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This isn’t a complete guide, but these strategies are among the most popular and well-known. It’s also possible to combine some of these strategies (i.e. buy and hold a negatively or positively geared property).
Strategy 1: Negative gearing
For years, negative gearing has by far been one of the most popular property investment strategies in Australia. Negative gearing happens when the costs of owning a rental property exceeds the rent returns you earn. This creates a taxable loss, which can usually be offset against your tax liability from your ordinary income. This strategy can allow you to legitimately claim a tax deduction and use your tax to cover the expenses of holding the property.
Strategy 2: Positive gearing
Positive gearing involves buying a property where the total rent return covers all the costs of holding the property and also returns a surplus cash flow each month. This strategy can potentially allow you to buy multiple investment properties as the surplus cash flow makes you an attractive borrower. It could also boost your borrowing capacity and help offset the costs of any negatively geared properties in your investment portfolio. However, positive gearing can also mean that you end up paying more tax as you are earning more income.
Strategy 3: Flipping
The flipping strategy involves buying a rundown property and renovating it, with a view to selling it for a profit. The aim is to complete the process as quickly as possible and spend as little on the renovation as possible in order to maximise a profit, before moving on to the next 'flip' project. Flipping isn’t for the faint-hearted as it requires buying a suitable property with the right bones, buying it at a competitive price, and reselling it at a profit - and quickly - in order to avoid paying too much interest on your loan repayments over a longer period of time. With the current tradie shortage and high cost of materials, this may not be a viable strategy for most property investors in the current climate.
Strategy 4: Subdivision
The subdivision strategy is more complex and generally only recommended for experienced investors. This strategy involves buying a large block of land with the potential to subdivide into two or more blocks, which are then either sold as two or more separate lots, built on and then sold, or held onto with a view to a long-term strategy. It can be difficult to find a suitable site big enough to subdivide, not to mention dealing with the council.
Strategy 5: Buy and hold established property
This is one of the most tried and tested property investment strategies that most property investors use. This strategy involves buying an established property, preferably in an area that has solid potential for long-term capital growth. It’s important to do your research and look for suburbs that are expected to benefit from strong infrastructure development, have good transport links, schools, shops, and other amenities that tenants would find attractive. The success of this strategy relies on the property growing in value over time, which can’t be guaranteed. This is why it’s wise to buy a detached house, as houses have far more potential for long-term capital growth than apartments. Overall, this is a pretty low-risk, long-term strategy.
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