higher tax income bracket means the investor is able to claim back a bigger portion of claimable property expenses each financial year. For some investors, this annual tax return may offset most of that month to month top-up that they made.
- This strategy works for any age investor. However it can work well for those who start a little later in life, perhaps in the mid-late 30s. This is because their incomes are usually at their peak at this age and the investor can afford to chip-in each month on these properties.
So right now you’re probably thinking ‘why can’t I have it both ways?’, or ‘what about other ways to make a buck out of properties than just buying and holding on to them over time?’
Below are two more strategies to consider. Each has its challenges and advantages.
Best of both barons:
- Having your cake and eating it too is hard to do. Properties that genuinely present as possessing both high capital-growth potential and neutral-to-positive cash flow, are as rare as hen’s teeth.
- Also, these are not for the faint of heart. Clever property spruikers, sales people and marketers will always market that brand new apartment tower as having high yield and high growth.
- The reality is very few properties actually do. Worse still, inexperienced investors or those who merely prospect (as opposed to those who use all of the paid and unpaid digital data tools available to them to draw their own cash-flow and capital-growth conclusions), can come unstuck purchasing properties that don’t quite turn out the way they’d hoped.
- That said, these properties do pop up on rare occasions and should be snapped up when a genuine one presents itself. It’s just that you might be waiting around for a long time to find one.
- This is why I mentioned these investor types usually need to pour in way more time and energy than passive investors do. They also need to be constantly up to speed with not only the tools that passive investors use, but the future council zoning and plans for their chosen property’s area (and yep, these plans are constantly changing and evolving too).
- Another easier way to achieve this strategy is to procure a balanced portfolio. So, a couple of properties that are more cash-flow driven and a couple that are capital-growth driven.
Flip and reno ringleaders:
- The strategies mentioned thus far assume that you are merely buying existing (or soon to be built off the plan) properties. However, flipping and renovating properties is another alternative way to drive faster growth out of residential property.
- ‘Flippers’ take run-down old properties, bought well below market value, then do a renovation to get them up to market value before selling the property on for a profit.
- There are plenty of TV shows glamorising this approach; The Block, Property Ladder, Flip Men, and Flip This House to name but a few. Local property celebrities such as Nathan Birch and Cherie Barber have made their fame and fortune out of this approach.
- When you take the glamour away, the reality is this: Unless you’ve got a tonne of existing industry contacts, possess some construction know-how, and are a great project manager who can stick to budgets and timelines well, this strategy won’t work for you.
- The more ‘toned-down’ alternative to flipping properties is renovation. This can work well as part of a buy and hold strategy for those who are a bit green in reno experience.
- Personally, I’ve developed basic reno skills when occupying my PPR (personal place of residence), then fostered those skills when one of my investment properties is between tenants (if you’ve got a couple of weeks between tenants, and you can take a few days of annual away from your job plus weekends too).
I would argue these latter two these strategies are require a much higher time investment than these first two more passive, investor personas. This is worth keeping in mind when starting out and you’re assessing not only how much money to put into property investing, but how much time.
Think about the type of investment strategy that is going to work best for you. You should then begin your due diligence and assess the feasibility of your strategy in comparison to your time and budget investment levels.
This article first appeared on Property Observer.
