When it comes to buying property, many investors are conflicted by the several strategies they could leverage to generate wealth, raising the age-old question: which investment strategy is best?
To address this query, we spoke with licensed estate agent, builder, finance broker, seasoned investor and Managing Director of AllianceCorp, Jason Paetow to discuss the benefits and risks associated with each strategy, the importance of having a strategy and most importantly, which strategy he believes is best for the everyday Australian.
Check it out!
What Are The Main Property Investment Strategies?
When it comes to property investment, the mainstream strategies include:
- Value Add: This involves buying an older property and undertaking a renovation. Be it cosmetic or structural, the investor’s aim is to purchase a property at market value, enhancing the property (i.e. painting, new carpet, new floors, creating more space etc.) and later selling it at a higher price.
- Developments: This approach involves buying a parcel of land and adding value to it by adding either residential or commercial developments to it. While this exercise can exert significant profit it also requires a high level of experience, time and funding to be able to execute it successfully.
- Buy and Hold: The ‘buy and hold’ strategy is a low-risk approach that involves purchasing a property with a view of holding it for the long-term, which generally lies within seven to ten years. The reason for this is that a full circle property cycle averages ten years, so investors want to ensure it completes the full cycle and appreciates during that time frame. While this strategy requires a lot more patience, it’s focused on long-term returns as it allows the property and location to increase in value in due course.
- Flipping/Property Trading: Property trading is a short-term, high-risk strategy that involves buying a property, adding value (optional) and selling within a 12-18 month time frame to generate funds quickly. Ultimately, the goal is to purchase when the property is low and sell when the market is high.
Why Is It Important To Have A Property Investment Strategy?
It’s crucial to have a property investment strategy as it’s one of the biggest financial decisions you are going to make so you want to ensure you’re getting it right the first time!
Ultimately, creating wealth through property is like running a business, there are a lot of moving parts with money coming in and money going out. You would never purchase an investment without having a strategy and this follows the exact same framework. By having a strategy, it also assists to help manage your expectations, your risk profile and your timeframes.
Outside of property investment, there are very few avenues that will drive enjoyable returns without high risk (i.e.significant salary increase, stock market or starting your own business) so this is really one of the only options you have to generate additional income successfully with the right advice.
Property investment is a long term strategy, and with exorbitant acquisition and selling costs, you want to ensure you are equipped for success from the word go. Each year that passes is one you can’t get back so you need to be sure it’s going to work!
What Is AllianceCorp’s Recommended Investment Strategy – How Does It Work, What Are The Benefits, What Are The Pitfalls?
At AllianceCorp, we tailor our strategies to our clients.
Our main client-base are largely middle-income, hardworking Australian’s who want to generate additional income without becoming full-time investors.
They are career oriented, they have families (or a desire to start a family) and have the goal of owning their own home in the future. However, they don’t want this exercise to be a lot of work, they don’t want to stress about it and most importantly, they don’t want it to compromise their lifestyle.
So by putting these goals and considerations in mind, the best strategy for most is the buy and hold strategy. While the other strategies certainly present desirable outcomes, there is a lot more risk, finances, time and work involved which most Australians want to avoid.
By buying and holding, you will make your money work harder as there is nothing else you need to do once you purchase a property. The property will continue to appreciate over time and can create a passive income..
However, this is not to be mistaken for a get rich quick scheme. You cannot go out and buy any property, sit on it for ten years and expect to be wealthy. This approach only works well if you have a tailored finance plan integrated into your strategy that will allow you to keep purchasing properties over time.
In order to gain financial freedom, investors should look to create a portfolio of approx. 4 properties as a starting point, and continue to expand it over time. By separating your personal cash flows leveraging the master facility, this will allow you to use the equity within your portfolio to service your properties and continue to make more acquisitions.
How Do I Know Which Property Investment Strategy Is Best For Me?
Ultimately, there is no ‘best’ strategy based on pros and cons alone, but rather the best strategy suited to YOU.
When it comes to selecting the right property investment strategy, you need to ask yourself:
- What are your goals? i.e. what are you trying to achieve financially?
- What skill sets do you have? I.e. finance, building, real estate etc.
- How comfortable are you with risk? I.e. how much are you willing to sacrifice in the event your investment does not achieve the result you envisaged?
- How much time do you have? I.e. are you close to retirement?
- How much experience do you have? I.e. are you a first time investor, seasoned investor, developer etc.
By having a clear understanding of how each strategy works, the benefits, the pitfalls, your goals and your willingness of risk, this will determine the best approach for you moving forward.
However, if you’d like more information, feel free to book a FREE, no-obligation strategy session with one of AllianceCorp’s Senior Property Wealth Planners (and seasoned investors!) to work out the best strategy for you, today!