Australia has one of the world’s strongest property markets, making it an excellent prospect for anyone that’s looking to invest in their future. But getting started can be a challenge, and while property investing education can point you in the right direction, it’s a good idea to do your own research too.
One of the most important things you’ll need to decide is how you intend to make money from your investments. There are a number of property investment strategies available, and each has its own advantages. In this article we’ll go over the three main types of investment strategies in Australia and how to pick the right one for your situation.
The Main Types of Property Investment Strategies
- Buy and Hold
The most common property investment strategy in Australia is buying and holding. Using this strategy, investors buy a property and rent it out over a period of multiple years. During this time you collect rent to offset the cost of your mortgage. The home’s value increases over time due to Australia’s strong property growth, which means your investment can be sold for a significant profit in just a few years’ time.
This strategy is the simplest place to start for most investors. You only need to raise enough capital to buy a single property, and you can rely on rental income to pay off the mortgage. In addition, there are other options that make this strategy even more appealing, such as interest-only loans and negative gearing. These features allow you to turn rental properties into short-term income as well as long-term profits!
- Buy, Renovate and Sell
Our intermediate investment strategy is to buy, renovate and sell a property. This strategy involves buying a home that has room for improvement, spending additional capital on renovations, and then selling the home for an overall profit.
The major advantage of this strategy is that it provides a relatively short-term return. Compared to buying and holding a property which may take 5-10 years to return a major profit, selling (also called “flipping”) investments can provide tens of thousands worth of profit in just a few months.
The flip side is that this strategy requires experience. Renovating homes is a major project and a huge investment of capital. If you buy a home that requires too much work, the additional expense can eat into your profits. Similarly, if you buy a home in the wrong area, you may not be able to achieve your expected profits after renovations, which can result in a loss.
If you intend to flip properties then you need to do your research. You’re looking for homes that can be improved and resold at a profit within 6-12 months. These properties are usually old or neglected, which can make it challenging to determine whether a particular home has the profit potential you’re looking for.
- Buy and Develop
Finally, we come to the most advanced property investment strategy on our list: developing your land. Developing a block of land has huge potential to turn a profit. If you can turn a single block into two or more properties, you can instantly increase your equity. For example, if you buy a large block for $500,000 and subdivide it into two properties each worth $350,000, you have increased your equity by $200,000.
But subdividing isn’t the only option! Large blocks are also the perfect candidate for building a duplex, triplex, block of units or multiple townhouses. Each of these options gives you multiple titles that can be sold or rented individually. That can return significant short-term and long-term profits.
The only trade off is that developing a property requires a large capital investment. Building multiple dwellings means you’ll have to put up the cash required for the construction. There are other options available for funding your project (such as pre-selling the completed dwellings), but this adds a layer of complexity that isn’t ideal for new investors.
Which Strategy is Right for Me?
If you need help figuring out the best strategy then we recommend looking into property investment education. Professional instructors can help you navigate the world of investments and develop a strategy that’s right for you. If you’re just getting started then it’s usually better to stick with a buy and hold strategy. This is low risk compared to flipping houses, and it guarantees growth over time, even if the short-term returns are modest.
Otherwise, there’s no one-size-fits-all answer to this question. The strategy you choose needs to be based on your needs, goals, location and budget. For instance, if you are investing in an inner city area, you may be able to make more profit from buying and holding apartments. On the other hand, if you invest in the outer suburbs, you may have more opportunities to subdivide, build duplexes or even develop larger townhouse estates.