Which Real Estate Investing Strategies Will Make You Money?
Building your property investment portfolio entails more than just selecting the type, price, and age of the property.
You must also decide how you intend to profit from the property. There are numerous sound property investment strategies, and we’ll go over how each one can be used to profit.
Apartments VS Houses:
Investing in a flat provides lower purchase prices with the potential for high returns because renters typically pay higher rents for location and amenities. Fully developed apartment complexes typically enjoy consistent value growth, though less-developed areas may struggle to find prospective tenants.
When purchasing older units, keep in mind that renovating the unit to increase its value can be difficult because building owners and Body Corporates may restrict certain changes.
Property, particularly houses with large land sizes, has consistently reported consistent price appreciation and is thus regarded as a solid long-term investment.
While purchasing a standalone house may be more expensive than purchasing an apartment, houses are more likely to appreciate consistently over the property investment period because they are highly sought after by families and, in particular, renters with children and pets.
New VS Old:
Buying a new home allows you to sell or rent it with few time-consuming renovations. Many buyers and renters prefer new construction, so finding someone who is interested should not be difficult.
The most significant issue with modern properties is the high initial purchase price. However, there are several tax benefits available to new home buyers that second-hand investment properties may not receive.
Choosing older real estate investments over new properties allows you to buy at a lower cost and renovate to generate immediate positive cash flow.
Because the established property strategy necessitates a significant amount of manual time and effort, you must consider maintenance costs as well as the estimated time for the property development process.
Low VS High Price:
High-priced properties necessitate a much larger deposit and loan amount, but investing in higher price brackets can yield excellent returns.
While these property types may be more difficult to sell or rent during an economic downturn because people are afraid of overspending, they can also generate the highest capital growth percentage during an upmarket swing.
Cheaper properties will always be in demand, even when the economy is bad, because people prefer lower-cost options.
The down payment and mortgage payments may be far more accessible depending on your financial situation. Lower-priced properties are highly competitive and difficult to find, thanks to lower land tax costs and reduced risks.
Building your property investment portfolio entails more than just selecting the type, price, and age of the property. You must also decide how you intend to profit from the property. There are numerous sound property investment strategies available that provide various ways to profit.
Dealing With Rental Property Managers:
If you choose the cash flow rental strategy, you must consider how you will handle property management.
Even if you have a 12-month lease, you must cover the application and screening process, property maintenance and repairs, and sometimes cleaning or maintenance between residents.
When one of your tenants complains about a broken air conditioner, a leaking tap or a burned-out light bulb, you must act quickly. When you own multiple properties, managing them individually can become very time consuming.
An experienced investor will typically hire one or more Property Managers to oversee all leasing information and maintenance duties. A Property Manager can assist you in collecting rent, managing tenants, and hiring tradespeople when necessary.
You must budget for the additional work involved with the rental investment property strategy. Any Property Managers, professional cleaners, maintenance teams, property insurance, increased utility bills, land taxes, and all maintenance costs, including costly appliance replacements, must be paid.
Property Investment Benefits and Drawbacks
All property investment strategies have different advantages and disadvantages, and you should always keep the following in mind:
- Positive property market history: Investment properties in Australia have a track record of producing consistent and profitable results. The property market has experienced a significant upturn in recent decades.
- Good outcome control: Rather than betting on the decisions of another corporation, you can take complete control of your investment. You cannot stop a company from failing, but you can avoid making bad decisions.
- Convenient lending: Rather than market shares, banks or private lenders are more likely to offer you a loan on an investment property. Lenders understand that you can always sell the property to pay off a loan, but if your stock fails, you’re out of luck.
- Tax protection: In some cases, you may be able to take advantage of various tax offers and programmes, such as negative gearing.
- Secure appreciation: Because properties do not fail at random, unlike businesses, you can rely on consistent value appreciation.
- Insurance: To protect your investment from the risks associated with renters, renovations, or property development, you can easily purchase insurance packages.
- Short-term and long-term income: Depending on your investment strategy, you can benefit from both short-term profits from renters and long-term wealth when you sell the property.
How Can You Lower the Risks of Real Estate Investing?
Investing in real estate entails some risks, many of which can be avoided with proper planning, knowledge, and research. Here are some strategies for lowering your Investment risks:
- Don’t spend everything; instead, put money aside for a rainy day.
- Find a credit provider who meets your requirements.
- Employ the services of a mortgage broker to find the best loan rates.
- Purchase your property in a profitable, investment-grade location.
- Consider buying new instead of renovating to avoid complications.
- Consider purchasing income protection and property insurance.
- Buy multiple properties in case one fails to provide a consistent income.
- Employ a professional Property Manager to oversee rentals, as well as a contractor for renovations.
- Plan any future investments within your financial constraints.
- Before making any purchases, consult with a tax professional.
- Plan ahead of time and keep track of your tax deductions.
- Monitor your investment performance and reassess based on results.
- If the investment falls short of your expectations, don’t be afraid to sell.
- Do not quit your main job until you have saved enough money to buy properties.
What is a Property Manager’s Role
A property asset manager is in charge of all assets associated with a building and its facilities. They seek to make those assets deliver value in line with a company’s core business goals while also assisting in the provision of suitable working environments for employees.
This position is also known as a facilities manager, a property manager, an asset manager, an estates manager, or a buildings manager. The various titles reflect how the scope of the job role can differ from company to company.
A property asset manager will typically keep an accurate inventory of all property-related assets that need to be maintained or replaced. This entails gathering critical data (asset name, type, and financials) and monitoring asset performance throughout the asset life cycle.
A property asset manager is also responsible for asset maintenance and may be in charge of building services such as security, parking, and cleaning.
The job description may also include asset risk assessments, analysis, and reporting. The following are examples of typical roles:
Keep a Fixed Asset Register:
Property asset managers and financial accountants need a centralised repository where they can get an accurate and up-to-date view of all the fixed assets they own. This is necessary for financial reasons, as companies must know the total value of their fixed assets.
Making decisions with assurance is also aided by knowing the precise status of the assets you own. Situations involving audits and compliance may be simpler to handle because most asset management systems have an audit trail feature that makes it easy to keep track of all the activities pertaining to your fixed assets.
- Purchase and Hold
A tried and true property investment strategy is buy and hold. It is popular among all types of investors, from first-time buyers to seasoned developers.
Using this method, investors buy properties with a high potential for long-term capital growth. You then keep the property for several years before selling it for a profit.
For the past two decades, house prices in Australia have increased at a rate of about 7% per year on average. This means that investments purchased through this strategy can provide tens – or hundreds – of thousands of dollars in capital growth in just a few years.
This results in excellent long-term returns. You can rent out the property in the short term to cover expenses such as mortgage payments, improvements, maintenance, and taxes.
When looking for a Buy and Hold property, consider the rental yields. If the rental yield in a given area is insufficient to cover your expenses, you will need to make up the difference yourself.
- Positive Gearing
Positive gearing (also known as a positive cash flow strategy) refers to property investments that generate a profit in the short term.
Buying properties with positive cashflow is popular among new investors. The money you earn serves as an additional source of income and can help you pay off your mortgage faster.
This additional income may increase your borrowing power, allowing you to expand your portfolio even further.
Cash flow properties typically offer lower capital growth rates of 4% to 6%, but higher rental yields of 6% or higher. The Positive Gearing strategy is ideal for new investors due to lower initial costs and lower risks, though managing tenants requires hands-on work.
Keep in mind that increased cash flow will necessitate more frequent tax payments. If you want to avoid Negative Gearing, make sure your rent covers all of your required payments (mortgage, interest, fees, maintenance, and taxes).
If you can secure this type of real estate, you can benefit from both rental cash flow and long-term capital gain.
- Negative Gearing
Negative gearing is a property investment strategy in which the property’s short-term costs exceed the rental income it generates. In essence, you incur a monthly loss on your investment and use your regular income to make up the difference.
That may appear to be a bad deal, but there is a catch: negative gearing shortfalls can be claimed as a tax deduction to offset your total tax liability.
In most cases, the strategy entails purchasing properties with high capital growth potential but low cash flow potential. You make up for the short-term loss by eventually making a large profit.
Meanwhile, you claim a tax deduction for your losses, which offsets the amount of money you spent on property maintenance.
The disadvantage of this strategy is that you must have enough income to cover the short-term losses. This strategy is also more appropriate for investors in higher income tax brackets with larger tax liabilities to offset.
Using tax breaks as an investment strategy is a high-risk option. We strongly advise speaking with an accountant about Negative Gearing and whether it is appropriate for your situation.
- Renovation and Hold
Renovations can be a great way to boost the value of your investment and build equity. However, renovating a home is difficult work that requires an experienced hand to keep the project on track.
Investors who use the Renovate and Hold strategy buy properties that can be improved. After that, the property can be renovated to increase its value.
When the work is finished, you can rent the property at a higher rate, potentially allowing you to Positively Gear your investment.
For experienced investors, renovate and hold can be extremely effective. However, it carries more risk than purchasing a new property (or an existing property in good condition).
As with any renovation project, estimating an accurate timeframe and budget can be difficult, making this a difficult strategy to implement.
On the other hand, renovating a property can allow you to enter popular suburbs at a low cost.
If you know what you’re doing, you could end up with a high capital growth, high rental yield investment that costs a fraction of the price of a newer property.
- Renovate and Sell
Renovating an investment can increase its appeal to renters significantly. You can then charge higher rents and Positively Gear the property. However, if a long-term investment strategy is not appropriate for your objectives, Renovate and Sell can generate short-term profits.
Renovate and Sell entails purchasing properties in need of repair, renovating them, and then selling them for a profit a short time later.
This investment strategy has the potential for high returns as well as high risks. The costs of renovation projects are difficult to predict.
Unexpected labour, price fluctuations, and timeframe blowouts can all eat into your profit margin. Furthermore, because it is your responsibility to oversee each part of the work, this style of investing necessitates a significant amount of hands-on work on your part.
An experienced renovator, on the other hand, could turn a significant profit with just a few improvements. The key is to recognise a property that can be flipped.
This strategy is best suited to experienced investors who have a strong understanding of construction, renovation, investing, and local property markets.
- Building For Profit
Many investors are choosing to build for profit by purchasing a house and land package as well as a small simple project.
This type of investing streamlines the process of purchasing a home.
You get a brand new home that will appeal to renters (which means it may be eligible for Positive Gearing), and you have less to worry about in the short term, such as renovations and maintenance.
Building a house is a simple task, but it does necessitate some design context.
The ideal home should effortlessly marry to the land, and as a project, the maths should often work in your favour. The sum of $350,000 for the land and $350,000 for the house should be $750,000. There is a way to profit by increasing the value of the land by building.
- Property Subdivision
Property subdivision entails locating a large plot of land and dividing it into several smaller parcels. Each parcel can be sold separately, resulting in an immediate increase in equity.
For example, if you buy a large plot of land for $700,000 and subdivide it into two properties worth $450,000 each, your equity has increased by $200,000.
This strategy is best left to experienced investors who are familiar with the intricacies of development. Dealing with the local council and adhering to strict planning requirements are all part of subdividing a property.
It also incurs additional planning, council, and survey costs, so you must be confident that your initial investment will yield a profit.
What Are the Different Types of Investment Properties to Consider?
An investment property does not have to be a house. You can invest in a variety of properties depending on how much money you want to pay up front, when you want to start earning money, how much you want to own, and how much work you’re willing to put in.
A residential house is not always an investment property. There are numerous property investment options available to you, depending on how much capital you are willing to invest.
Among the most common investment property options are:
- Residential standalone houses are in high demand and can provide excellent returns.
- Apartments and condos: Buying an apartment allows you to target renters while also providing long-term cash flow.
- Townhouses: Townhouses provide more indoor/outdoor space than apartments, making them a popular rental option.
- Villas are larger estates in rural areas with high purchase prices and potentially large payouts if the right location can be found.
- Entire apartment buildings: Apartment complexes are difficult to find because entire companies join the bidding war, but if you’re willing to pay the higher price, these complexes can be a great investment option.
- Buildings for students: Many people advise against this option because the profit margin is so low.
- Industrial or commercial real estate: Commercial property investments can be an excellent strategy, but they are not a good place to start for new investors because they require extensive market experience.
Aside from deciding on the type of property you want to invest in, you must also decide whether you want something brand new or a used investment property, as well as how much money you want to spend.
Following that, we will go over the advantages and disadvantages of apartments and houses, new and old properties, and low versus high prices to help you choose the best property for your specific needs.
What Exactly Is An Investment Property?
Let’s start with the fundamentals. An investment property is any real estate that you buy with the intention of profiting in some way. When you buy real estate, you are investing in both the short and long term value of the property.
An experienced investor may have dozens of investments, whereas others can thrive with just one or two. Funding property investments is a great way to put large chunks of your savings to work rather than just sitting in the bank.
Property investors purchase a specific property that meets their portfolio building goals with the intention of renovating and selling, renting and holding long-term. A typical homeowner invests in a house to have a place to live, so the eventual selling profit is merely a bonus.
In either case, owning property makes you an investor, so it’s critical to learn how to invest wisely in order to achieve financial freedom.
Handy Info: Trends in the Residential Property Market in 2023
Because the real estate market is fairly predictable, investors can predict what trends will emerge in the near future based on past patterns. When developing your strategy, you can use these predictions to your advantage.
- Continuous surge in home buyer demand: Australian house values will continue to rise, resulting in panic-buying behaviour that will only increase demand.
- Property investors’ requirements may outweigh those of home buyers: Real estate investors and homebuyers frequently clash over houses, with one side usually coming out on top.
- Property prices in Australia will rise steadily as a result of improved buyer confidence following the pandemic, lower interest rates, high demand, and continued economic growth.
- Buyers may pay more than market value for location: When investing in a house, whether you intend to sell it or live in it, location is everything. Overpaying for a home in a highly desirable location is nothing new, and it’s not going away anytime soon.
- The suburbs may see lower capital growth: In the past, all Australian real estate investments gained value at varying rates, but this growth has recently split in two. Capital cities and inner-city suburbs should see higher value increases than outer-suburban divisions. Buying in a gentrifying area can yield much higher profits, but you will have to pay more money up front.
How Do You Plan Your Real Estate Portfolio Strategy?
Now that you’ve learned about the various property types, tactics, benefits, and risks, it’s time to start your investment journey. The first step is to devise a strategy.
Investment strategies necessitate extensive research and detail, but by following the steps outlined below, you can ensure that you cover all bases.
- Make a business profile: Investing is a business, and you should approach it as such. Set up a second bank account and a valid email address.
- Choose a property type: Choose which property you want to buy first. Consider the following: single-family homes, apartments, condos, commercial properties, new construction, renovation projects, or entire apartment complexes.
- Create your investment strategy by doing the following: Depending on the type of property, you can choose between a cash-flow renter income strategy and a capital growth strategy.
- Target a location: Choosing an ideal location is critical, so do extensive market research before making a decision. Consider which areas are likely to see the greatest price increases in the near future.
- Consider tax advantages: Before making any purchases, plan your tax strategy and set aside a portion of your budget for these payments.
- Make a budget: Now, take into account your funds, property type, location, and expected taxes to create a realistic and safe budget that allows for surprises. Remember to consider your down payment as well.
- Find loan or finance options: If you are unable to fund the project yourself, present your budget and investment plan to a lender in order to obtain a loan for the property.
- Purchase and renovate: Once you have sufficient funds or pre-approval, you can shop around, bid on your favourite property, and buy. If the house requires renovations, hire a contract team to assist you with the process.
- Rent or sell: Once you’ve completed any property modifications, you can sell or rent it to tenants.
- Profits should be used to fund your next investment: The investment cycle is still going on. The more properties you buy, the more money you have to invest in the future.
Are You Interested in this Property??
Call us to make an appointment now. For overseas investors or buyers who are not residing in Singapore, you can choose to WHATAPPS +65 9755 5202, EMAIL firstname.lastname@example.org or fill up the form below and we will contact you the soonest.