Investing in property has historically been one of the safest and most profitable investment options over the years. There are many strategies that people have used to build wealth, and this page is just a very brief introduction. Of course, you should make sure that you will have enough income for the next five years to make all your mortgage repayments, otherwise you could be forced to sell at a bad time. Its also prudent to buy properties with a high rental demand and return - because this pays a lot of the expense of owning the property while you wait for it to appreciate in capital value. The fact that governments like to create and lend out money and have a bit of inflation always works in favour of the property investor who uses some leverage, because the value of the loan you are repaying the interest on is going down and down in real terms. At the same time, most years, the property is going up in real terms. There will be some bad years and if you are too highly leveraged without adequate income, you might be forced to take a loss. Apart from that problem, you can insure yourself against most other kinds of problems.
Here are Some Basic Strategies to Consider
1. Buy and Hold
In this strategy, you simply buy residential property you can afford, and keep paying the interest on the loan, using the rent you receive and whatever else you may need to put into it on a weekly basis (if the rent exceeds all your expenses for the property, it is then said to be positive cashflow).
After some years, property values have usually gone up. Your equity (the difference between the value of your home and your loan liabilities against the home) increases at a faster rate than the rate of growth in property values, provided you have borrowed money to purchase the property. Of course, if the property values decline, you could lose all your equity in the deal IN THE SHORT TERM. Until now, I don't know that property values have declined much over any seven year period in Australia. If you can hold, you will be fine. Unless of course a Nuclear Bomb goes off in your city of choice. Then, your investment portfolio will not be your major concern anyway. Its not healthy to live in the expectation of such things.
2. Buy Land, Build and Sell
In this strategy, you buy a block of land in an area showing some potential for growth. You then engage a builder to build a nice home on it. Once you finish the construction, the total value of the package should be greater than the sum of the costs you incurred. You are then free to sell the property for a quick profit, or to hold it as an investment property using strategy number 1, taking advantage also of the generous depreciation tax allowances the Federal Government gives you in this case.
3. Buy and Renovate
The idea here is to buy some old run down tired house - one that needs a COSMETIC renovation but is structurally sound. You then do things like paint it, improve the fixtures and fittings, put in a new kitchen, new carpet, new tiles, new bathroom and then sell for a profit - OR revert back to strategy # 1.
These are all basic strategies which are well known. More advanced strategies and tips on fine tuning these strategies are available.
Michael Fackerell
