9 ways to make money from property
Investing in property is a business, and like any business, you need to have a strategy in place to ensure success.
There are several strategies property investors use. Here, we take a snapshot look at some of them:
1. Buy and hold
This is probably the most common investment strategy. It involves purchasing an established property and retaining it for an extended period time. Using a property manager, most investors rent the property to generate an income which covers at least all the expenses. Investors typically look for properties in growth areas with strong rental demand, ensuring long-term capital gains while enjoying the benefits of rental yields.
Pros:
- Potential for significant long-term capital appreciation.
- Steady rental income can assist with covering mortgage payments.
Cons:
- Requires patience and a long-term commitment.
- Market fluctuations can affect property values.
2. Renovation and flipping
For investors who enjoy a project, this strategy involves purchasing a property that requires renovations, making improvements, and selling it for a profit shortly thereafter. Successful flipping is reliant on the investor’s ability to increase the property’s value through renovations while keeping costs relatively low.
Pros:
- Potential for quick returns on investment.
- Opportunity to add value through strategic improvements.
Cons:
- Market conditions can affect profitability.
- Requires in-depth knowledge of renovation costs and construction.
3. Negative Gearing
Similar to the ‘buy and hold’ strategy, in that investors purchase a property with the expectation it will appreciate over time, but with this strategy, investors capitalise on the way the Australian tax system currently works.
Running the property effectively at a loss, whereby the running costs (mortgage, maintenance etc) exceed the rental income, investors can on deduct these losses from their taxable income, providing upfront tax benefits.
Pros:
- Immediate tax benefits, which can improve cash flow.
- Potential for strong capital gains in the long run.
Cons:
- Requires careful financial planning to sustain cash flow until the property appreciates.
- Can lead to financial strain if property values decline.
4. Short-term Rentals
With the rise of platforms like Airbnb, short-term rental investments have become increasingly popular. This strategy entails renting out a property for short stays to tourists or business travellers, often yielding higher rental income compared to long-term leasing.
Pros:
- Higher rental returns compared to traditional leasing.
- Potential for flexible use of the property for personal enjoyment.
Cons:
- With a greater ‘footfall’, management and upkeep can be more intensive.
- Local regulations may restrict short-term rentals in some areas.
5. Off-the-Plan Investing
Investing in off-the-plan properties involves purchasing a property before it has been built. Investors typically pay a deposit upfront, then settle later when the property is complete. This strategy can be appealing due to potential capital growth before the settlement.
Pros:
- The opportunity to secure a property at today’s prices with a future potential increase in value.
- Often comes with added incentives from developers (e.g., discounted prices, upgrades).
Cons:
- Risks associated with project delays or market downturns.
- Requires careful research on the developer’s reputation and location’s long-term prospects.
6. Real Estate Investment Trusts (REITs)
REITs offer a way for investors to purchase shares in companies that own, operate, or finance income-generating real estate. This strategy provides an opportunity to invest in property without the need to directly buy and manage a property.
Pros:
- Liquidity benefits; shares can be traded easily on stock exchanges.
- Diversification across various properties and sectors reduces risk.
Cons:
- Less control over individual investments compared to direct property ownership.
- Market fluctuations can affect REIT share prices.
7. Land Banking
Land banking involves purchasing undeveloped land in anticipation of future growth and development. This strategy relies heavily on location and market trends, making it a long-term investment play.
Pros:
- Potential for substantial appreciation as demand increases for land.
- Minimal management once acquired, unlike rental properties.
Cons:
- Requires patience, as land may take years to appreciate.
- Zoning and development approvals can be complex and uncertain.
8. Subdivision
As the name suggests, this strategy involves either buying a large block of land with the potential to subdivide into two or more blocks, or subdividing the block the investor currently has a property on. The blocks can then either be sold as two separate lots, built on and then sold or held for a longer-term strategy.
There is a lot involved with this strategy though, and the investor needs to be is familiar with councils and the development/building process.
Pros:
- Can create additional value by splitting up the blocks
Cons:
- It can be hard to find suitable sites large enough to subdivide
- The process can be complex and very time consuming.
9. Granny flats
If the property allows, building a granny flat may be a cost-effective way of investing in property. Granny flats are rapidly increasing in popularity as they offer a diverse and affordable housing solution, while allowing the investor to generate an income.
Pros:
- May increase your current property’s value
- No need to sub divide
Cons:
- Be sure your property is in an area where there is a demand for this type of rental accommodation.
- There are some restrictions such as the total floor area is a maximum of 60 square metres
When looking at different strategies, the most important thing is to do your homework, understand how they work, and their associated risks and rewards. Each strategy presents unique opportunities, and successful investors often combine several methods to diversify their portfolios.
Consider personal financial circumstances, investment goals, and how you’re going to reduce the risks before committing to any strategy; as always we recommend you speak to a financial specialist who can advise according to your current situation.
If you want to know more about investing in property and how our property management services can help you get the best from your asset, get in touch. Simply give us a ring on 02 4956 9777, send us an email to mail@newcastlepropertymanagement.com.au or pop into our Cardiff office for a chat.
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