Investment strategy is what separates investors with million dollar portfolios from those who are forced to sell their investments with little profit, if any. A solid investment strategy can set you up for great profits, while a poorly planned investment can leave you at a loss.
Whether it’s renovating, holding, renting, or developing your investment, make sure you have researched which strategy is best suited to you and your needs. The first step in creating a working investment strategy is to figure out what your strengths are. Some strategies that have been highly successful with other investors may not work for you because they don’t play to your unique strengths. It is vital that you choose an investment strategy that uses your strengths, and can achieve your long term goals.
Should I invest in negatively geared or positively geared property?
If you are earning a decent income, have good equity in another investment, or are time-poor with access to a big deposit , it is usually a solid choice to buy and hold good quality property in an excellent location.
However, if you have a lower income you will not benefit from a negatively geared property, as it won’t make profit quickly, leaving you stuck on your first property for a long time. A property from which you can yield high rent lets you earn capital gains without going broke in the process.
Both of strategies work, but as with many investments, it is important you choose which one suits your situation best.
Should I develop my investment property?
Some questions to ask yourself before you employing a development strategy:
- Do I have experience with construction projects?
- Do I have the time to manage a development project, and see it through to completion?
- Do I already have equity in my portfolio, or access to a large deposit?
If the answer to any of the above is ‘no’, it may not be wise to take on a development project. This is a highly specialised strategy that could lose you a lot of money if done incorrectly.
Should I just buy and hold then?
That depends. Are you good with your hands, with an eye for design? If so, renovating may be best for you. When done correctly, spending only $5,000 on renovating a property had the potential to add quadruple that amount to the value of your property.
I don’t think I have the skills necessary for a renovations project…
Don’t completely discount this as an option just yet. You can still hire tradesmen to do the work for you, or an architect or designer to help with renovation plans.
What is the best strategy?
That depends on you. All of these strategies work, but they may not all work for you. Do some research and recognise your strengths, then decide on a strategy that is best for your situation.
Once you find what works for you, stick with it. If you’re making money by renovating properties, there is no reason to switch to developments. Similarly, if you’ve gained more from buying and holding properties, why change to renovation projects? Each of these strategies requires skills and experience, so changing strategies means building these all up again from scratch. If a strategy is working, it’s usually not worth spending your time and money learning a new strategy that could potentially not work as well for you.
Our credit advisers can guide you through the journey of buying an investment property and provide you with various tools to calculate your budget and help make the process easier.