21 Common Property Investment Strategies In Australia
Hi guys, Ryan here from on property your daily dose of property education and inspiration.
In today's episode I'm going to be covering 21 common property investment strategies in
Australia. There are a lot of different ways people invest in property in Australia. No
way is necessarily better than the other, depending on your circumstances and your risk
factors; you may prefer an investment strategy over the other. There are many investment
strategies that could also work out for you, so what I wanted to do in this video was to
cover 21 common strategies that investors use to purchase properties and to make money
through property in Australia. I'm not going to cover them in a high level
of details but I will go through enough detail so that you could understand what these strategies
are like whether they may be suited for you. The first strategy is Home Ownership: now
this is by far the most common investment strategy in Australia. Basically what you
do is you purchase your own home in order to live in it but over time what happens is
you might do renovations at home, you might improved at home value or the market would
just go up in value over time and therefore your home will increase in value. So you're
not generating any revenue from your but rather as a matter of owning the home it goes up
in value and you make money over time. This is how a lot of people step up the property
ladder, they don't start with their dream home but they start with probably on the lower
end of the market and then they slowly move up as their property increased in value.
Strategy number 2 is to Buy and Hold: these also refer to as purchasing or investing for
the long term. This is when you purchase a property and you hold it and rent it out.
You then hope that the property is going to go up in value overtime as a result of the
market going up and you also intend to make money through rental income, which we'll cover
in another strategy. Strategy number 3 is Positive cash Flow: and
this is where you purchase a property sole for its income generating purposes. The property
may go up in value as well but that's more a side effect to the main purpose of the property
which is to generate you a passive income. Passive income property or Positive cash flow
property works because the rental income coming in from the property is greater than the expense
going out. So this means that each month or each week or each year, you have money left
over that you can then use to pay down the mortgage, to reinvest or to use to watch your
life style. Strategy number 4 is Negative gearing or a
capital growth strategy: This is purchasing a property where the income is not as large
as the expense but you hope to make out that difference in growth on the property. Let's
say you have a property and its bringing rent in but the expense is two thousand dollars
per year greater than the income that you're bringing in. well that means you have to dish
out two thousand dollars out of your pocket every single year in order to keep that property
flow. Now if you're investing using negative gearing your hoping that, that property is
going up in value more than two thousand dollars per year so that you are making a profit.
Strategy number 5 is to renovate and Flip the property: When people say they are going
to renovate property this is generally what they mean. You purchase a property that is
run down or in need of some work, you go in and you renovate the property quickly, maybe
in three months or six months or nine months and then you turn the property over, you sell
it and you bank that profit. So when you watch shows like Property Ladder with Sara Bayne
this is the strategy that those investors are using they're buying the property, renovating
it and then selling it to access that using it quickly as possible so that they can move
on to the next property. Strategy number 6 is to renovate to rent:
So this is slightly different to the renovate to flip. Rather than purchasing a property
renovating it and sell it you're actually purchasing a property and renovating it in
order to increase rental income with that property probably turning it into a positive
cash flow property and then rent that property out. It's highly like that if your investing
using this strategy, the property you originally purchased wouldn't be positive cash flow if
you just started renting it out straight away or wouldn't be that great of a return. But
once you've renovate it and the rent goes up as a result of that you can now command
more rent , you getting more income coming in and you getting a better return on investment.
Strategy number 7 is sub division: Now this is where you take a passel way might have
a property on it already or might not and you go through the council requirements and
you split that land in two to create two individual passels of land from one original plot of
land. Now what this means is you can then sell off the two individually you could keep
one and then sell off the other or it could just means that you keep both of them because
that you have two separate blocks you have got an increase in value.
Strategy number 8 is Jewel Occupancy: Now this is where you keep one block of land but
you create two individual incomes out of it. This can be done in a multitude of ways it
can be done through renting out a granny flat, it can be done through converting a single
house into two units, so maybe someone lives upstairs and someone live downstairs or someone
lives at the front and someone at the back or there are many other ways that you can
do with Jewel Occupancy. This is a great way to increase the rental hued of a property
in a lot of cases and can be a very profitable strategy. However you do need to go through
the council's registrations to ensure that everything is above and then you can get insurance
on that property for that use. Strategy number 9 is to have a duplex or second
dwelling: So this is like building two units on one block of land you may stratletile that,
you may split it down the middle and sub divide it or you may simple have two houses on the
one block of land very similar to the Jewel occupancy however in most circumstances when
people say Jewel Occupancy they mean converting existing house into two incomes streams where
as the duplex is designed from the ground up to be two separate properties.
Strategy number 10 is development and so this is a higher end sort of sub-division or Jewel
Occupancy where you building town houses or you building block of units or you're building
a high-rise or something like that. Basically this is full scale renovations, full scale
development where you need to do a lot of building and a lot of work needs to go into
that but obviously it can be extremely profitable to take one block of land or a couple blocks
of land and add loads of properties on there. You can then turn them around and sell them
you can keep some and rent them out it's up to you what you do with that and what your
strategy is. Strategy number 11 is property syndicates
or property shares: This is where you purchase into a property syndicate or you purchase
into a property fund and they go out then invest for you and you get a portion of the
revenue of the profit that is generated from these property shares. This is kind of a way
to step back and invest and especially if you don't have the full deposit to go purchase
a property this could be also a new strategy for you. I would go and research this in more
detail this is none area of expertise for me so definitely research it in a more detail
before I would jump into this. Strategy number 12 is partnership: I recently
interviewed Ben from promptonproperty.com and he has a bunch of properties that he has
purchased in partnerships with other people. Partnerships can be a great way to minimize
the amount of deposit that you need or they can help you afford a property where maybe
you couldn't get the service ability otherwise. You do need to be careful with partnerships
because the full liability of the loan will rest with you if your partner decides to go
off and disappear and this can also make servicing future lines more difficult, because even
though you only owns half the property in terms of banks and there serviceability they
will count out full mortgage towards your service ability.
So it can ender you from getting loans in the future but if you have no other option
to get into the property market by yourself then partnerships are maybe something that
you would want to do. Strategy number 13 is Commercial Real Estate.
Commercial Real Estate differs from residential real estate in the way things work and the
way lending works, generally you do need a larger deposit about 30% or 35% deposit in
order to purchase commercial real estate. There are some lenders who will give you an
80% loan however you do need to speak to a mortgage broker about that and can advise
on who those are and whether or not you should do them. You should really speak to a mortgage
broker if you're going to invest in commercial property. Commercial property can be great
because the renewals can often be higher than the residential properties in the area and
as well allow the expenses that you would generally pay when you're investing in residential
properties. The tenant of the commercial property will
actually pay. So things like maintenance can be paid by the tenant, things like [In audible,
09:22] insurances can all be paid by the tenant that is in there. Obviously speak to an advisor
about this you want to have the right insurance on your property regardless and so just be
careful there.
Strategy number 14 is house and land package: so this is where you purchase a block of land
and you go about building a house on that land this is very popular at the moment because
a lot of the state governments are actually offering grants or concessions to people who
are building new property. So there is a motivation for first home buyers to go out there and
to build a property rather purchase an existing one because [Inaudible, 09:58] and you can
potentially get a grant for that meaning you don't need to save as big of a deposit or
meaning your loan doesn't need to be has big. Packages can't be very preferable, however
you do need to be careful I have an article which I'll link in the description below that
goes through and packages and the issues and problems that they may have.
Basically you do need to be aware that there are a lot of properties out there that are
and packages that are over price for an area so always research the area first and you
also need to be careful that if there is a lot of land being release in that area, well
then supplying demand could be affected because there's always new properties coming up why
would anyone buy your existing property. So that can make it harder to resale can make
it harder for it to go up in value, so just be careful there.
Strategy number 15 is Land: just purchasing land by its self and, you know, land is a
limited resource here in Australia. They're not making any more land only in countries
like to buy where they make their own islands is their more lands coming about. So a lot
of people would purchase blocks of land and hold them and then maybe sell them down the
track as they go up in value or maybe sub-divide them and sell them later down the track. You
see the guys with massive portfolios things like stockland they are in so much lands all
over the country, they hold on to that land and then when it comes time to, they sub-dive
that land and they sell it off in hassle know packages and things like that.
Strategy number 16 is Rezoning: this is where you purchase a property in a certain zoning
area and you change the zoning to increase the value. This might be an example of purchasing
property that is zone for Rural an turning it into commercial or turning it into standard
residential properties and so you can then you can build more properties on that one
area or you can build more valuable properties than was previously possible. Again I don't
know a lot about this so I would speak to an advisor or potentially get a mentor for
rezoning it's not something I know how to do but I do know that there are people out
there successfully making money by rezoning land that they're purchasing.
Strategy number 16 is off the plan purchases: so this is maybe a block of units or something
like that you purchase it off the plan so you know what it's going to be you know how
it's going to be built you have the plans there but it's going to be a year or maybe
two years until that property is complete and you actually purchase it. Now when you're
purchasing off the plan what would generally happen is you would pay your deposit upfront
and then when it comes time to actually acquire that property when it's completed you would
then obtain the rest of the financing and purchase that property. Off the plan can be
effective if you buy the right property in the right area that's going up in value.
However you do need to be careful because often developers will put growth projections
into their property so they know the property won't be released for two years (they would
predict, you know, what would the property be worth in two years time?) and so if the
market doesn't go up there are occasions where you have put down a deposit for an off the
plan property and its actually not worth what you paid for it and so that can make it hard
to get financing which means you could lose your deposit or just means that when you purchase
the property you've got negative equity, you can't then sell the property because you'll
have to take a lost and it can be a poor investment. So just be careful with off the plan but buying
right off the plan properly you can be an awesome investment and I've seen a lot of
people make money with that. Strategy number 18 is owner finance: This
is where you purchase a property and then you then go and re-sell it, but rather than
go and obtain from the person that is buying the property from you, you actually extend
a loan to them. So you act like a bank in giving that person a loan and then they pay
you back overtime. So owner financing generally can be profitable for two reasons. First your
appealing to people who can get a standard bank loan so you can charge more for your
property than what its currently worth on the market.
Secondly you can charge a high interest rate than what the banks are charging again because
you're marketing and selling to people who can't access a standard loan. So this means
that you can sell your property for a higher price, you can get a higher interest rate
and make a profit out of that and passive income overtime.
Strategy number 19 a distress sales: So this is where you make money not when you sell
the property but you make money when you buy the property. When a property is distress
or the seller is distress more often than not, you can get a property for under market
value in order to give them the terms that they need and therefore you have instant equity
in that property. A lot of investors like Nathan Birch from binvested.com.au talks about
using this strategy buying distress properties that are under market value so then you have
instant equity that you can access and then go and repeat the process.
Strategy number 20 is flipping property: So this is similar to people who would purchase
renovating flip rather than renovate you simple purchase a property and then sell it for a
higher price. This sound crazy like it can't be done but actually through good marketing
this can be done. You could purchase maybe a distress property and go ahead and flip
it or you could purchase a property that as just being on the market for too long or just
hasn't being shown in the right light you can purchase that property market it in a
different way and then get a higher price for that property.
This you do need to be very smart to do this because you've got agent fees when you sell
the property, and you get stamp duty when you buy the property so you will need to sell
that property for a decent margin in order to actually make any profit.
And lastly you made it all the way through to the end.
Strategy number 21 common property investment strategy in Australia is investing for tax
purposes: Now this sounds crazy for those of us who don't pay a lot of tax but there
are people out there who invest in property purely for the tax saving purposes. A lot
of cases this is going to be new properties that have a lot of depreciation associated
with them because depreciation counts as a UN paper lost you in a lot of cases can offset
that against the income that you're earning. Now if you're in a higher tax bracket earning
over that 180 000 dollars a year I think it is and your paying almost half of your income
in tax by taking a lost on your property that's an Un paper lost through depreciation and
getting that back well you could make a profit out of that even if the property never goes
up in value even if the property is nutual geared so it doesn't make a passive income
because your making money on tax and that's money that would have disappeared otherwise
you could invest and actually that's how you generate a profit.
I'm not going to go into that in details I can't advise on that I'm not a taxation advisor.
If you want to do anything with tax always go and see your professional tax accountant
because you don't want to be breaking the law you want to be doing the right things.
It's too easy to make money legally so no point trying to make money illegally so just
make sure you see your tax accountant if that's how you're going to invest.
So there you have 21 different investment strategies that people use when purchasing
property in Australia. As anyone stock out to you is the one that you think is more suited
to you or one that you are very interested in? Well I suggest you go out there and you
learn more about that strategy and become a master in that strategy. Go away and invest
and I wish you the best. Until next time stay positive.