What Property Investment Strategy Should You Use?
By Kate V Robertson -Propfrog.com REVIEW
There are many different strategies for making money with property and many proponents are passionate that theirs is the ‘right’ way. It’s ridiculous really, given everyone’s motivations and starting point differ. If you’re after cashflow, then negative cashflow property clearly isn’t for you; if you’re after growth, positive cashflow property probably shouldn’t be in your plan.
Three popular strategies are:
1. Positively geared property – the gist is to buy property that leaves money in your pocket immediately, with the rent more than covering your interest expenses and other outgoings.
Fans say: provides cashflow, which enables you to buy more. Proponents claim if you choose well the properties will also provide good capital growth.
Critics say: you really have your work cut out for you finding a positive cashflow property in an area with strong and ongoing capital growth – ie. within 10 kilometres of the CBD; it ties up a lot of money for a relatively low return and low capital growth.
2. Negative cashflow property -initially leaves you out of pocket with rent failing to cover the holding costs of the property. Relies on the fact property historically doubles in value every seven to 10 years so whilst you may be out of pocket for the first few years, the increased value of the property will more than compensate for that over time.
Fans say: best way to leverage your assets in a short period of time and provides tax benefits. Increasing rents will also begin to cover the holding costs after the first few years’ shortfalls.
Critics say: being out of pocket is a high-risk strategy, involving increasing levels of debt – and what if the market does not rise? Restricts the number of properties you can buy because of your ability to service the loans.
3. Renovate and sell – the aim is to buy a property at below market value, renovate and sell within a short period of time for profit.
Fans say: renovating is a great way to increase the value of property with changes ranging from a quick cosmetic touch up to full scale extensions.
Critics say: high-risk strategy with cost blow outs, and the costs of buying and selling quickly eat into your profits.
So what’s the best strategy? it depends, you need to work out what you are trying to achieve: on-going income, capital growth or a quick profit? Work out your investment goals and that will point you to the best way to achieve them.
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October 1, 2010 | In: Real Estate