What Is a Good Strategy for Property Investment?

Investing in property can be a great way to grow your savings, but it doesn’t come without its fair share of risk. If you’re on the hunt for a strategy for property investment that suits your circumstances, read on to learn more about your options.

Buy and hold

The buy and hold property investment strategy is a popular approach for many property investors. It involves purchasing an investment property that has a strong potential for long-term capital growth. That means that over time, your investment will appreciate or increase in value so that when it comes time to sell, you’re able to make a profit.

The key to this type of strategy for property investment is to do your research. You’ll want to find a suburb that’s primed for capital growth. Look for key drivers of growth, like future infrastructure developments, access to public transportation and proximity to local amenities that are attractive to homeowners, like shopping centres and schools.

Just keep in mind, when you follow the buy and hold strategy, you’re looking at along-term strategy. If you’re looking to make a quick buck, this approach isn’t going to be the right choice for you.

Renovate and hold

Renovating an investment property can be a great way to add value, but it also comes with added risk. From budget blowouts to overcapitalising on your investment (meaning you sink more money into your renovations than the property’s resale value), while renovations might seem like a good idea, there’s no guarantee that you’ll be able to attract a higher rental yield or boost the property value.

Put simply, the renovate and hold method involves purchasing an investment property and renovating it in the hopes of adding value. Once you’ve completed your improvements you could be in a better position to attract a higher rental yield. Plus, there’s also the potential to benefit from tax depreciation allowances, but it could be worth consulting an accountant for a little more guidance.

Property flipping

Generally, it involves purchasing a more affordable home with great potential and renovating the property with the intention of selling it within a short timeframe.

The key to this strategy is focusing on improvements that will maximise your bottomline.

Property gearing

Asa homeowner, chances are you know that owning a property comes with its fair share of ongoing costs. In some cases, the rental income that you earn from your property is enough to cover the costs of maintaining your investment. This is known as positive gearing. On the other hand, if your property is costing you more than you’re earning from it, it’s called negative gearing.

Here’s an overview of how these two gearing strategies work.

Negative gearing

Negative gearing involves purchasing an investment property in a high-capital growth area where the net rental return isn’t enough to cover the cost of maintaining the property. Although running an investment at a loss might not sound like a great strategy on paper, when it comes to Australian tax law it can actually work out better than it seems.

While the rental return is counted towards your income, you can also use any losses on your investment property as a tax deduction to offset your taxable income.Because you’re essentially running your property at a loss, it’s important to make sure you’ve got enough cash coming in to cover the difference between your rental income and the property’s expenses.

Ultimately, negative gearing works alongside the buy and hold strategy - your goal is to cash in on the property’s capital growth in the long term rather than make an income over the shorter term through the rental yield.

Positive gearing

Positive gearing is the other type of property gearing strategy. Unlike negative gearing, when you positively gear a property the rental income exceeds the property expenses and provides you with a bit of extra cash flow.

Asa general rule, if you’re able to positively gear a property chances are it won’t generate a huge amount of capital growth over the long term. And because having a positively geared property will bump up your taxable income, you’re likely to be up for a bigger bill come tax time.

Subdivision

Subdivision involves finding a large block of land and splitting it into two or more smaller lots. From here, you can choose to sell off all or some of the separate land parcels. Alternatively, you might even choose to build homes on the newly divided blocks and use one as your main residence while renting out the other to generate rental income.  

Before investing in a block with the hopes of subdividing the plot, it’s important to research local council regulations in case there are any minimum land size requirements. It’s also worth considering different factors like accessibility and the location of boundary fences and driveways.

Property subdivision doesn’t come cheap. Not only is there the initial cost of purchasing the property, but there are also all the expenses involved in the entire subdivision process. From infrastructure charges and statutory fees to surveying and approval fees, the subdivision process can be costly and time-consuming. 

While property investment is a popular path to accumulating wealth, it’s not for everyone. Before purchasing an investment property it’s important to assess your long-term investment goals as well as your current financial situation.Like any investment strategy, property investment comes with a range of risks, so it’s essential to understand the potential drawbacks of investing in property. Want to learn more about investing in property? Check out our step-by-step guide to property investment.

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This article is intended to provide general information only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as tax and financial product advice. Please consider seeking financial advice before making any decision based on this information.