Settling on a strategy for property investment success

Global markets have been thrown into disarray by the coronavirus pandemic, as investors’ thoughts turned from prosperity to survival.

While Australia’s share market remains turbulent, the property market has defied 2020’s dire predictions and is thriving.

The value of dwellings has swelled 13.5 per cent over the past year according to the latest CoreLogic Home Value Index figures. The growth is tipped to continue at a slower rate, making the housing market a lower risk investment proposition.

We’ve all seen the headlines plugging property success stories. From ‘teen turns unit into $15 million property portfolio’ to ‘couple with 30 rental homes retire aged 40’ – it’s natural to wonder what the winning formula is.

The good news is, there is more than one strategy for success.

A solid property investment strategy provides a clear pathway for cashflow and capital growth from property using several methods over time. The investor’s personal situation, goals, risk profile and future income needs should be considered.

A great way to speed up your portfolio’s growth is to leverage the equity of property you already own.

Investors can use this equity to access more funds to purchase another property, which means you won’t have to save for another home loan deposit as the deposit is paid from the equity on other properties.

It’s also wise to diversify your property portfolio by buying across various suburbs and property types. This strategy spreads and reduces your risk across assets and improves returns.

A classic low risk strategy is to buy and hold already established property, relying on its compound growth. This is a long-term strategy, with Reserve Bank of Australia data showing Australian house prices grew an average of 7.25% annually in the 30 years to 2015.

The key is to identify a suburb that possesses key drivers of capital growth, such as strong infrastructure development, transport links and sought-after schools.

Negative gearing is another common strategy, which involves buying a house in a high capital growth suburb where the net rental return does not cover the property’s expenses. These losses can become a tax deduction, where the tax covers the expenses of holding the investment.

Positive gearing can also enhance your portfolio, where an investor purchases a property where the total rental return exceeds the ongoing cost of interest, fees and other expenses.

This could be achieved by buying in a high rent demand area or a multiple-tenanted property. While this strategy provides additional income and could enhance borrowing capacity, it also has tax implications.

One strategy garnering plenty of attention thanks to reality TV is home renovation, which can enhance equity and add value. Holding the property can boost rental income and tax depreciation allowances, while selling it can create quick cashflow.

However, investors can run into problems with cost overruns and over capitalising, as well as high stamp duty costs and re-selling fees.

The subdivision strategy can also be lucrative, where an investor purchases land with potential to subdivide it into two or more blocks. These could then be sold as separate lots, built on and sold or held long-term.

Take time to consider the best property investment strategy for you. Research and diligence are always a winning combination.

Contact your local Noel Jones office to guide you through your property investment journey.

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