Choosing the right investment property strategy
7 July 2023
Investing in real estate can be a great way to build wealth and secure your financial future. However, it can also be intimidating if you’re a first-time investor and unfamiliar with the real estate market.
We’ve put together this guide to introduce you to some strategies that could come in handy before you invest in property. Be sure to seek professional advice before making any investment decisions.
Common rental investment strategies
A rental strategy that matches your goals, costs and projected income can help you get ahead in the investing game.
Let’s have a look at some of common property investment strategies.
Buy and hold
“Buy and hold” is a simple strategy for investors who seek to benefit from the potential for an increase in the value of their investments over time.
If the value of a property increases, you may also be able to use the additional equity generated from this appreciation as collateral for additional property investments.
Talk to an investment adviser about whether this strategy could be right for you. You should also do careful research before choosing a property and consider seeking professional advice to better understand what properties are in the best position to achieve long-term capital growth.
Buy, renovate and sell
The buy low, renovate and sell (or rent) strategy is one that requires skills in both property investing and renovating.
For those who choose to buy a fixer-upper and renovate, the initial outlay may be significantly less than buying a newly built or renovated property. However, when doing the sums on your potential for an investment return, you need to calculate a reno’s labour and material costs.
A property investment adviser can help you consider if this strategy might be right for you by looking at:
- Renovation timeframe – Transforming a run-down house into a home in tip-top condition can take time. Assessing the timeframe to complete the task can help you set a realistic timeline for putting the property on the market.
- Budget – Decide how much you intend to spend on renovations and whether your ideal sale price will see a return on investment after you factor in your costs.
- Council restrictions – Before you buy, check if council restrictions would prevent you from fixing your prospective investment property.
- Structural conditions – It’s worth paying for a building inspection report to ensure the property is structurally sound. Professional inspections can also reveal the house’s plumbing, electrical and mechanical systems conditions.
- Location – Your fixer-upper property may not be the most desirable house on the street, but make sure that the property is in a desirable area. If your investment property isn’t in a good location, it might not be worth the trouble.
If you choose the house flipping strategy, check Suncorp’s renovation loan options.
This is a more passive strategy but can provide opportunities for investors looking to build equity quickly.
Investors who follow this strategy typically offer funds to a developer who manages a property project from concept to building. Although this strategy could deliver a return sooner than a “buy and hold” approach, it can also carry significantly more risk, since you’re buying into a development that may or may not go according to plan.
For some investors, off-the-plan developments can provide the potential for stamp duty savings (talk to a tax professional before making any decisions related to stamp duty).
And keep in mind that the local market will eventually determine the resale value of your property.
Choosing the positive cashflow strategy means that you’re investing in a property that will annually bring you greater rent income than the total expenses, such as mortgage repayments and maintenance.
One of the great pros of this strategy is the potential to do not have to open your wallet for any out-of-pocket expenses. The idea is to have a self-sustained investment. You can also earn a profit from your investment every month. On the other side, if you’re making a profit, you’ll be taxed for it.
Positive cashflow properties tend to be more affordable, but they can have limited growth potential when compared to higher-end properties. That happen because affordability can restrict rental prices, which can make it harder to increase the property’s value overtime.
A negative cashflow strategy is when the expense of holding the property is higher than the rent income it makes.
For example, if your annual rental income is $40,000, and the annual cost of holding the property (maintenance, interest costs etc.) is $50,000, you have a negative cashflow of $10,000.
Keep in mind that if this is your strategy, you’ll need to have another source of income to cover the difference between the property income and property costs. People who invest in this strategy usually claim their losses to reduce their taxable income.
This can be considered a more volatile strategy – interest rates may rise and increase out-of-pocket expenses. But as you pay down the loan, and in a scenario where inflation increases rental prices, your investment may eventually turn into a positive cash flow investment.
Get lending assistance
Whatever your strategy is, we’re here to help. Talk to a Suncorp Bank home loan expert about your loan options or for assistance with your home loan application.
- Property investment strategies: which one is right for you?
- Negative gearing explained
- How could you make a profit from property flipping
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The information is intended to be of a general nature only and any advice has been prepared without taking into account your particular objectives, financial situations or needs, so you should consider whether it is appropriate for you before acting on it. We do not accept any legal responsibility for any loss incurred as a result of reliance upon it – please make your own enquiries.