Property investment can be a fantastic way to make money. Here, we explain three different property investment strategies, each with their own pros and cons.
There are many different strategies that a property investor can implement to make money from their properties, but before you dive in, it’s important to understand the different options available so you can choose the best fit for your risk profile, investment period and capital requirements.
The Buy and Hold Strategy
The Buy and Hold strategy is a firm favourite amongst Australian investors because of its simplicity. The key to this strategy is to purchase a property and retain it until you have seen enough growth in the price to suit your needs and objectives.
How long should I hold onto my property before selling?
Generally speaking, you should hold onto the property for a minimum of ten years, giving yourself the best chance to see an uplift in price.
Is Buy and Hold a good strategy?
This is a great entry-level investment as there’s less assumed knowledge, less risk and you also need a smaller deposit to get in the game. Buy and Hold comes with a lower risk because you’ll end up holding onto the property for a longer period of time compared to other property investment strategies, which means you’ll increase the likelihood of achieving capital growth and are less reliant on picking the bottom or top of the property market.
The Renovate and Flip Strategy
You may have watched renovation shows on TV where they buy a home purely to sell, and then renovate to improve the value and sell the property for a profit. This strategy is called ‘flipping houses’ and, (unless you’re on a TV show) is best executed when you’re in a position to renovate your place of residence and then sell the property at a profit.
Flipping houses and Capital Gains Tax
The reason we recommend renovating your own place of residence is to do with tax. When you renovate and flip your place of residence, you don’t have to pay any Capital Gains Tax (CGT). This basically means the money you make as profit will be tax free.
Is flipping houses right for me?
Renovating and flipping houses is a great choice if you’re an experienced renovator and understand how to quickly add value to a property. It’s important to know, however, that the renovate and flip strategy carries more risk and has lower margins than other investment strategies.
The Property Development Strategy
Let’s be frank. Property development is hands down the quickest and most profitable way to make money from property, however it’s considered the highest risk strategy and needs the most amount of money to get started.
Is property development right for me?
For this strategy, knowledge is key! You’ll spend the majority of your time navigating council regulations and financial agreements. This is because the basic principle of property development is to add value by changing the use of the property, either through increasing the number of dwellings on the land, increasing the number of titles or by simply changing the property use from residential to commercial.