5 investment property strategies and their impact on investments

5 property investment strategies and how they impact investments

Apr 14, 2023 | by DiJones

Investing in property can be an attractive option for Australians looking to grow their wealth and generate income.

Whether you’re after a short-term profit or a steady income, there are several aspects to consider, not least of which is choosing the right investment strategy.

Popular investment strategies in Australia include buy-and-hold, renovate-and-hold, or flipping properties. You will also need to consider whether to positively or negatively gear your investment.

This article explores all these strategies and how they can impact your investment.

1.Positive gearing: a strategy often used for cash flow

Positive gearing occurs when the rental income generated by the property exceeds the costs associated with owning and managing the property, such as mortgage payments, maintenance expenses, and property management fees.

A positively-geared investment property will give you a regular income and can potentially build your wealth over time.

The main advantage of positive gearing is this regular cash flow, but it can also provide a buffer against unexpected expenses or vacancies, as the property is generating more income than it costs to maintain.

However, there are some potential drawbacks to positive gearing. First, properties that generate positive cash flow may be in high demand, making them more expensive to purchase. Also, a property that generates positive cash flow may not have as much potential for long-term capital gains as a property that generates negative cash flow.

2.Negative gearing: a strategy often used for tax benefits

Negative gearing is an investment strategy where the rental income generated by the property is less than the costs associated with owning and managing the property, resulting in a negative cash flow. In other words, you will be making an initial loss on the property.

The main benefit to negative gearing is that you may be able to offset the losses incurred from negative gearing against your taxable income, effectively reducing your tax bill. Additionally, properties that generate negative cash flow may have more potential for long-term capital gains, as they may be in up-and-coming areas or be ripe for future development.

As with positive gearing, negative gearing has potential drawbacks. First, you must have sufficient funds to cover the costs associated with owning and managing the property, as they won’t be covered by rental income. Negative gearing can also be risky, as it relies on the property increasing in value over time to make up for the initial losses.

3.Buy and hold: a strategy often used for long-term wealth building

Buy-and-hold is a popular property investment strategy in Australia. It involves purchasing a property and holding onto it for the long term, with the goal of generating income from rental payments and building wealth through long-term capital appreciation.

The main advantage of the buy-and-hold strategy is its potential for long-term wealth building. With rental income and capital appreciation over time, the property can become a valuable asset for investors.

However, it’s important to carefully consider the location and type of property, as well as potential costs associated with property management, maintenance, and any other expenses.

4. Renovate and hold: a strategy often used for value creation

Renovate-and-hold is another popular strategy for property investors, who purchase a property that requires renovation, improve it, and then hold onto it for the long term.

The goal of this strategy is to increase the property’s value through savvy renovations and improvements, which can generate higher rental yields and capital growth over time.

Renovate-and-hold is attractive to many investors because it can add significant value to an investment. Plus, creating a unique and desirable property by renovating it can give you a competitive advantage in a crowded market.

If you are considering this strategy, it’s important to carefully weigh the costs and time required for renovations and ensure that the increased value of the property will exceed your initial investment.

5. Flipping properties: a strategy often used for short-term profit

Flipping properties involves purchasing a property, renovating or updating it, and then quickly selling it for a profit.

When executed correctly, flipping properties can provide significant profits relatively quickly, although flipping can also be risky, as you need to accurately assess the market and make profitable renovations in a short period of time.

In Australia’s current market, where demand for updated and modern properties is high, flipping properties can be a lucrative strategy if you have the right skills and resources, but it’s important to carefully assess the costs of renovations and ensure that the potential profits outweigh the initial investment and risks involved.

6.Summing up

Overall, when considering a property investment strategy in Australia, it’s essential to carefully weigh the potential risks and benefits of each approach. Buy-and-hold, renovate-and-hold, and flipping properties each have their own advantages and challenges, and investors should carefully consider their financial goals, resources, and risk tolerance before deciding which strategy to pursue.

The decision to use positive or negative gearing will depend on your individual circumstances and goals. You should always consult a financial advisor or accountant before making any major investment decisions to ensure that you are making informed choices and maximizing your potential returns.

Other buying, selling and investing articles and resources 

Guide to property investment success in NSW

Selling a house or apartment in NSW eBook

Buying a house or apartment in NSW eBook

Property investment in NSW FAQ’s

What is a property cycle and what drives a change? 

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