Sophisticated investors are typically well educated when it comes to the different types of investment strategies, but they all started somewhere. Our mission is to empower more people to understand and use the plethora of resources around them to build wealth – so this article is going to cover four of the most common property investment strategies and what they really mean. This way, you can get a better idea about what strategy best suits you and your unique position.
Buy and Hold
The buy and hold strategy is one with a long term view. There is an acquisition phase, in which you purchase a number of properties, them there is a hold phase. The hold phase typically lasts for a minimum of 15-20 years to receive a valuable return. For most people that use this strategy, the cash outcomes just before retirement. They sell up a portion of their portfolio, but a home for retirement outright, keep a couple for some extra income and enjoy a cash reserve with the proceeds of the other sales.
This is a strategy that is very time and labour intensive and to do it well, it takes a but of experience and perhaps a few mates who are tradesmen. In theory its quite simple. Find a property in original condition that is in need of some renovations, do the renovations and sell it for a profit. But there’s a few technicalities. Firstly, you have to do your research before the purchase. Think about the renovation required, do your feasibility study and work out if a profit can be made. While renovations can be time consuming and tricky, it can pay off in a big way depending on where you buy and how long the renovation takes.
This is a strategy with good returns. Research and select a property based on the ability to generate income. Generating passive income occurs when the income from rental payments is greater than the outgoings from expenses. This means each month there is income to go towards the mortgage, reinvest in other investments or to spend on enjoying life. The positive cashflow strategy when applied well, with a long term view allows people to generate a large portfolio with reduced risk.
This strategy involves purchasing a property where the income is less than the expenses, so at the end of each financial year you are out of pocket but you hope to make the difference back in the value growth of the property. The benefit of this approach is that you an offset the loss against your other income which ends of being better for the tax man, however you are still facing a loss on the investment until you sell it.
So theres four of the most common investment strategies used buy Australian Property Investors. Selecting an investment strategy can be difficult, so call us today on 1300 148 417 and book in your complimentary investment strategy session today.