You need a goal in mind and a plan for achieving it.<\/p>\n
![\"pencil](\"https:\/\/propertyupdate.com.au\/wp-content\/themes\/oldpaper\/img\/note.svg\")
<\/picture><\/span>Note: <\/span>Investing in property with the right property investment strategy can be both lucrative and rewarding.<\/p><\/div><\/div>\n And not only that\u2026 it\u2019s essential!<\/p>\n After all, planning is bringing your future into the present so that you can do something about it now.<\/p>\n That means that creating a property investment strategy needs to be the first essential step when you set out on your property investment journey.<\/p>\n Tip: <\/span>You need to document a proven property investment strategy<\/a> that aligns with your risk profile, your goals, and your time frame.<\/p><\/div><\/div>\n However, choosing exactly what strategy works for you can be a daunting task.<\/p>\n In my experience, winning strategies lend themselves more to the tortoise pace of slow and steady.<\/p>\n To help, I\u2019ll share my list of the 8 most popular property investment strategies in Australia and how they work.<\/p>\n But first, there\u2019s an important point I\u2019d like to make\u2026<\/p>\n Are you aware that you can profit from real estate in one of five ways?<\/p><\/blockquote>\n And if you get the combination right you\u2019ll make money from bricks and mortar.<\/p>\n They are:<\/p>\n Positive gearing is a type of gearing-related strategy. This is when the income from a rental property covers the expenses incurred in holding the property and delivers some extra cash flow.<\/p>\n In other words, you are making a profit from your investment property, and you have the added benefit of the option of using some surplus income to reduce the size of your loan or maybe for your living expenses.<\/p>\n Note: <\/span>The problem is\u2026those investors looking for cash flow are thinking about the here and now, rather than the long-term, and while buying cash flow-positive properties may solve a short-term problem, in general, it won\u2019t give them the long-term results they hope for, because in general, this type of property does not deliver strong capital growth.<\/p><\/div><\/div>\n Of course, I can understand why many beginning investors look for cash flow-positive property deals.<\/p>\n \r\n Down the track, they may achieve this by lowering their loan-to-value ratios, through commercial properties, or perhaps by buying shares.<\/p>\n At Metropole, we help our clients develop substantial retirement income, in other words, cash flow from their investments but these stages must occur in the right order.<\/p>\n The three stages of building wealth through property are:<\/p>\n That\u2019s why at Metropole we take a long-term view of property investment.<\/p>\n Our plan is not to beat the short-term averages, but to build a substantial asset base in the long term, which means we steer clear of \u201cget-rich-quick schemes\u201d.<\/p>\n Note: <\/span>Remember that, in simple terms, a positive cash flow property is one that generates a return that is higher than the property costs to own.<\/p><\/div><\/div>\n Here is an example of a $200,000 regional apartment, which generates a 6% gross rental yield of $12,000 per year:<\/p>\n The potential downside to the approach of investing in a property for positive cashflow is the fact that as a landlord, you may be required to extend your property search to regional locations outside of the major capital cities.<\/p>\n This is because capital city properties generally return a lower yield.<\/p><\/blockquote>\n Case study by Metropole Property Strategists<\/p>\n In today\u2019s higher interest-rate environment, it would be very difficult to get any positive cash flow from properties unless you have a very low loan to value ratio.<\/p>\n The other big problem with many cash flow positive properties is that, in general, cash flow-positive properties are in cheaper areas, lower socio-economic areas, or regional locations.<\/p>\n Not only do these locations offer lower capital growth, but they also offer the prospect of lower rental growth.<\/p>\n Note: <\/span>While in the early years, the investment yield (the rental return as a percentage of the value of your property) may be high, it will be hard to increase the rent in the location where many of these properties are located.<\/p><\/div><\/div>\n This is where, unlike positive gearing, the rental income doesn\u2019t cover outgoings and expenses, including your mortgage meaning there is a cash flow loss.<\/p>\n Put simply, gearing means that you have borrowed money to buy your investment property.<\/p>\n A property investment strategy using negative gearing usually involves buying a property in a high capital growth suburb, but where the net rental return is lower than the cost of holding the property.<\/p>\n Note: <\/span>Yes\u2026you make a cash flow loss<\/strong>.<\/p><\/div><\/div>\n Running at a loss is not ideal, but in terms of Australian tax law, it\u2019s not actually all that bad.<\/p>\n That\u2019s because the Australian Tax Office (ATO)<\/a> allows property investors to deduct any losses they make on their investment property from their ordinary taxable income.<\/p>\n Investors who purchase properties for long-term capital growth don\u2019t usually expect to make their money on the rent.<\/p>\n They recognise that residential real estate is a high-growth, relatively low-yield investment, so they will generally use the negative gearing strategy in conjunction with the 'buy and hold' property investment strategy.<\/p>\n They understand that while rental income will keep them in the game, it's really capital growth that will get them out of the rat race.<\/p>\n The pros of using this type of property investment strategy are that if you know what you\u2019re doing, you can legitimately claim a tax deduction<\/a> and use your tax to help cover the expenses of holding the property investment.<\/p>\n But the downside is that the investor has to cover the shortfall to keep holding the property.<\/p>\n That\u2019s why this strategy tends to work best for higher-income earners in the top tax brackets.<\/p>\n But many ordinary mum and dad investors buy negatively geared properties using the strategy of having a financial buffer in place to buy them a couple of years of time using their cash flow buffers.<\/p>\n In other words, they do not borrow up to their full financial capacity to purchase their property and leave funds in a financial buffer, such as in your offset account, to buy themselves a couple of years' negative cash flow.<\/p>\n In other words, these smart investors are not only buying themselves property, but buying themselves time.<\/p>\n If you are on a low income, the tax effectiveness is significantly reduced, as you would be on the lower end of the tax brackets.<\/p>\n Note: <\/span>Just to make things clear\u2026 a property is neither a positive cash flow nor negative cash flow property \u2013 it all has to do with how much finance you take on to purchase the property. For example, the interest you are paying on your mortgage and all other associated costs with the property, equal more than the income or rent you earn from that property.<\/p>\n As a result, you are making a financial loss.<\/p>\n In this example, a higher rate taxpayer has bought a $750,000, two-bedroom capital city unit, which generates a 3.5% yield.<\/p>\n The bonus is that this financial loss of $5,750 can be claimed against their income tax, meaning they\u2019ll receive a percentage of that loss back at tax time.<\/p>\n Which means that as a higher tax-paying investor, you could receive up to 45% of this loss back.<\/p><\/blockquote>\n Case study by Metropole Property Strategists<\/p>\n Confused about how this benefits you?<\/p>\n Here\u2019s a very simplistic example:<\/p>\n You own an investment property and every year you\u2019re left $10,000 out of pocket after all expenses and rental income is accounted for, then you can claim that $10,000 against your income tax.<\/p>\n If you pay tax at the higher end of the scale, of around 45 cents in the dollar, then you stand to get $4,500 back at tax time.<\/p>\n Meanwhile, if the investment property goes up in value (but you don\u2019t sell it), no capital gains tax (CGT) will be payable.<\/p>\n In the example above, if the $750,000 investment property increases in value by 7% a year increases in value by $52,500, considerably making up for the $5,750 cash flow loss.<\/p><\/blockquote>\n Case study by Metropole Property Strategists<\/p>\n This property investment strategy involves using the equity from your home<\/a> (or other investment properties) to help buy your next investment property.<\/p>\n Note: <\/span>Put simply, equity in a property is the difference between the current market value of your property and how much you owe on it.<\/p><\/div><\/div>\n Here\u2019s an example:<\/p>\n If your home is worth $800,000 and the current debt on her home loan is $500,000, then you have $300,000 worth of equity in your house.<\/p><\/blockquote>\n So while you may have thought of your home as a never-ending series of monthly loan repayments, with every payment you make you are building up your equity and over the last couple of years, with the market pushing property values, your home equity is likely to have grown considerably.<\/p>\n There is a difference between the equity in your home and your usable or borrowable equity though, which means the first step when using this property investment strategy is to calculate your usable equity and then work out how much you can borrow with that equity.<\/p>\n By using the equity in your existing property to purchase a new investment property, you can avoid the deposit-saving process (and even avoid selling your home).<\/p>\n I\u2019ve heard some refer to this as \u201cleapfrogging.\u201d<\/p>\n Essentially, you\u2019re using your equity as a deposit.<\/p>\n The first step for buying a property with equity, or even building on your property investment portfolio, is to approach your mortgage broker or lender to request a valuation to assess your property\u2019s fair and current market value.<\/p>\n If you\u2019ve lived in your home for a while you probably have considerable equity in it.<\/p>\n This will then help you determine your usable equity as we discussed above.<\/p>\n The loan product you choose and the amount of equity you are looking to access may result in various fees and costs, such as Lenders' Mortgage Insurance<\/a> or if you decide to switch to another lender, there may be costs such as fees associated with breaking from a fixed rate product, a new loan application fee or government fees.<\/p>\n The buy-and-hold property investment strategy<\/a> is the easiest and lowest-risk form of real estate investment and history shows it\u2019s a great strategy.<\/p>\n Buy the asset, never sell it, and draw on the equity it creates over the years to buy another property.<\/p>\n The idea is simple because you\u2019re basically just holding onto your property and relying on compound growth to do the work for you.<\/p>\n The key trick is to select what we call an \u2018investment grade\u2019 property in a good suburb primed for capital growth and hold onto it for long enough.<\/p>\n Tip: <\/span>You need to do your research to identify the key drivers of growth in a local market in suburbs that will benefit from infrastructure development, great transport links, shops, schools, and other lifestyle suburb traits that make the area grow in popularity.<\/p><\/div><\/div>\n The area and property type should also be in strong demand and where development is restricted.<\/p>\n Finding the right investment strategy is harder than it sounds, but at Metropole, we have a wealth of experience behind us to help you make the best investment decisions.<\/p>\n Now just to make things clear\u2026<\/p>\n Note: <\/span>When mentioning buy and hold, I don't mean set and forget - you should treat your property investments like a business and review their performance at least on an annual basis.<\/p><\/div><\/div>\n While renovations can be an effective way to boost equity and add value to your property by \u201cmanufacturing\u201d capital growth, it's not the right property investment strategy for everyone.<\/p>\n That\u2019s because it\u2019s very easy to overrun your budget - after all, every renovation project is liable to encounter some sort of additional, unexpected cost at some point.<\/p>\n Then there are the surprise costs - once you begin renovating, you may unearth \u201chidden\u201d work that requires an investment, but that doesn\u2019t add any value.<\/p>\n It\u2019s also difficult to get an accurate estimate of the work\u2019s cost, particularly because costs fluctuate depending on the area, materials, tradespeople used, and the age of the property.<\/p>\n And the rising costs of materials and construction in the current market mean that resources are both scarce\u2026 and expensive.<\/p>\n It\u2019s not all bad news though.<\/p>\n The benefit of renovating and holding an investment property is that you can increase the rental income and the value of the property at the same time.<\/p>\n It can also increase tax depreciation allowances.<\/p>\n Not that long ago we received a brief from a client in Brisbane who wanted help finding a \u201crenovators delight\u201d in a high-demand, investment-grade suburb.<\/p>\n As you can see, we certainly did that!<\/p>\n Because this was not to buy and sell but to hold and focus on longer-term wealth, they were able to renovate accordingly.<\/p>\n They could renovate and spend a little more to upgrade it to an \u201cowner-occupier\u201d standard, they didn\u2019t have to scrimp and save and cut corners to make a profit.<\/p>\n The property has now become a set-and-forget inside their portfolio for the next 20+ years to create a higher level of wealth for them.<\/p><\/blockquote>\n Case study by Metropole Property Renovation<\/p>\n The other renovation alternative that some speculators use is to house flip.<\/p>\n This is buying a property, renovating it, and then selling it for profit within a short timeframe.<\/p>\n Proponents of this strategy, and those who sell courses teaching how to do this, will tell you that the key to flipping houses successfully is knowing the types of improvement you should make to the property to maximise your bottom line.<\/p>\n They suggest that you should at least double your renovation outlay, aiming for about $2 for every $1 spent on cosmetic improvements.<\/p>\n In order to achieve such lofty profits, you are usually taught to undertake a heap of due diligence by researching:<\/p>\n While this strategy might make a few experienced property investors money, in my opinion, it\u2019s the wrong strategy to adopt for two reasons:<\/p>\n You can read more about the costs of house flipping and whether flipping houses is still profitable in Australia here<\/a>.<\/p>\n For the occasional flipper that makes a profit, it\u2019s likely that they have fortuitously caught the right stage of the property cycle and values have moved in their favour.<\/p>\n In other words, they got a \u201cfree kick.\u201d<\/p>\n The problem is that most experts, let alone beginning property investors, have real trouble pinpointing where we are in the cycle until it\u2019s already moved on to the next phase.<\/p>\n Tip: <\/span>You must also be cautious with asset selection; one false move could trip up your flip.<\/p><\/div><\/div>\n That\u2019s because budgets and time frames are at serious risk of a blowout should you purchase a property that, at first glance, looks like it\u2019s in need of a few cosmetic enhancements, but actually turns out to be a structural money pit.<\/p>\n This strategy involves buying one piece of land and splitting it to create two individual parcels of land on separate titles.<\/p>\n You can then do one of the following:<\/p>\n Not only will you have various options when it comes to deciding how to use the plots, but the value of the land will also generally increase once it has been subdivided.<\/p>\n The downside is that subdivision is a longer-term strategy because of the amount of time needed to complete.<\/p>\n And the risk is that in the meantime, a change in the market may mean it is difficult to sell one, or both, pieces of land.<\/p>\n Similar to property renovation investment strategies, there is potential to maximise the return on your investment, but there are also quite a few risks.<\/p>\n A few years ago we secured a development site for one of our clients.<\/p>\n It was in an A-Grade suburb of Brisbane and more importantly within one of the most prestigious, in-demand streets \u2013 and it drew a large crowd at auction.<\/p>\n We certainly weren\u2019t attracted to the property itself, it was pretty much uninhabitable, but we were won over by the fact that the property sat on an 810 sqm block that could be subdivided into two smaller blocks of 405 sqm.<\/p>\n In fact, the benefit here was that it was already on two lots and therefore a much simpler process.<\/p>\n Fast forward 12 months and our client had the finished product - two modern, stylish, contemporary, brand new homes with high owner-occupier appeal.<\/p>\n This client effectively used the subdivision property investment strategy to fast-track their wealth creation.<\/p><\/blockquote>\n Case study by Metropole Property Development<\/p>\n This is a significantly lower-risk strategy and it is not solely about chasing profits or income.<\/p>\n It is more about building longer-term wealth.<\/p>\n As I said above, there are downsides to this investment strategy, but by having a team around you that is known, proven, and trusted, you can lower the risks substantially, while maximising your return.<\/p>\n It becomes less about maximising profits and more about finding the right state, suburb, and street for longer-term capital growth.<\/p>\n A REIT is an alternative to all the property investment strategies above for investors who want portfolio exposure to real estate without a traditional real estate transaction.<\/p>\n A REIT is created when a corporation (or trust) uses investors\u2019 money to purchase and operate income properties. REITs are bought and sold on major exchanges, like any other stock.<\/p>\n The benefit of investing in a REIT is that it is essentially a dividend-paying stock - that means that a portion of the company's earnings is distributed to investors on a regular basis.<\/p>\n Not only are they cash-producing, but they\u2019re also a long-term investment.<\/p>\n The cons are, you\u2019re not investing in the traditional physical real estate market and the value of your shares in the trust fluctuates in line with the general ups and downs of the property market.<\/p>\n The best property investment strategy depends on your situation, finances, and your goal.<\/p>\n There is a \u201cno one size fits all\u201d strategy when it comes to property investment and what strategies to use.<\/p>\n The key to picking the right property investment strategy for you is making sure it lines up with your current financial needs as well as your future financial goals.<\/p>\n Note: <\/span>It\u2019s vital then that once you choose your strategy, you only look at investment properties that fit into your long-term strategy rather than getting distracted by the many perceived opportunities in the market.<\/p><\/div><\/div>\n Having a written Strategic Property Plan means that you won't worry too much about market timing.<\/p>\n When you have a Strategic Property Plan you\u2019re more likely to achieve the financial freedom you desire because it will help you:<\/p>\n![\"bulb](\"https:\/\/propertyupdate.com.au\/wp-content\/themes\/oldpaper\/img\/bulb.svg\")
<\/picture><\/span>\n
1. Positive Gearing Property Investment Strategy<\/span><\/h2>\n
<\/picture><\/span>\n
<\/picture><\/span>\n
<\/picture><\/span>2. Negative Gearing Property Investment Strategy<\/span><\/h2>\n
<\/picture><\/span><\/picture><\/span>
\nIn simple terms, negative gearing takes place when you own an asset, in this case, property, that costs you more than you are earning from it. <\/p><\/div><\/div>\n\n
3. Using Equity to Buy an Investment Property<\/span><\/h2>\n
<\/picture><\/span>![\"Equity](\"https:\/\/cdn.propertyupdate.com.au\/wp-content\/uploads\/2024\/05\/equity_of_your_home-800x457.webp\")
<\/p>\n4. Buy and Hold Property Investment Strategy<\/span><\/h2>\n
<\/picture><\/span><\/picture><\/span>5. Renovate and Hold Property Investment Strategy<\/span><\/h2>\n
![\"Renovate](\"https:\/\/cdn.propertyupdate.com.au\/wp-content\/uploads\/2024\/05\/renovate_and_hold_property_investment_strategy-800x457.webp\")
<\/p>\n![\"Property](\"https:\/\/cdn.propertyupdate.com.au\/wp-content\/uploads\/2024\/05\/property_renovation_case-800x236.png\")
<\/p>\n6. House Flipping Property Investment Strategy<\/span><\/h2>\n
\n
\n
![\"House](\"https:\/\/cdn.propertyupdate.com.au\/wp-content\/uploads\/2024\/05\/house_flipping_property_investment_strategy-800x457.webp\")
<\/p>\n<\/picture><\/span>7. Subdivision Property Investment Strategy<\/span><\/h2>\n
\n
![\"Property](\"https:\/\/cdn.propertyupdate.com.au\/wp-content\/uploads\/2024\/05\/property_subdivision_case-800x282.png\")
<\/p>\n8. Real Estate Investment Trusts (REITs)<\/span><\/h2>\n
![\"Real](\"https:\/\/cdn.propertyupdate.com.au\/wp-content\/uploads\/2024\/05\/Real-Estate-Investment-Trust-REIT-800x457.webp\")
<\/p>\nWhat is the Best Strategy to Choose?<\/span><\/h2>\n
<\/picture><\/span>\n