There are multiple ways to make and save money in property investing. Here are 6 suggestions other than a buy-and-hold strategy for your consideration.
Just before we cover those, a bit about a buy-and-hold strategy. This is a highly favorable strategy in a property market like Australia with strong economic and financial fundamentals, specifically when we measure supply and demand as a key macro driver for investment. It is the most well-known strategy and suits a large section of the investing population people. Busy business up-and-comers, executives, mum and dad investors, parents busy with kids, nine to five white or blue-collar workers. They may find time for investing is constrained and actions like scrutiny, research, and engagement that takes hours a day, week on week unappealing or just stressful. They aim to buy well, under market value, and achieve early capital growth on the properties they acquire, and/or they simply chose a lifestyle where investing is a passive activity and a buy-and-hold strategy suits them best. Contact us if you would like to discuss this further.
There is no right or wrong here, from my point of view (many would argue; I keep an open mind and believe there is a way to make money with any well thought through, appropriately aligned strategy).
Over and above this popular mechanism for wealth through property, are 6 ways of investing (amongst many) that can help you make and save money, maximizing your opportunity and giving you confidence, so that you can get to your goal which is (drumroll please….) passive income.
1. Positive Cash Flow
Unlike a negative cash flow property, a positive cash flow property is an investment that earns more than it costs to own. For example, if your rental apartment brings in $36,000 a year in income with yearly expenses, maintenance costs, and principal and interest payments of $25,500 your positive cash flow would be $10,500 a year. Positive cash flow on a property typically occurs when rents are high and interest rates are low, or after you’ve owned a property long enough that you’ve made a significant dent in your principal.
One strategy many investors use is to buy a positive cash flow property to help offset the losses from a negative cash flow property. However, bear in mind that you must pay taxes on any profits you make, although these can be minimized by the property’s eligible deductions and potentially any loss on the negative cash flow property. If you buy positive cash flow you can make money from day one of your investment. As soon as you buy the property that property is giving you an income.
2. Short-term Capital Growth
Here you will be looking to buy properties that will grow in value early in their cycle, not just in the long term (10 – 15 years’ time). Such property should produce tens of thousands of dollars of growth within the first few months, setting you up with a high-growth asset that will enable you to grow through equity recycling early enough in your investment journey to reap real rewards for your portfolio growth. If you want to maximize your growth you will want to seriously consider short-term capital growth assets for your portfolio.
3. Buy Under Market Value
The third way to make money is to buy under market value. Now, there’s a lot of conjecture about whether this is even possible. But the reality is that you can beat the market and buy under-market value properties. One simple test for you is to measure the purchase price of your prospective property purchase against the 3-month average of sales in the immediate area for an [near] identical or very similar properties, as well as against the listed sales price of such similar properties up for sale in the area. If your property purchase price is $500k and comparative sales are for $510k, 515k, or $525k, you’re coming in under a market. Now, you can’t make a hundred thousand dollars buying under market value at that sort of price range, but you can still buy under comparable sales and gain value going into your purchase.
4. Cosmetic Renovation
A fourth way to make money on the way into your deal is to buy a property that you can add value to through cosmetic renovation. This doesn’t need to be as onerous as knocking down walls, demolishing a house, doing intrusive foundational work, restumping, or anything like that. This means putting twenty or thirty thousand dollars into a cosmetic refurbishment that immediately increases the value of the house by seventy, eighty, or ninety thousand dollars. This is NOT a blanket strategy, location key. There is work to be done to find an appropriate fixer-upper for your portfolio, and you will want to ensure that the price disparity between renovated and unrenovated homes meets your growth target. But this is a fantastic way to have more control over your portfolio growth. And by the way, you don’t need to be handy with the tools to go to a cosmetic renovation. All of this can be outsourced, almost free of charge if you know how to do it that way.
5. The Right Legal Expertise
Number five is to know and master legal parameters and expertise. That means when it comes to special conditions and a private treaty (a direct private sale vs an auction) there are simple causes that you can put into your contract to ensure you’re saving every dollar that you can. Here’s an example; legal wording that all furniture should be removed before the property is settled. I know of an instance where a buyer had to fork out almost twelve thousand dollars because the vendor left all the old furniture there, which she didn’t want. Another example for you: ensure professional photography is applied when advertising for tenants; if professional photography costs $1000,00, just by putting that one line into your contract you’ve saved yourself a thousand dollars and reduced your vacancy risk because you’ve increased your chances of getting a great tenant very quickly thanks to beautiful pictures of your property. Little things like this save you a lot of money and hassle.
6. Learn How to Value Property
Finally, your sixth way to make and save money on your property purchase taking control of the valuation of the property. You may need to ignore the sales agent’s value projection for the sale (because you don’t know if they are balanced and may favor the seller and not give you the best price). Whether it’s a price range or a specific value that they put on the property, learn to value property yourself. Nor should you rely solely on an online bank value calculator because each bank differs. You can certainly use these measures as a guideline or starting point. If you chose to value the property yourself, you establish your baseline, know where to negotiate from, and can plan to buy under the market and save money on the way into the deal, instantly creating equity that you can use for your subsequent purchase.
It’s a wrap
There we have it! 6 strategies for you to consider for your portfolio. Positive cash flow, short-term capital growth, buying under market value, cosmetic renovation, the right legal expertise, and learning how to value property.
If you’re new to investing or unsure of how to approach these strategies, you may need mentoring and/or education. You don’t need to be a property superman and learn all these things yourself; you can build a robust, supportive team to get you across the line. And I think that’s what most people want. They just want some assurance, some reliance on a team of experts who know how; and by leveraging the right support and education you’ll maximize your opportunity from property. Contact us here if you would like to discuss this further.
